United States v. Kyle Grasso , 724 F.3d 1077 ( 2013 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES OF AMERICA, No. 10-50116
Plaintiff-Appellee,
D.C. No.
v. 2:07-cr-00755-
DDP-2
KYLE JOHN GRASSO,
Defendant-Appellant. OPINION
Appeal from the United States District Court
for the Central District of California
Dean D. Pregerson, District Judge, Presiding
Argued and Submitted
December 6, 2012—Pasadena, California
Filed July 26, 2013
Before: Marsha S. Berzon, Sandra S. Ikuta,
and Jacqueline H. Nguyen, Circuit Judges.
Opinion by Judge Ikuta;
Partial Concurrence and Partial Dissent by Judge Berzon
2 UNITED STATES V. GRASSO
SUMMARY*
Criminal Law
The panel affirmed convictions for money laundering,
bank fraud, loan fraud, and conspiracy to commit loan and
bank fraud stemming from a Los Angeles-based scheme to
defraud mortgage lenders.
Affirming the conspiracy conviction, the panel held that
the government presented more than sufficient evidence that
the defendant knew the objectives of the fraudulent scheme.
Affirming the loan fraud convictions, the panel held that
a jury could reasonably (1) conclude that the defendant knew
that his false statements made to obtain a loan would
ultimately influence a federally insured bank, and (2) find all
the necessary elements to impose Pinkerton liability.
Affirming the bank fraud conviction, the panel held that
there was ample evidence that the defendant was well aware
of the scheme’s fraudulent objective and that he intentionally
furthered the fraud.
Because the money laundering convictions do not raise a
merger problem with respect to either the loan fraud or bank
fraud convictions, the panel defined “proceeds” to mean
“gross receipts,” and concluded that the “referral fees” the
defendant received from Yoakum Drive and Benedict Canyon
Drive transactions may be viewed as “proceeds” of the loan
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
UNITED STATES V. GRASSO 3
and bank fraud. The panel on that basis rejected the
defendant’s argument that the government presented
insufficient evidence that his money laundering charges were
based on “separate and distinct” activity from the Yoakum
and Benedict transactions. The panel therefore affirmed the
money laundering convictions under 18 U.S.C.
§ 1956(a)(1)(A)(i).
Concurring in the affirmance of the conspiracy, loan
fraud, and bank fraud convictions, Judge Berzon wrote
separately to express concern that some of the majority’s
quotations could be read to suggest that a defendant may be
convicted without participating in a conspiracy, if he simply
has knowledge of the conspiracy and a “connection” to its
participants. She dissented from the affirmance of the money
laundering convictions because the government introduced no
evidence that the Benedict- and Yoakum-related commission
payments were made with profits, as opposed to gross
revenues, of the overall bank fraud scheme.
COUNSEL
Karen H. Bucur (argued), Laguna Hills, California, for
Defendant-Appellant.
André Birotte Jr., United States Attorney; Robert E. Dugdale,
Assistant United States Attorney; Jeremy D. Matz (argued),
Assistant United States Attorney, Los Angeles, California, for
Plaintiff-Appellee.
4 UNITED STATES V. GRASSO
OPINION
IKUTA, Circuit Judge:
Kyle Grasso appeals his convictions for money
laundering, bank fraud, loan fraud, and conspiracy to commit
loan and bank fraud, stemming from a Los Angeles-based
scheme to defraud mortgage lenders. We conclude that the
evidence adduced at trial, taken in the light most favorable to
the government, was adequate to enable a rational trier of fact
to find the essential elements of each conviction. See United
States v. Nevils, 598 F.3d 1158, 1163–64 (9th Cir. 2010) (en
banc). Accordingly, we affirm on all counts.
I
We have already explained how this scheme operated in
United States v. Rizk, 660 F.3d 1125 (9th Cir. 2011)
(affirming conviction of Lila Rizk, a real estate appraiser in
the scheme and one of Grasso’s co-defendants). Therefore,
we provide only a brief overview of the scheme before
detailing the particular aspects relevant to Grasso’s appeal.
A
The scheme, as crafted by Mark Abrams, a mortgage
broker, and Charles Elliott Fitzgerald, a real estate developer,
took advantage of the real estate frenzy of the early 2000s.
