United States v. Lazarenko ( 2009 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA,  No. 06-10592
Plaintiff-Appellee,
D.C. No.
v.
 CR-0-00284-MJJ
PAVEL IVANOVICH LAZARENKO,
ORDER AND
Pavlo Ivanovych Lazarenko,
OPINION
Defendant-Appellant.

Appeal from the United States District Court
for the Northern District of California
Martin J. Jenkins, District Judge, Presiding
Argued and Submitted
June 9, 2008—San Francisco, California
Filed April 10, 2009
Before: A. Wallace Tashima, M. Margaret McKeown, and
Ronald M. Gould, Circuit Judges.
Opinion by Judge McKeown
4163
4168 UNITED STATES v. LAZARENKO
COUNSEL
Dennis P. Riordan (argued), Donald M. Horgan, Riordan &
Horgan, San Francisco, California; Doron Weinberg, Wein-
berg & Wilder, San Francisco, California, for the defendant-
appellant.
Hartley M. K. West (argued), Assistant United States Attor-
ney; Scott N. Schools, United States Attorney; Barbara J. Val-
liere, Chief, Appellate Section, San Francisco, California, for
the plaintiff-appellee.
ORDER
The petition for panel rehearing is granted in part. The
opinion filed September 26, 2008, and appearing at 546 F.3d
593, is withdrawn and it may not be cited as precedent by or
to this court or any district court of the Ninth Circuit. A new
opinion is filed contemporaneously.
The full court has been advised of the petition for rehearing
and rehearing en banc and no judge has requested a vote on
whether to rehear the matter en banc. Fed. R. App. P. 35.
UNITED STATES v. LAZARENKO 4169
The petition for rehearing en banc is denied. No further
petitions for rehearing or petitions for rehearing en banc will
be entertained.
OPINION
McKEOWN, Circuit Judge:
During his meteoric rise from serving as a local Ukrainian
official to Prime Minister of Ukraine, Pavel Ivanovich
Lazarenko formed multiple business relationships and
engaged in a tangled series of business transactions that netted
him millions of dollars. Lazarenko kept his money in foreign
bank accounts, transferring funds from one account to another
across the globe in an effort, so he was accused, to disguise
and conceal the sources and ownership of the proceeds from
the Ukrainian people. After the money passed through bank
accounts in the United States, from Swiss, off-shore, and
other accounts, the United States charged him in a 53-count
indictment with conspiracy, money laundering, wire fraud,
and interstate transportation of stolen property. Lazarenko
was convicted on fourteen counts and now challenges those
convictions on appeal. We affirm eight of his convictions, but
reverse six others.
I. BACKGROUND
During the 1990s, Lazarenko was a public official in
Ukraine. For several years he served in regional governmental
positions, including as Governor of the Dnepropetrovsk
region of Ukraine. He rose to the level of Ukrainian First Vice
Prime Minister in 1995 and in May 1996, Lazarenko was
appointed Prime Minister. Following a rift in his relationship
with President Leonid Kuchma, he was dismissed from this
position in July 1997. He then became a member of the Ukrai-
nian Parliament and led the opposition Hromada Party.
4170 UNITED STATES v. LAZARENKO
While serving as a government official, Lazarenko became
involved in the affairs of a number of businesses and formed
relationships with prominent businessmen. The United States
alleged that certain of Lazarenko’s business relationships
amounted to extortion and that he defrauded the Ukranian
people by obtaining interests in companies, allocating privi-
leges to cronies, and then failing to disclose his assets and
wealth as required on Ukranian financial disclosure forms.
The government identified five arrangements that formed the
basis for the charges in the indictment.
A. THE UNDERLYING SCHEMES
1. Extortion of Kiritchenko
According to testimony at trial, Lazarenko was extremely
powerful as the governor of the Dnepropetrovsk region of
Ukraine and in his other public roles. He required businesses
to pay him fifty percent of their profits in exchange for his
influence to make the businesses successful. Conversely,
Lazarenko used his influence to disadvantage the businesses
if he was not paid.
In 1990, Peter Kiritchenko, a businessman, formed a com-
pany known as Agrosnabsbyt, which was involved in agricul-
ture and metals. In 1992, Kiritchenko met with Lazarenko
because, according to Kiritchenko, “to do any kind of serious
trade one needed [Lazarenko’s] agreement.” Lazarenko
informed Kiritchenko that he worked with everyone “50-50,”
which Kiritchenko interpreted as meaning that Lazarenko
would control fifty percent of the business and take fifty per-
cent of the profits. Kiritchenko initially transferred $40,000 to
Lazarenko as a gesture of “good faith.” In January 1993,
Kiritchenko transferred a fifty percent interest in Agrosnabs-
byt to Ekaterina Karova, a relative of Lazarenko, and trans-
ferred fifty percent of the profits from the business to
accounts controlled by Lazarenko. Later, Lazarenko and
Kiritchenko partnered to move Lazarenko’s money between
UNITED STATES v. LAZARENKO 4171
accounts and together they purchased the European Federal
Credit Bank (“EuroFed”).
2. Extortion of Dityatkovsky
According to the indictment, Lazarenko established a simi-
lar relationship with Alexei Alexandrovich Dityatkovsky. In
1993, Lazarenko met Dityatkovsky and took a fifty percent
interest in his company, Dneproneft, along with fifty percent
of the profits as well. Lazarenko’s share went to his driver and
to an associate.
3. Naukovy State Farm
While Lazarenko was governor of Dnepropetrovsk, he was
also actively involved in the operations of Naukovy State
Farm (“Naukovy”), a dairy operation that was directed by
Mykola Agafonov.1 Naukovy also had secured the right to
export metal products and raw materials. Naukovy purchased
cattle and farm equipment from a Dutch company, Van der
Ploeg von Terpstra (“Van der Ploeg”). Van der Ploeg kept a
foreign currency account at ABN Amro Bank for its business
with Naukovy (the “ABN Amro account”). Unbeknownst to
Van der Ploeg’s chief accountant, Agafonov was given access
to this account for his own use. Agafonov used the money in
the ABN Amro account to, among other things, purchase a
BMW and pay his credit card bills.
Lazarenko was also actively involved in the operations at
Nikopolsky Metal Works factory (“Nikopolsky”). At his
direction, $2.4 million was transferred from Nikopolsky to
Van der Ploeg’s ABN Amro account supposedly to purchase
wheat on behalf of Naukovy to combat a food crisis that was
plaguing Ukraine at the time.2 The accountant for Naukovy
1
“Naukovy” is the spelling of the name of the company in Ukrainian.
Occasionally the parties or the record refer to it by its Russian name
“Naucnij.”
2
Nikopolsky Metal Works factory is sometimes referred to in the record
and by the parties as “Nikopol” or as “Nikopol Ferroalloy.”
4172 UNITED STATES v. LAZARENKO
and the bookkeeper for Van der Ploeg both testified that they
did not know whether wheat was ever purchased. The records
reflect that $1.2 million was transferred from the ABN Amro
account to Agafonov’s account in Hungary at PostaBank (the
“PostaBank account”). In turn, $1.205 million was transferred
from the PostaBank account to an account known as LIP Han-
del, controlled by Lazarenko in Switzerland. Lazarenko then
transferred the money from this Swiss account to various
banks, including a $1.8 million transfer to an account con-
trolled by Kiritchenko at Bank of America in San Francisco,
California.
4. United Energy Systems of Ukraine
Eventually, Lazarenko became the First Prime Minister of
Ukraine and was responsible for the energy section within the
government. According to the indictment, an associate of
Lazarenko’s, Yulia Tymoshenko, created a natural gas com-
pany, United Energy Systems of Ukraine (“UESU”), which
received deliveries of gas from RAO Gazprom. UESU was
held in large part by United Energy International, Ltd.
(“UEIL”), which was owned by a Turkish national. UESU
conveyed title to the gas to UEIL such that payments from
Ukrainian customers for gas were diverted to UEIL. UEIL did
not pay RAO Gazprom for the gas deliveries with the money
it received from customers. Instead, it transferred approxi-
mately $140 million to a Cypriot company, Somolli, that was
controlled, in part, by Tymoshenko. UEIL and Somolli trans-
ferred $97 million to accounts controlled by Kiritchenko in
Switzerland, Poland, and the United States. Kiritchenko then
transferred $120 million to accounts controlled by Lazarenko
in Switzerland and Antigua. Lazarenko made two transfers of
$14 million each from one of these accounts to accounts in
the United States.
5. PMH/GHP
Lazarenko and Kiritchenko also allegedly controlled a Pan-
amanian company, GHP Corp. (“GHP”). According to the
UNITED STATES v. LAZARENKO 4173
U.S. government, in 1997, Lazarenko, by then Prime Minis-
ter, caused the Ukrainian Cabinet of Ministers to contract with
GHP for the purchase of six pre-fabricated homes. GHP
turned to Pacific Modern Homes (“PMH”) in California and
purchased six pre-fabricated homes for $524,763. The Cabi-
net of Ministers purchased the homes from GHP for
$1,416,000. GHP produced false invoices to customs officials
to make it appear that it had shipped the homes and paid
$1,416,000 for them. Half of the profit realized by GHP was
deposited into an account controlled by Lazarenko.
B. THE CHARGES
Based on Lazarenko’s business activities, the government
brought numerous charges. Count 1 charged Lazarenko with
conspiracy to commit money laundering, in violation of 18
U.S.C. § 1956(h), for conducting financial transactions that
involved the proceeds of extortion, wire fraud, and receipt and
transfer of property that was stolen.
Counts 2 through 5 charged Lazarenko with money laun-
dering, in violation of 18 U.S.C. § 1956(a)(2). The indictment
specifically identified four wire transfers from Kiritchenko’s
ABS Trading account in San Francisco to Lazarenko’s
account in Geneva, Switzerland in 1994 and early 1995.
Counts 6 through 8 charged Lazarenko with money launder-
ing, in violation of 18 U.S.C. § 1956(a)(1)(B). These transac-
tions allegedly occurred in November 1997, August 1998, and
September 1998. All the money laundering counts were based
on the specific unlawful activities of receipt and transfer of
property that was “stolen, unlawfully converted, and taken by
fraud,” in violation of 18 U.S.C. §§ 2314 and 2315; “extortion
as specified in 18 U.S.C. § 1956(c)(7)(B)(ii); and wire fraud
in violation of 18 U.S.C. §§ 1343 and 1346.” Id.Counts 9 through 30 charged Lazarenko with wire fraud in
violation of 18 U.S.C. §§ 1343 and 1346. Specifically,
Lazarenko was charged with honest services fraud against the
4174 UNITED STATES v. LAZARENKO
people of Ukraine for obtaining ownership interests in Agros-
nabsbyt, Dneproneft, and GHP, using his authority and influ-
ence to grant these companies privileges, and receiving
money from these businesses. The indictment identified spe-
cific wire transfers in 1997 and 1998.
Counts 31 through 53 charged Lazarenko with transporta-
tion of stolen property in violation of 18 U.S.C. § 2314. The
indictment identified a wire transfer in 1994 and several oth-
ers in 1997 and 1998.
C. DISMISSAL OF SOME CHARGES
At the close of the government’s case-in-chief, the district
court granted in part Lazarenko’s Rule 29 motion for a judg-
ment of acquittal. The scope of the indictment was massive
and the trial testimony voluminous. The district court care-
fully reviewed the evidence in addressing the Rule 29 motion.
Significantly, the district court dismissed the allegations that
related to Lazarenko’s relationship with UESU. The district
court ruled that the government failed to prove that there was
fraud in Lazarenko’s alleged dealings with UESU, that
Lazarenko’s failure to inform the Ukrainian people that he
was receiving money from UESU was a material omission in
support of the government’s property fraud theory, or that
there was material harm to support the theory that the UESU
dealings constituted honest services fraud. The court also held
that the money laundering charges could not rest on the prop-
erty fraud theory with respect to UESU.
The court further concluded that the evidence did not sup-
port charges arising out of the PMH-GHP fraud because the
government failed to establish the element of material harm.
On the government’s motion, the court dismissed the allega-
tions regarding Dityatkovsky. Altogether, the court dismissed
24 counts: counts 9 through 19 (wire fraud), count 30 (wire
fraud), counts 32 through 42 (interstate transportation of
UNITED STATES v. LAZARENKO 4175
stolen property), and count 53 (interstate transportation of
stolen property).
Following the jury’s verdict of guilty on all of the remain-
ing counts, the district court partially granted Lazarenko’s
renewed Rule 29 motion and dismissed counts 20 through 24
and counts 43 through 52. The court concluded that “[n]o rea-
sonable jury could find that the transfers [in counts 20-23
(wire fraud) and counts 43-46 (interstate transportation of
stolen property)] represented the proceeds of Kiritchenko
extortion or Naukovy fraud.” The court further concluded that
counts 24 and 47, for wire fraud and interstate transportation
of stolen property, respectively, failed because the govern-
ment’s theory that the funds involved in that alleged transfer
had been extorted from Kiritchenko was not supported by the
indictment. Finally, the court dismissed counts 48 through 52,
which charged Lazarenko with interstate transportation of
stolen property, because the court found that there were suffi-
cient clean funds in the accounts at issue to cover the trans-
fers.
Lazarenko now challenges his remaining convictions on
counts 1 through 8, 25 through 29, and 31.
II. ANALYSIS
A. SUFFICIENCY OF THE INDICTMENT
Lazarenko argues that the indictment must be dismissed
because it failed to allege that his conduct violated Ukrainian
law. We review the sufficiency of an indictment de novo.
United States v. Berger, 473 F.3d 1080, 1097 (9th Cir. 2007).
An indictment is sufficient if it (1) “contains the elements of
the offense charged and fairly informs a defendant of the
charge against which he must defend” and (2) “enables him
to plead an acquittal or conviction in bar of future prosecu-
tions for the same offense.” Hamling v. United States, 418
U.S. 87, 117 (1974). “[A]n indictment ‘should be read in its
4176 UNITED STATES v. LAZARENKO
entirety, construed according to common sense, and inter-
preted to include facts which are necessarily implied.’ ” Ber-
ger, 473 F.3d at 1103 (quoting United States v. King, 200
F.3d 1207, 1217 (9th Cir. 1999)). “Unless the defendant was
misled and thereby prejudiced, neither an error in a citation
nor a citation’s omission is a ground to dismiss the indictment
or information or to reverse a conviction.” Fed. R. Crim. P.
7(c)(3).