The conspirators would enter into a purchase agreement for
a home in an exclusive Westside Los Angeles community,
and then obtain a loan for significantly more than the sale
price, pocketing the extra money. For this scheme to work,
the conspirators had to exert control over multiple aspects of
each real estate transaction. Among other things, the sellers
UNITED STATES V. GRASSO 5
and agents had to keep the true purchase price of the home
confidential; the appraisal reports had to show the falsely
inflated values of the homes; the title and escrow companies
had to prepare two sets of documents, one showing the actual
purchase price (for the seller) and one showing the inflated
purchase price (for the lender); and finally the Multiple
Listing Service (MLS) had to show the falsely inflated sales
price of the homes. Abrams and Fitzgerald coordinated the
efforts of a range of colleagues to make this conspiracy work.
Abrams relied on Jamieson Matykowski, one of his
employees, and Richard Maize, who controlled Americorp
Funding, among others. Americorp, a mortgage broker,
would send loan packages to lending agents for review and
approval. The conspirators generally targeted banks that did
not require their lending agents to use rigorous documentation
and approval standards. Over the course of the scheme, the
conspirators conducted roughly 80 fraudulent transactions.
The banks that ultimately financed the loans that their lending
agents approved, including Lehman Brothers (through its
lending agent, Aurora Loan Services), GreenPoint Bank
(through its lending agent, GreenPoint Mortgage), and RBC
Mortgage Company, together lost at least $46 million in the
Abrams-Fitzgerald conspiracy.
Grasso was one of Abrams and Fitzgerald’s recruits for
this scheme. Grasso and his partner Joseph Babajian were
successful real estate agents in the same affluent area that
Abrams and Fitzgerald targeted, Westside Los Angeles.
From 2000 to January 2001, Grasso and Babajian were the
top-producing real estate agents at Fred Sands Realtors in
Beverly Hills. Grasso and Babajian subsequently left Fred
Sands and became affiliated with Prudential California
Realty. Prudential compensated Grasso and Babajian for
their move by conveying an ownership interest in several of
6 UNITED STATES V. GRASSO
Prudential’s subsidiaries to Grasso and Babajian’s wholly
owned company, FSC Ventures. One of these subsidiaries
was Cal Title, a title insurance company whose lax approval
process would become instrumental to the co-conspirators’
operation.
At trial, the government presented evidence to prove that
Grasso became involved in the Abrams-Fitzgerald scheme
some time in 2000 and worked with them through at least late
2002. According to the government, Grasso participated
primarily by identifying houses to be included in the scheme,
ensuring that the seller would keep the sales price
confidential, managing the information reported in the MLS
listings, and obtaining the title insurance and escrow
documents needed for the conspiracy through his access to
Cal Title. The government’s case against Grasso rested
heavily on evidence relating to six real estate transactions,
which we describe in the order they occurred.
1
We begin with Grasso’s purchase of a property on
Claridge Drive, Beverly Hills for his personal use. In July
2000, after Grasso separated from his wife, he was in the
market for his own home, and focused on the Claridge Drive
property. According to the evidence adduced at trial, Abrams
thought that Grasso’s skills and contacts were useful in
furthering the scheme and wanted to “ingratiate” himself with
Grasso to induce him to continue helping with the fraud.
Therefore, Abrams offered to help Grasso purchase the
Claridge Drive property by following the same basic
blueprint used for other transactions in the scheme. Under
the plan, Abrams would front Grasso the money for a down
payment, Grasso would obtain an inflated loan, and then use
UNITED STATES V. GRASSO 7
the extra funds to pay Abrams back. According to Abrams,
Grasso knew how the scheme worked and was a willing
participant. Matykowski confirmed that Grasso
acknowledged he was “going to do one of our deals” by
inflating the purchase price of the Claridge Drive property “to
forego putting a large down payment down.”
The plan moved forward over the summer. Grasso
entered into a purchase agreement with Jose Menendez, the
owner of the Claridge Drive property, to purchase the house
for $890,000.1 In early September 2000, Grasso submitted
two fraudulent loan applications to Americorp Funding, one
seeking a first mortgage of $746,250, and the second seeking
a home equity credit line of $149,200. Both applications
stated that the purchase price of the home was $995,000, and
the first application stated that Grasso was making a down
payment of some $120,000. Americorp submitted Grasso’s
application to GreenPoint Mortgage. In reviewing the
applications, GreenPoint Mortgage identified a red flag:
Grasso already owned a home that had a higher value than the
Claridge Drive property, which raised the inference that
Grasso planned to use the Claridge Drive property as a rental.