[1] The indictment tracks the statutory language in charging
money laundering, wire fraud and interstate transportation of
stolen property. We have previously held that those statutes
set forth the essential elements of these offenses. See United
States v. Savage, 67 F.3d 1435, 1441 (9th Cir. 1995) (money
laundering); United States v. Ladum, 141 F.3d 1328, 1341
(9th Cir. 1998) (money laundering); United States v. Bonallo,
858 F.2d 1427, 1433 (9th Cir. 1988) (wire fraud); United
States v. Rosi, 27 F.3d 409, 414-15 (9th Cir. 1994) (interstate
transportation of stolen property). Lazarenko seeks to import
an additional element into these offenses, claiming that the
Ukrainian law at issue is also an essential element because the
government must prove a violation of Ukrainian law to sus-
tain a conviction.
[2] Nothing in our case law supports requiring the govern-
ment to plead a specific violation of foreign law in an indict-
ment. Indeed, Lazarenko’s challenge does not achieve novelty
status simply because it involves foreign law. To analyze his
claim, we look for guidance to our general precedent on
indictments. For example, when bringing charges of money
laundering, the government need not allege all the elements
of the “specified unlawful activity,” i.e., the underlying
offense. See United States v. Lomow, 266 F.3d 1013, 1017
(9th Cir. 2001); United States v. Golb, 69 F.3d 1417, 1429
(9th Cir. 1995). Here, the violation of Ukrainian law is the
specified unlawful activity.
[3] Nor can it be said that the omission of a citation to for-
eign law in the charges of wire fraud and interstate transporta-
UNITED STATES v. LAZARENKO 4177
tion of stolen property misled or prejudiced Lazarenko. See
Fed. R. Crim. P. 7(c)(3). The indictment provided detailed
allegations regarding the basis for the charges, including
dates, amounts, account numbers, and sources of the money.
Cf. Berger, 473 F.3d at 1101. Significantly, the jury was
instructed that it had to find a violation of Ukranian law and
was provided with the elements of the relevant Ukranian stat-
utes.
[4] Relying on Richardson v. United States, 526 U.S. 813(1999), Lazarenko contends that there is a long list of predi-
cate offenses to the money laundering statute and without a
finding regarding the specific predicate offense, there is a risk
of disagreement among the jurors as to what the defendant
did. This argument falters, though, because not only did the
Supreme Court not comment on the sufficiency of an indict-
ment in Richardson, here the indictment identified interstate
transportation of stolen property, extortion, and wire fraud as
the “specified unlawful activit[ies]” and provided detailed
allegations regarding each of these offenses. There was little
room for jurors to disagree on the underlying offenses. The
indictment against Lazarenko was legally sufficient.
B. WIRE FRAUD CHARGES—COUNTS 25 THROUGH 29
Lazarenko claims that the government constructively
amended the indictment following the court’s dismissal of the
UESU allegations by changing its theory to argue that the
wire transfers charged as wire fraud in counts 25 and 26 of the
indictment were in furtherance of the Naukovy fraud. He also
challenges the sufficiency of the evidence on counts 25
through 29.
We review de novo whether there has been a constructive
amendment to an indictment. United States v. Pang, 362 F.3d
1187, 1193 (9th Cir. 2004). “A constructive amendment
occurs when the defendant is charged with one crime but, in
effect, is tried for another crime.” Pang, 362 F.3d at 1193.
4178 UNITED STATES v. LAZARENKO
[5] The indictment charged generally that the accounts
involved in the transfers alleged as wire fraud in counts 25 to
26 received proceeds from both fraud and extortion. However,
under the heading “The UESU Fraud,” the government
alleged more specifically that
Between February of 1996 and September of 1997,
the money from Somolli, along with other funds,
totaling more than $120,000,000 was transferred
from Kiritchenko’s accounts into accounts controlled
by Lazarenko in Switzerland and Antigua. Thereaf-
ter, Lazarenko transferred portions of these funds
from Switzerland into bank accounts in the Northern
District of California, including two transfers of
$14,000,000 each on August 1, 1997.
Count 25 and count 26 both allege a transfer of $14 million
into a bank account in the Northern District of California on
August 1, 1997. The plainest reading of these allegations is
that the transfers in counts 25 and 26 are the same two trans-
fers alleged under the heading “The UESU Fraud.” When the
district court dismissed the UESU allegations after the close
of the government’s case-in-chief, counts 25 and 26 should
have been dismissed as well.
The government asserted in its brief that the $14 million
transfers were not necessarily funds derived from the UESU
scheme because the indictment alleged that money from
Somolli, “along with other funds,” was deposited into
Lazarenko’s Swiss bank account. We decline to read this
catch-all phrase as turning the two $14 million transfers into
proceeds from the Naukovy fraud. The paragraph in which
these allegations are found begins, “Lazarenko . . . received
and transferred money that had been stolen, converted and
taken by fraud in connection with the distribution of natural
gas in Ukraine as follows.” Each allegation following relates
directly to the UESU scheme, including allegations about the
parties involved and payments between UEIL, Somolli, and
UNITED STATES v. LAZARENKO 4179
UESU. It simply makes no sense to read this paragraph as
concluding with Lazarenko transferring money from a com-
pletely different scheme. The details of the transfers in this
paragraph and in counts 25 and 26 are identical and the only
logical conclusion that can be drawn is that those counts are
premised on the UESU scheme.
At oral argument, the government claimed that an allega-
tion in a later paragraph, paragraph 35, supported its argument
that the transfers of $14 million in counts 25 and 26 were part
of the Naukovy fraud. This paragraph, though, does not
advance the government’s position. The portion of the para-
graph to which the government points merely alleges that
“[b]etween 1993 and 1994, Lazarenko received at least
$14,000,000 from Naukovy State Farm.” This allegation nei-
ther speaks to whether two transfers of $14 million were made
in August 1997, nor does anything there cause us to read the
allegations under “The UESU Fraud” any differently.
Even with the government’s shift in theory, the government
failed to provide sufficient evidence to support Lazarenko’s
wire fraud convictions on counts 25 and 26, as well as on
counts 27, 28, and 29. We evaluate a challenge to the suffi-
ciency of the evidence by viewing the evidence in the light
most favorable to the prosecution. Jackson v. Virginia, 443
U.S. 307, 324 (1979). Evidence is sufficient to support a con-
viction if, viewed in this light, a rational trier of fact could
have found the essential elements of the crime beyond a rea-
sonable doubt. Id.We first address a threshold question, namely whether the
government must trace the wire transfer proceeds back to
some unlawful activity. Lazarenko puts it this way: whether
“a wire transfer not proven to contain proceeds of theft or
fraud for the purpose of a transporting stolen property offense
[can] be found, on the same evidence, to contain such illegal
proceeds.” This argument piggy-backs on the government’s
4180 UNITED STATES v. LAZARENKO
burden in the context of interstate transportation of stolen
property.
To sustain a conviction for interstate transportation of
stolen property, the government must prove that the money
transported was stolen, converted, taken by fraud, or derived
from such property. See United States v. Morgan, 805 F.2d
1372, 1377-78 (9th Cir. 1986). The property must be “directly
traceable” to the fraud or theft. Id. at 1378. By contrast, in a
money laundering charge, the commingling of tainted money
with clean money taints the entire account. See United States
v. English, 92 F.3d 909, 916 (9th Cir. 1996). The money
transferred from a commingled account does not need to be
traceable to fraud, theft, or any wrongdoing at all. It is enough
that the money, even if innocently obtained, was commingled
in an account with money that was obtained illegally. See id.[6] Wire fraud does not necessarily rest on the characteriza-
tion of the funds. It is well-established that the wire used in
the wire fraud scheme need only have been “in furtherance”
of the scheme. Schreiber Distrib. Co. v. Serv-Well Furniture
Co., Inc., 806 F.2d 1393, 1399-1400 (9th Cir. 1986); see, e.g.,
United States v. Johnson, 297 F.3d 845, 871 (9th Cir. 2002)
(upholding a wire fraud conviction where the wire involved
was a telephone call). In a case such as this, where the wire
at issue is a wire transfer of funds that are connected to an
unlawful activity, the “in furtherance” inquiry may be met
without a strict tracing of the wired funds. We decline to nar-
row the “in furtherance” focus by requiring the funds to be
traced back to a particular unlawful activity.3
3
Thus, we are not persuaded by Lazarenko’s argument that there was
instructional error with respect to the wire fraud counts. The district court
correctly instructed the jury that it needed to determine whether the wire
was “an important part of the scheme,” defining “important” as “incident
to an essential part of the scheme.” The court was not required to instruct
the jury on how to determine whether the accounts contained the proceeds
from a fraud.
UNITED STATES v. LAZARENKO 4181
[7] We turn, then, to the question whether the wire transfers
alleged in counts 25 to 29 were “in furtherance” of the
Naukovy fraud. To support a wire fraud charge, the wire must
be “incident to the execution of the scheme” and not “part of
an after-the-fact transaction that, although foreseeable, was
not in furtherance of the defendant’s fraudulent scheme.”
United States v. Lo, 231 F.3d 471, 478 (9th Cir. 2000)
(explaining the principle in the context of mail fraud);4 United
States v. Manarite, 44 F.3d 1407, 1413 (9th Cir. 1995) (find-
ing that mailings and phone calls made after a “one-shot”
credit scam was completed were not in furtherance of an
ongoing scheme). The importance of the temporal aspect of
the wire transfer to the underlying scheme is best illustrated
in our case law: “[T]he pertinent question is not whether or
not the defendant ‘had obtained all the money [she] expected
to get’ before the [wire] occurred. Rather, . . . the [wire] can
occur after the defendant has obtained her fee, if ‘the [wire]
is part of the execution of the scheme as conceived by the per-
petrator at the time.’ ” Lo, 231 F.3d at 478 (quoting United
States v. Sampson, 371 U.S. 75, 79 (1962); Schmuck v. United
States, 489 U.S. 705, 715 (1989)).
The wire transfers at issue occurred in 1997 and 1998,
approximately three or four years after the money was wired
into the account. Counts 25 and 26 are transfers of $14 mil-
lion from Lazarenko’s CARPO-53 account in Switzerland to
Kiritchenko’s EuroFed accounts at Pacific Bank in California
and at Commercial Bank of San Francisco. Count 27 is a
transfer of $24 million from Lazarenko’s EuroFed account in
Switzerland to a EuroFed account at Hambrecht & Quist in
California. Counts 28 and 29 are transfers of $9 million and
$5.3 million from Lazarenko’s Lady Lake account in the
Bahamas to Kiritchenko’s account at Commercial Bank of
4
“It is well settled that cases construing the mail fraud and wire fraud
statutes are applicable to either.” United States v. Shipsey, 363 F.3d 962,
971 n.10 (9th Cir. 2004).
4182 UNITED STATES v. LAZARENKO
San Francisco and to an account controlled by Lazarenko at
WestAmerica Bank in California.
The government’s theory was that these transfers were
meant to hide Lazarenko’s fraudulent activity as he sought
political office. Kiritchenko testified at trial that Lazarenko
closed his CARPO-53 bank account in Switzerland in 1997,
after Lazarenko was dismissed as Prime Minister. This
account contained close to $200 million. He explained that
Lazarenko made the transfers that are alleged in counts 25 to
29 of the indictment because he was under investigation in
Ukraine and did not want his assets frozen.
[8] Under the facts of this case, we conclude no rational
trier of fact could find that these transfers in 1997 and 1998
were “in furtherance” of the Naukovy fraud, which centered
on allegedly shady agricultural and personal purchases. The
fraudulent activity was completed, and the money concealed,
in 1994, when the money reached Lazarenko’s control and he
deposited it into coded bank accounts where it remained for
three years. Subsequent transfers were not part of the scheme
as it was originally conceived. Cf. Lo, 231 F.3d at 478. Noth-
ing in the evidence supports an inference, let alone a convic-
tion, on the grounds that the transfers were simply a delayed
link in the fraudulent chain.
If the government’s theory were correct, then it would be
possible for an ordinary fraud to be converted into wire fraud
simply by the perpetrator picking up the telephone three years
later and asking a friend if he can store some fraudulently-
obtained property in his garage before the police execute a
search warrant or later taking the proceeds of fraud and trans-
ferring them to another bank. The government’s theory
extends an already broad statute too far. Concealing the
source and ownership of fraudulently-obtained property in
downstream transactions is better understood as money laun-
dering absent evidence that the wire transfer is “incident to an
essential part of the scheme.” Lo, 231 F.3d at 478 (quoting
UNITED STATES v. LAZARENKO 4183
Pereira v. United States, 347 U.S. 1, 8 (1954)) (emphasis
omitted).
[9] We reverse Lazarenko’s convictions on counts 25
through 29.
C. MONEY LAUNDERING—COUNTS 6 THROUGH 8
[10] Our reversal of Lazarenko’s convictions on counts 25
to 29 does not, as Lazarenko urges, require us to reverse his
convictions on counts 6, 7, and 8 for money laundering.
Count 6 alleged that in November 1997 Lazarenko laundered
$6 million from a EuroFed account at Commercial Bank in
San Francisco to another EuroFed account. Just three months
earlier, in August 1997, the Commercial Bank account had
received the $14 million transfer that was charged as wire
fraud in count 26. Count 7 alleged that Lazarenko laundered
$6.745 million by drawing a check on the account of one of
his companies, Dugsbery, Inc., and using it to purchase a
home in Marin County, California, in 1998. Count 8 charges
Lazarenko with an unlawful transfer of $2.3 million from one
Dugsbery account at WestAmerica Bank to another at Bank
Boston Robertson Stevens, also in 1998. The money in the
Dugsbery account can be traced to Lazarenko’s Lady Lake
bank account in the Bahamas; the transfer of money from
Lady Lake to the Dugsbery account was charged as wire fraud
in count 29.
The funds in the San Francisco EuroFed account and in the
Dugsbery WestAmerica account can be traced back to
Lazarenko’s large CARPO-53 account, where he deposited
proceeds from his Naukovy fraud and from his extortion of
Kiritchenko. The government contends that even if
Lazarenko’s wire fraud convictions are reversed, the money
laundering charges in counts 6, 7, and 8 still rest on
Lazarenko’s laundering of funds extorted from Kiritchenko.
[11] The government was somewhat inconsistent in how it
portrayed these counts to the jury. During its closing argu-
4184 UNITED STATES v. LAZARENKO
ment, when summing up counts 6, 7, and 8, the government
at times referred only to the fraud allegations, making no
mention of extortion proceeds. Nonetheless, argument is not
evidence, and the evidence shows that proceeds from extor-
tion ended up in the EuroFed accounts and in the Dugsbery
account. At trial, the government showed that Lazarenko
laundered proceeds from the extortion. Recognizing that we
consider these facts in the light most favorable to the govern-
ment, Jackson, 443 U.S. at 324, we affirm the convictions on
counts 6, 7, and 8.