In response to GreenPoint Mortgage’s inquiry on this point,
Grasso falsely stated that he and his wife intended to move
into the home. Satisfied with that explanation, GreenPoint
Mortgage approved Grasso’s loans. As was the standard
procedure for all loans that GreenPoint Mortgage originated
at that time, GreenPoint Bank funded the loan.
1
One version of the purchase agreement showed an inflated $990,000
sales price, but Menendez testified at trial that his initials on this
agreement were fabricated.
8 UNITED STATES V. GRASSO
At closing, Abrams’s in-house escrow company prepared
fraudulent documents reflecting a purchase price of $995,000,
but sent a settlement statement to Menendez stating the
correct $890,000 sales price.
2
At the same time he was purchasing the Claridge Drive
property, from August to September 2000, Grasso sought
Abrams and Fitzgerald’s help with a client’s property on Alta
Drive in Beverly Hills. The property had been on the market
for nearly a year, and the seller, Vigen Shaghzo, was putting
pressure on Grasso to sell it. Abrams and Fitzgerald agreed
to buy the Alta Drive property if they could work one of their
fraudulent deals.
The Alta Drive transaction unfolded as follows. In early
August 2000, Abrams offered $2,000,000 to Shaghzo in the
name of Abrams’s father, a straw purchaser. According to
Abrams, Grasso knew that Abrams’s father was not actually
purchasing the home. After Shaghzo accepted the $2,000,000
offer, Grasso withdrew the $2,050,000 MLS listing for the
house and relisted it for $4,495,000. This false relisting
caused a problem, however: when Shaghzo found out about
it, he ordered Grasso to correct the misinformation, and
Grasso agreed to do so. Abrams and Fitzgerald then
submitted a fraudulent loan application for an inflated
purchase price of $4,395,000 to Aurora Loan Services for
approval. A loan for the full amount was funded by Lehman
Brothers. After the sale closed in September 2000, and the
escrow company disbursed the loan proceeds from Lehman
Brothers, Abrams paid Grasso’s firm $46,436 in
commissions. Several months later, MLS reported the
property sold at its true price of $2,000,000. To prevent
UNITED STATES V. GRASSO 9
Aurora Loan Services and Lehman Brothers from seeing this
accurate listing, Grasso again arranged to change the MLS
listing to show a sales price of $4,495,000.
3
In January 2001, after Grasso became affiliated with
Prudential and obtained an indirect interest in Cal Title,
Abrams and Fitzgerald began using Cal Title to provide title
insurance for their purchases. Cal Title was willing to
prepare two title insurance policies, one with the inflated
purchase price (which would be provided to the lender) and
the second with the actual purchase price (that the seller could
review). Although Abrams and Fitzgerald attempted to use
other title companies for their transactions, these companies
soon declined to work with them, and Abrams and Fitzgerald
began using Cal Title exclusively, whether or not Grasso or
Babajian was acting as the agent for the transaction.
Sometime in 2001, Grasso called Matykowski to
complain that Abrams and Fitzgerald had been using Cal
Title for transactions where he was not the agent. Grasso was
agitated about this development, and forbade the Abrams-
Fitzgerald team from using Cal Title unless Grasso and
Babajian were in the deal. Abrams later told Matkyowski
that he agreed to pay Grasso and Babajian—via Prudential—a
commission on transactions where Cal Title was involved,
even when they were not serving as agents.
4
From approximately February 2001 through summer
2002, Grasso represented Abrams and Fitzgerald in their
acquisition of four additional properties relevant to this
10 UNITED STATES V. GRASSO
appeal. For a property on Mandeville Canyon Road, Beverly
Hills, Grasso submitted several unsuccessful purchase offers
using the names of different straw buyers, before submitting
a third, successful offer on behalf of “Jamieson Matykowski
and/or assignee.” While the transaction was in escrow,
Matykowski purportedly assigned the purchase agreement to
yet another straw buyer. As in the Alta Drive transaction, the
straw buyer was not the true purchaser and in fact did not
know the conspirators had used his name. In addition to
multiple straw purchasers, the conspirators also used two
different escrow companies: the original escrow company
resigned after determining it was uncomfortable with the
transaction, and was replaced by Cal Title. FSC Ventures
(Grasso and Babajian’s wholly owned company) earned
$19,231 in commissions for the deal.