D. MONEY LAUNDERING—COUNTS 2 THROUGH 5
We affirm Lazarenko’s money laundering convictions on
counts 2 through 5. The statute clearly lists “extortion” as a
foreign offense that may be a predicate offense for money
laundering. 18 U.S.C. § 1956(c)(7)(B)(ii). Lazarenko asserts
that “extortion” as it was used in the money laundering stat-
ute, 18 U.S.C. § 1956, at the time of his conduct, is limited
to extortion through violence and the extortion he is charged
with is more akin to bribery. We review de novo “[t]he dis-
trict court’s interpretation of the money laundering statute . . .
and the scope of the conduct covered by the statute.” United
States v. Deeb, 175 F.3d 1163, 1166-67 (9th Cir. 1999).
[12] Generally speaking, § 1956 criminalizes the launder-
ing of the proceeds of a “specified unlawful activity.” 18
U.S.C. § 1956. During the period alleged in the indictment
against Lazarenko, 1992-1998, “specified unlawful activity”
was defined to include:
(A) any act or activity constituting an offense listed
in section 1961(1) of this title except an act which is
indictable under subchapter II of chapter 53 of title
31;
(B) with respect to a financial transaction occurring
in whole or in part in the United States, an offense
against a foreign nation involving
UNITED STATES v. LAZARENKO 4185
(i) the manufacture, importation, sale, or distribution
of a controlled substance (as such term is defined for
the purposes of the Controlled Substances Act)
....
(ii) kidnapping, robbery, or extortion; or5
(iii) fraud, or any scheme or attempt to defraud, by
or against a foreign bank (as defined in paragraph 7
of section 1(b) of the International Banking Act of
1978).
18 U.S.C. § 1956(c)(7) (1992). In 2001, Congress amended
this section to include “bribery of a public official, or the mis-
appropriation, theft, or embezzlement of public funds by or
for the benefit of a public official” as a “specified unlawful
activity.” 18 U.S.C. § 1956(c)(7)(B)(iv).
Extortion, as it is criminalized under the Hobbs Act, 18
U.S.C. § 1951, can be committed through the threat of vio-
lence or under color of official right. See Evans v. United
States, 504 U.S. 255, 261-62 (1992). Lazarenko urges that
“extortion” as it is used in § 1956 does not include non-
violent foreign extortion. He claims that such conduct is
equivalent to foreign bribery and public corruption and that
these offenses were beyond the reach of federal law until the
Patriot Act of 2001.6
[13] “It is a familiar ‘maxim that a statutory term is gener-
ally presumed to have its common law meaning.’ ” Evans,
504 U.S. at 259 (quoting Taylor v. United States, 495 U.S.
5In 1996, Congress amended this clause to add “or destruction of prop-
erty by means of explosive or fire.” See 18 U.S.C. § 1956(c)(7)(B)(ii).
6
The Foreign Corrupt Practices Act punished those who offered bribes
to foreign officials, but did not reach the foreign officials who received the
bribes. 15 U.S.C. §§ 78dd-1, 78dd-2; United States v. Castle, 925 F.2d
831, 833-34 (5th Cir. 1991).
4186 UNITED STATES v. LAZARENKO
575, 592 (1990)). At common law, extortion was a crime that
resembled what we know as bribery, and involved an abuse
of power by a public official. Id. at 260. Federal statutes have
expanded that definition to include the obtaining of property
by force. Id. at 261.
[14] We presume that Congress was aware of the common
law meaning of extortion when it enacted § 1956. As the
Supreme Court has explained,
[W]here Congress borrows terms of art in which are
accumulated the legal tradition and meaning of cen-
turies of practice, it presumably knows and adopts
the cluster of ideas that were attached to each bor-
rowed word in the body of learning from which it
was taken and the meaning its use will convey to the
judicial mind unless otherwise instructed. In such
case, absence of contrary direction may be taken as
satisfaction with widely accepted definitions, not as
a departure from them.
Evans, 504 U.S. at 259-60 (quoting Morissette v. United
States, 342 U.S. 246, 263 (1952)). Significantly, Congress did
not qualify the term in any way that suggests that we should
read “extortion” as excluding the common law definition. The
fact that “extortion” is listed with “kidnapping” and “robbery”
does not compel us to give the term a narrower meaning or
one predicated on force or violence.
The 2001 amendment to § 1956 does not become superflu-
ous if we read “extortion” to include extortion under color of
official right. Bribery and extortion under color of official
right are not co-extensive. “Bribery of a public official”
extends to the individual who offers the bribe as well as to the
public official who accepts the bribe.7 “Misappropriation,
7
The federal bribery statute punishes both one who “corruptly gives,
offers or promises anything of value to any public official” and public
officials who “corruptly demand[ ], seek[ ], receive[ ], accept[ ] or agree[ ]
to receive or accept anything of value.” 18 U.S.C. §§ 201(b)(1), (2).
UNITED STATES v. LAZARENKO 4187
theft, or embezzlement of public funds by or for the benefit
of a public official” will also capture conduct not punishable
as “extortion under color of official right” because misappro-
priation, theft, and embezzlement do not necessarily require
the quid pro quo of an official action. See Evans, 504 U.S. at
258-59.
The Supreme Court’s recent decision in United States v.
Santos, 128 S.Ct. 2020 (2008), does not change our analysis
of the statute. In Santos, the Supreme Court examined the
word “proceeds” as it was used in § 1956. See id. at 2023-26.
The Court concluded that the term, left undefined in the stat-
ute, was ambiguous as to whether it meant “profits” or “re-
ceipts,” and so defined it in the more defendant-friendly terms
of “profits,” based on the rule of lenity. Id. at 2025.
Critical to the issue here, the Court began its analysis by
reaffirming the principle that “[w]hen a term is undefined, we
give it its ordinary meaning.” Id. at 2024. This principle both
starts and ends our analysis. The term “extortion” has an ordi-
nary meaning and it is not ambiguous. Unlike the word “pro-
ceeds,” “extortion” has a common law meaning and federal
statutes use the term to mean both extortion by violence and
extortion under color of official right. See, e.g., Evans, 504
U.S. at 261; James v. United States, 127 S.Ct. 1586, 1604-05
(2007) (Scalia, J. dissenting) (citing the Travel Act, 18 U.S.C.
§ 1952, the Hobbs Act, 18 U.S.C. § 1951, RICO, 18 U.S.C.
§ 1961, and the Model Penal Code § 223.4 as examples of
statutes with a broad interpretation of “extortion”).
Lazarenko has not directed us to any statute where Con-
gress used the word “extortion” and meant only extortion by
violence or only extortion under color of official right. Cf.
Santos, 128 S.Ct. at 2024 (observing that Congress “some-
times has defined [proceeds] to mean ‘receipts’ and some-
times ‘profits.’ ”). The ambiguity that the Court wrestled with
in Santos is simply absent with respect to “extortion.”
4188 UNITED STATES v. LAZARENKO
E. INTERSTATE TRANSPORTATION OF STOLEN PROPERTY—
COUNT 31
Lazarenko also challenges the sufficiency of the evidence
for his conviction on count 31 for interstate transportation of
stolen property. Count 31 alleges a transfer of $1.8 million
from Lazarenko’s LIP Handel account in Switzerland to
Kiritchenko’s ABS Trading account at Bank of America in
California. As noted earlier, this charge requires a tracing of
the fraud proceeds, not simply a commingled account. What
is totally missing here is evidence from the key account at the
Hungarian PostaBank, from which the money was transferred
into the LIP Handel account.
According to the testimony of the former director of
Nikopolsky, Boris Velychko, in 1992, Lazarenko’s deputy
negotiated for Nikopolsky to loan $2.4 million to a Dutch
company, Van der Ploeg, on behalf of Naukovy to purchase
wheat. The $2.4 million was transferred to Van der Ploeg’s
account at ABN Amro Bank in the Netherlands in December
1992. The loan to Naukovy was repaid in local currency,
which, according to Velychko, was devalued in 1993. On Jan-
uary 19, 1993, $1.2 million was transferred from the ABN
Amro account to Agafonov’s account at PostaBank in Hun-
gary. In June 1993, $1.205 million was transferred from the
PostaBank account to Lazarenko’s LIP Handel account in
Switzerland. In July 1994, $1.8 million was transferred from
the LIP Handel account to Kiritchenko’s ABS Trading
account at Bank of America in San Francisco. It is this final
transfer that is charged as the interstate transportation of
stolen property in count 31.
[15] Anyone who “transports, transmits, or transfers in
interstate or foreign commerce any goods, wares, merchan-
dise, securities or money, of the value of $5,000 or more,
knowing the same to have been stolen, converted or taken by
fraud” is guilty of interstate transportation of stolen property.
18 U.S.C. § 2314. We will uphold the conviction if, viewing
UNITED STATES v. LAZARENKO 4189
the evidence in the light most favorable to the government,
there is sufficient evidence for a rational juror to find guilt
beyond a reasonable doubt. Jackson, 443 U.S. at 324.
[16] The ledger from Van der Ploeg’s account at ABN
Amro shows a transfer of $1.2 million to an account at Posta-
Bank, and the ledger for Lazarenko’s LIP Handel at Union
Bank of Switzerland shows a receipt of $1.205 million from
PostaBank, but the glaring gap is that there are no records
from PostaBank at all. The government was unable to produce
any documents from PostaBank itself. Lazarenko asserts that
this gap is fatal to the government’s charge of interstate trans-
portation of stolen property because without those records it
is impossible to know whether the $1.205 million that was
transferred to LIP Handel was the proceeds of fraud or
derived from the proceeds of fraud. We agree.
The district court instructed the jury that to find Lazarenko
guilty of interstate transportation of stolen property, the funds
that were transferred must be the proceeds of fraud or derived
from the proceeds of fraud. This rule has its roots in United
States v. Poole, 557 F.2d 531 (5th Cir. 1977). There, the
defendant, Poole, deposited a check that contained
fraudulently-obtained funds into his bank account and then,
on the same day, wrote a check on that account for an amount
identical to the amount that had been deposited. Id. at 533-34.
He deposited that check into an out-of-state bank. Id. The
Fifth Circuit reversed the conviction because the bank account
into which Poole deposited the fraudulently-obtained funds
had sufficient clean funds to cover the amount of the check
that was transported across state lines. Id.The government relies on the Seventh Circuit’s ruling in
United States v. Quintanilla, 2 F.3d 1469 (7th Cir. 1993), to
argue that it does not matter whether there were sufficient
clean funds in the PostaBank account to cover the transfer of
$1.205 million to the LIP Handel account. In Quintanilla, the
defendants were found guilty of defrauding the G. Heileman
4190 UNITED STATES v. LAZARENKO
Brewing Company’s corporate sponsorship program and con-
victed of, among other charges, interstate transportation of
stolen property. Id. at 1471. Defendant Monreal, the director
of the program, devised a scheme to receive kickbacks from
organizations who received sponsorship awards. Id. The
money passed from Heileman to the organization and the
organization would, in turn, pass a portion to Monreal. Id.Quintanilla was the director of one of the organizations, Oper-
ation Search, that had kicked money back to Monreal. Id.Quintanilla argued on appeal that Operation Search had suffi-
cient clean funds in its account each time a kickback check
was drawn and transported to Monreal. Id. at 1478. The Sev-
enth Circuit rejected this argument. It explained that,
[t]he evidence at trial showed, and Quintanilla does
not dispute, that he agreed to pay Monreal a portion
of every Heileman grant that Operation Search
received. Accordingly, the ultimate source of the
funds used to pay Monreal was Heileman. The evi-
dence also showed that Quintanilla followed Mon-
real’s directions concerning exactly how the
kickbacks were to be made; there is no suggestion
that these directions were not followed to the last
detail. Given the nexus between the Heileman grants
and the kickbacks made to Monreal, we do no[t]
think § 2314 liability hinges in this case on whether
or not Operation Search had sufficient clean funds in
its bank account each time a kickback check was
drawn and transported across state lines to Monreal.
Id. at 1478-79 (footnote omitted). The court looked at the pur-
pose behind § 2314, and noted specifically that the statute was
meant to prevent those who were attempting to “ ‘utilize the
channels of interstate commerce make a successful get
away.’ ” Id. at 1479 (quoting United States v. Sheridan, 329
U.S. 379, 384 (1946)). It concluded that “[l]ooking to the sub-
stance of Quintanilla’s conduct, it is apparent that the checks
he caused to be transported in interstate commerce repre-
UNITED STATES v. LAZARENKO 4191
sented, and were directly derived from, fraudulently obtained
Heileman funds.” Id.Quintanilla does not save the government in this case
because the evidence of the nexus between the grants and the
kickbacks in that case was sufficient. Here, the chain of
alleged kickbacks from the wheat deal is missing a few links.
More significantly, though, the jury here was instructed in
accordance with Poole and the government did not object to
the premises underlying that decision.
In any event, even if we infer that Lazarenko was con-
nected to the wheat deal because it was negotiated by his dep-
uty and he received a payment that represented approximately
fifty percent of the proceeds, PostaBank records are still
required for there to be sufficient evidence that Lazarenko’s
subsequent transfer of $1.8 million to Kiritchenko constituted
interstate transportation of stolen property. The government’s
argument that the transfer of $1.205 million to Lazarenko’s
LIP Handel account was the proceeds of fraud because the
fraud was not complete until the money reached Lazarenko
does not persuade us that the PostaBank records are unneces-
sary.
For the $1.8 million transferred from Lazarenko’s LIP Han-
del account to Kiritchenko’s ABS Trading account to be
fraudulently-obtained property, it must have contained at least
$5,000 of the $2.4 million transferred to Van der Ploeg in the
phony wheat deal. We cannot look only at whether the $1.8
million contained at least $5,000 of the $1.205 million trans-
ferred into Lazarenko’s LIP Handel account as the govern-
ment urges because the evidence viewed in the light most
favorable to the government shows only that the $1.205 mil-
lion payment was an extortion payment, i.e., fifty percent of
the proceeds from the phony wheat transaction.8 The fraud
8
Kiritchenko testified that Lazarenko worked with everyone 50-50. We
give the government the benefit of the inference that Lazarenko worked
with Agafonov 50-50 as well.
4192 UNITED STATES v. LAZARENKO
was Lazarenko’s deputy arranging for Nikopol to give Van
der Ploeg $2.4 million to buy wheat that was never purchased.
That fraud was completed when the money was transferred to
Van der Ploeg.