Grasso also assisted the conspirators in purchasing a
property on Claircrest Drive in Beverly Hills. According to
Matykowski, Grasso was aware that the conspirators were
using a straw purchaser for this property, as well. At one
point, Matykowski testified, he was in Grasso’s office, and
jokingly told Grasso, “Turn your back for a second I’m going
to sign this contract.” Matykowski then forged the name
“Hugo Wendt” on the purchase offer. Grasso treated this
forgery as “just normal.” Once the seller accepted the offer
for the Claircrest Drive property, Grasso asked the escrow
officer to assign the purchase agreement to a different straw
purchaser. Abrams and Fitzgerald paid FSC Ventures
$21,490 in commissions for this transaction when it closed.
In summer 2002, Abrams and Fitzgerald purchased two
more Beverly Hills properties, one on Yoakum Drive and the
other on Benedict Canyon Drive. Although they did not use
either Grasso or Babajian as their real estate agent, they did
UNITED STATES V. GRASSO 11
use Cal Title. Consistent with Abrams’s prior agreement,
Abrams paid Prudential (which in turn paid Grasso and
Babajian through FSC Ventures) a three percent commission
for each transaction, which together amounted to $50,833.
Abrams made these payments separately after the deals
closed and the bank had already wire transferred the loan
proceeds; the payments did not go through escrow or show up
on the settlement statements for the transactions. Abrams and
Grasso characterized these payments as “referral fees.”
B
In August 2007, a grand jury indicted Grasso for one
count of conspiracy to commit bank fraud and loan fraud, in
violation of 18 U.S.C. § 371.2 This charge named Grasso and
three co-defendants, including Rizk and Babajian, along with
six other co-conspirators, including Abrams and Fitzgerald.
Listing nine transactions as overt acts, the government
alleged that the co-conspirators devised and executed a
scheme to commit bank fraud against Lehman Brothers,
GreenPoint Bank, and other federally-insured institutions
between 2000 and 2003, and to commit loan fraud by
submitting false statements, reports, and valuations in
connection with the listed transactions.3
2
18 U.S.C. § 371, as relevant here, provides that “[i]f two or more
persons conspire either to commit any offense against the United States,
or to defraud the United States, or any agency thereof in any manner or for
any purpose, and one or more of such persons do any act to effect the
object of the conspiracy,” each shall be subject to criminal penalties.
3
These include the Claridge Drive, Alta Drive, Mandeville Canyon
Road, Claircrest Drive, Yoakum Drive, and Benedict Canyon Drive
12 UNITED STATES V. GRASSO
The indictment also charged Grasso with one count of
bank fraud and aiding and abetting, in violation of 18 U.S.C.
§§ 2,4 1344(1);5 seventeen counts of loan fraud and aiding and
abetting, in violation of 18 U.S.C. §§ 2, 1014;6 and three
counts of money laundering and aiding and abetting, in
violation of 18 U.S.C. §§ 2, 1956(a)(1).7 The bank fraud
charge named all four defendants and rested on the same
allegations as the conspiracy charge. The money laundering
transactions, as discussed in detail above, as well as three additional
transactions involving properties at Anacapa View Drive in Malibu,
Stradella Road in Los Angeles, and Roscomare Road, also in Los Angeles.
4
18 U.S.C. § 2 provides that “(a) [w]hoever commits an offense against
the United States or aids, abets, counsels, commands, induces, or procures
its commission, is punishable as a principal [, and] (b) [w]hoever willfully
causes an act to be done which if directly performed by him or another
would be an offense against the United States, is punishable as a
principal.”
5
18 U.S.C. § 1344(1), as relevant here, provides criminal penalties for
“knowingly execut[ing], or attempt[ing] to execute, a scheme or artifice
– (1) to defraud a financial institution.”
6
18 U.S.C. § 1014, as relevant here, provides criminal penalties for
“knowingly mak[ing] any false statement or report . . . for the purpose of
influencing in any way the action of . . . any institution the accounts of
which are insured by the Federal Deposit Insurance Corporation.”
7
18 U.S.C. § 1956(a)(1), as relevant here, provides criminal penalties
for “[w]hoever, 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 . . . [or]
(B) knowing that the transaction is designed in whole or part – (i) to
conceal or disguise the nature, the location, the source, the ownership, or
the control of the proceeds of specified unlawful activity.”
UNITED STATES V. GRASSO 13
and loan fraud charges related to specific real