[17] The record supports an inference that Lazarenko
extorted $1.205 million from Agafonov, because Lazarenko
always extorted half of the profits from businesses. But mak-
ing an extortion payment and completing a fraud are entirely
different propositions. The $1.205 million extortion payment
also may have been money derived from the phony wheat
deal. Without the records from PostaBank, which would show
whether there were clean funds in the account from which
Agafonov could make the required payment to Lazarenko,
this inference is speculation. In short, the evidence reflects
money into the Hungarian account and money out of the
account, but missing is evidence about the account itself and
whether the transferred money was “directly traceable” to the
fraud itself. See Morgan, 805 F.2d at 1378. Accordingly, we
reverse Lazarenko’s conviction on count 31.9
F. RETROACTIVE MISJOINDER
Lazarenko also appeals the denial of his Rule 33 motion for
a new trial. He argues that the government indicted him on the
UESU charges, knowing that the charges could not be proven,
and then, after the directed verdict of acquittal, used the evi-
dence from the alleged UESU scheme against him in its clos-
ing argument, in violation of the doctrine of retroactive
misjoinder.10 He asserts that he was denied the opportunity to
respond in his own closing argument to the government’s
misleading statements.
9
Because we reverse Lazarenko’s conviction on this count, we do not
need to reach his argument that the government’s closing argument was
misleading.
10
This doctrine is closely related to prejudicial spillover. The concepts
and terms are often used interchangeably. See United States v. Vebeliunas,
76 F.3d 1283, 1293-94 (2d Cir. 1996).
UNITED STATES v. LAZARENKO 4193
We review for an abuse of discretion the district court’s
denial of a motion for a new trial made on the grounds of
retroactive misjoinder. United States v. Aldrich, 169 F.3d 526,
528 (8th Cir. 1999). Although we consider de novo whether
a defendant has been deprived of his constitutional right to
present closing argument, see United States v. Igbinosun, 528
F.3d 387, 391 (5th Cir. 2008), a district court’s limitation on
a closing argument is reviewed for an abuse of discretion.
United States v. Spillone, 879 F.2d 514, 518 (9th Cir. 1989).
[18] The Federal Rules of Criminal Procedure allow for
several offenses and several defendants to be joined in a sin-
gle indictment. If, however, some of the offenses or defen-
dants are dismissed mid-trial, in some cases the trial court
must sever the proceedings in order to protect the defendant
from prejudice. See Schaffer v. United States, 362 U.S. 511,
514 (1960).
[19] As the Second Circuit explained in Vebeliunas,
“ ‘Retroactive misjoinder’ arises where joinder of
multiple counts was proper initially, but later
developments—such as a district court’s dismissal of
some counts for lack of evidence or an appellate
court’s reversal of less than all convictions—render
the initial joinder improper. In this Circuit, ‘[t]o
invoke retroactive misjoinder,’ a defendant ‘must
show compelling prejudice.’ Prejudicial spillover
from evidence used to obtain a conviction subse-
quently reversed on appeal may constitute compel-
ling prejudice.”
Vebeliunas, 76 F.3d at 1293-94 (internal citations omitted)
(quoting United States v. Jones, 16 F.3d 487, 493 (2d Cir.
1994)). The First Circuit has set a high bar for proving preju-
dicial spillover: “[A] claim of prejudicial spillover cannot suc-
ceed unless ‘a defendant . . . prove[s] prejudice so pervasive
that a miscarriage of justice looms.’ ” United States v. Trai-
4194 UNITED STATES v. LAZARENKO
nor, 477 F.3d 24, 36 (1st Cir. 2007) (quoting United States v.
Levy-Cordero, 67 F.3d 1002, 1008 (1st Cir. 1995)).
We have examined the issue of prejudicial spillover in the
context of a defendant’s motion to sever his trial from a co-
defendant. In United States v. Cuozzo, 962 F.2d 945 (9th Cir.
1992), we stated that, “[i]n assessing the prejudice to a defen-
dant from the ‘spillover’ of incriminating evidence, the pri-
mary consideration is whether ‘the jury can reasonably be
expected to compartmentalize the evidence as it relates to sep-
arate defendants, in view of its volume and the limited admis-
sibility of some of the evidence.’ ” Id. at 950 (quoting United
States v. Escalante, 637 F.2d 1197, 1201 (9th Cir. 1980)). The
trial court’s instructions to the jury are a “critical factor” in
this assessment. Cuozzo, 962 F.2d at 950. Also, “[t]he fact
that the jury rendered selective verdicts is highly indicative of
its ability to compartmentalize the evidence.” Id.[20] At the outset, we reject the government’s contention
that we have limited the doctrine of retroactive misjoinder
only to cases where there is more than one defendant. The
government reads United States v. Anguiano, 873 F.2d 1314(9th Cir. 1989), too broadly. In Anguiano, we held that the
trial court did not err in refusing to give a multiple conspira-
cies instruction where there was a single defendant. Id. at
1318. We stated that,
[a] multiple conspiracies instruction is generally
required where the indictment charges several defen-
dants with one overall conspiracy, but the proof at
trial indicates that a jury could reasonably conclude
that some of the defendants were only involved in
separate conspiracies unrelated to the overall con-
spiracy charged in the indictment. The instruction is
required because, in such a situation, there is a possi-
bility of prejudicial variance between the indictment
and the trial proof. The variance may be prejudicial
in a number of ways, but the problem that is of con-
UNITED STATES v. LAZARENKO 4195
cern here is the possibility of transference or “spil-
lover” of guilt. In this type of situation, one of the
defendants argues that he or she was only involved,
if at all, in a minor conspiracy that is unrelated to the
overall conspiracy charged in the indictment, and
that a multiple conspiracies instruction is required in
order to ensure that there is no “spillover” of guilt
from one defendant to another. However, there is no
problem of spillover when, as in this case, the defen-
dant stands trial alone. Accordingly, Anguiano was
not entitled to a multiple conspiracies instruction on
this basis.
Id. at 1317-18 (internal citations and footnotes omitted). We
did not hold broadly that the doctrine of prejudicial spillover
is inapplicable where there is only one defendant.
[21] The government’s citation to the Seventh Circuit’s
decision in United States v. Holzer, 840 F.2d 1343 (7th Cir.
1988), as limiting the applicability of the doctrine of prejudi-
cial spillover or retroactive misjoinder, also misses the mark.
The Seventh Circuit stated that “[n]o rule of evidence is vio-
lated by the admission of evidence concerning a crime of
which the defendant is acquitted, provided the crime was
properly joined to the crime for which he was convicted and
the crimes did not have to be severed for purposes of trial.”
Id. at 1349 (emphasis added). The Seventh Circuit thus is con-
sistent with our sister circuits in recognizing that there are cir-
cumstances where charges in a trial must be severed to avoid
prejudice. See, e.g., Vebeliunas, 76 F.3d at 1293-94; Aldrich,
169 F.3d at 528. We thus clarify that the doctrine of prejudi-
cial spillover or retroactive misjoinder may apply to a case
where there is only one defendant.
[22] Invoking the three-factor test that the Second Circuit
developed in Vebeliunas, the district court concluded that
Lazarenko was not prejudiced by the now-dismissed charges.
Under the Vebeliunas test, the court considers: (1) whether the
4196 UNITED STATES v. LAZARENKO
evidence was so inflammatory that it would tend to cause the
jury to convict on the remaining counts; (2) the degree of
overlap and similarity between the dismissed and remaining
counts; and (3) a general assessment of the strength of the
government’s case on the remaining counts. Vebeliunas, 76
F.3d at 1294. These factors reasonably address concerns about
prejudicial spillover. We adopt these factors and add to them
the factors we identified in Cuozzo—whether the trial court
diligently instructed the jury and whether there is evidence,
such as the jury’s rendering of selective verdicts, to indicate
that the jury compartmentalized the evidence. Cuozzo, 962
F.2d at 950.
[23] The district court did not abuse its discretion in deny-
ing Lazarenko a new trial based on prejudicial misjoinder.
The court first found that the evidence presented in connec-
tion with the UESU and GHP frauds was not inflammatory.
It was not persuaded that the jury “threw up their hands” over
the $200 million associated with the dismissed counts because
the jury deliberated for four days and sent questions to the
court. Certainly, the UESU scheme was a significant compo-
nent of the government’s case against Lazarenko. But the evi-
dence of fraud, illegal transfers and coverups was so extensive
that evidence of $200 million in allegedly unlawful transfers
is hardly more inflammatory than evidence of the other trans-
fers or the evidence that Lazarenko extorted fifty percent of
the profits from all the businesses he was involved with. The
testimony on the $200 million transfer did not amount to com-
pelling prejudice.
The government does not challenge the district court’s rul-
ing that some of the evidence would have been inadmissible
if the dismissed counts had been dismissed before trial. See
United States v. Hamilton, 334 F.3d 170, 182 (2d Cir. 2003)
(“[P]rejudicial spillover is unlikely if the dismissed count and
the remaining counts were either quite similar or quite dissim-
ilar.”).
UNITED STATES v. LAZARENKO 4197
[24] Finally, the district court concluded that the govern-
ment’s case on the remaining counts was sufficiently strong.
The court sent 29 counts to the jury, but overturned the ver-
dict on 15 counts. We have reversed an additional six counts.
This issue presents a closer question, but “[i]t is not necessary
that the court agree with jury verdicts on all counts to deter-
mine that the jury carefully weighed the evidence.” United
States v. Stefan, 784 F.2d 1093, 1101 (11th Cir. 1986).
Lazarenko has not explained how the evidence related to the
dismissed counts was tainted by the UESU evidence. The
overall evidence of fraud was strong, although it was incum-
bent on the government to weave that evidence through the
technical threads of multiple counts. That the government was
not 100% successful does not undermine the evidence that
was airtight.
Lazarenko further argues that the prejudicial impact of the
evidence on the dismissed counts was compounded in the
government’s closing argument. He claims that while the gov-
ernment referred to the scheme in the “indictment,” he was
prevented from arguing that the single conspiracy alleged in
count 1 was not proven because the central allegations—the
UESU fraud, the GHP/PMH fraud, and the Dityakovsky
extortion—were not proven. He further asserts that the gov-
ernment improperly referred to the UESU fraud in arguing
that Lazarenko was “never engaged in legitimate business,”
while he was precluded from responding that the funds from
UESU were not unlawful.
The jury did not see the indictment and was not informed
of the specific allegations in the indictment related to UESU.
The district court gave counsel three guidelines for their clos-
ing arguments: (1) counsel could not “implicate the Court and
its ruling on the dismissed counts in your argument”; (2)
counsel could not “comment on why the theories were no lon-
ger before” the jury; and (3) counsel could not “mislead them
by way of argument . . . that they can acquit based on the
absence” of the UESU counts.
4198 UNITED STATES v. LAZARENKO
[25] The government’s references to the indictment were
not improper. The jury was specifically instructed that certain
counts were no longer before them, the government stated at
the beginning of its closing argument that it was not address-
ing those counts, and the jury never saw the indictment. With
these safeguards in place, the government’s mention of “the
crimes charged in the indictment,” or the schemes “alleged in
the indictment,” — references that did not mention UESU —
did not improperly implicate the dismissed UESU counts.
Lazarenko appears to want it both ways. He argues that he
was prevented from countering the government’s references
to the indictment and that he should have been able to argue
that the government failed to prove the single conspiracy and
wire fraud allegations that it promised to prove because the
evidence did not support the UESU, GHP, PMH, and
Dityakovsy allegations. In his closing argument, Lazarenko’s
counsel argued,
[I]s that plan or scheme that the government is now
presenting to you, is that the same plan or scheme
that Mr. Lazarenko was charged with, that the gov-
ernment has been prosecuting in this case?
Is what the government’s presented to you in final
argument the same scheme that they argued to you
the whole case?
Remember, the government argued to you that
UESU, UEIL, Itera, prefab houses, Nakosta were all
part of the scheme.
Now the government argues, the scheme was
Naukovy and Kiritchenko alone. That’s the scheme.
We will talk more about this, but the defendant has
a constitutional right to be tried on only what he has
UNITED STATES v. LAZARENKO 4199
been charged with, and a constitutional right not to
be convicted—
The court then sustained “its own objection to that part of the
argument.”
Outside the presence of the jury, the court explained its
view. The court commented that Lazarenko’s counsel had
“very deftly for the most part . . . complied” with the guide-
lines. The court stated, though, that counsel crossed the line
when he argued that “the defendant has a right under the Con-
stitution . . . to be convicted on the . . . indictment [returned
by the grand jury].” The court stated that “[t]here is nothing
in our record that tells them about the grand jury, their func-
tion or what they do. . . . I did not want to mislead this jury
and have them now consider what the grand jury did or didn’t
do.” The court’s objection was limited to counsel’s references
to what had or had not been charged. Lazarenko’s counsel
was not precluded from arguing that the government did not
prove the scheme they initially laid out based on the evidence.
At that point, the indictment was not in play. It was not
improper for the court to limit the closing argument to the evi-
dence.
We also disagree with Lazarenko’s assertion that the gov-
ernment improperly relied on the UESU scheme when it
argued that Lazarenko had “never engaged in legitimate busi-
ness.” The government argued to the jury that,
the evidence in this case shows that throughout this
period of time the only position the defendant held
was an official position. The only thing he did was
exercise his official authority.
He was never engaged in any legitimate business. He
never received, legitimately, any income from
Kiritchenko or from Naukovy State Farms.
4200 UNITED STATES v. LAZARENKO
The UESU allegations are not implicated in this argument.
Not only did the government at the beginning of its argument
state that it would not be referring to the UESU counts, the
government followed up its statement that Lazarenko did not
have any legitimate business by linking that reference to the
claim that the income from Kiritchenko and Naukovy was
illegal.
[26] At most, the government indirectly suggested that the
UESU business was illegitimate. Lazarenko responded by
arguing that “the suggestion that money from UESU or Itera
or UEIL and Nakosta had an unlawful source is now no lon-
ger before you. Those sources are not unlawful.” The govern-
ment did not make a contemporaneous objection, but argued
to the court during a break that this statement was inappropri-
ate. The court ruled that counsel could argue using the terms
of the jury instructions that certain evidence was “not before”
the jury, and stated that “there is more than enough in this
record to argue the schemes are not proven based on the
weight of the record itself, and that’s where the argument
ought to be.” This ruling did not prevent Lazarenko from dis-
pelling any impression, however faint, that may have been left
with the jury that all of Lazarenko’s wealth was obtained ille-
gally. Understandably, the district court required that the
argument, however, would have to be based on the evidence.
The counts we have dismissed fall of their own weight and
those we have affirmed stand on their own. The district court
did not abuse its discretion in denying the motion for a new
trial based on retroactive misjoinder, nor did the court
improperly limit Lazarenko’s closing argument.
We affirm Lazarenko’s convictions on count 1 for conspir-
acy, counts 2 through 5 for money laundering, and counts 6
through 8 for money laundering. We reverse Lazarenko’s
convictions on counts 25 through 29 for wire fraud, and count
31 for interstate transportation of stolen property. Because we
reverse on six of the fourteen counts of which Lazarenko was
UNITED STATES v. LAZARENKO 4201
convicted, we vacate the sentence and remand for resentenc-
ing on the remaining eight counts as to which we affirm the
conviction.
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED.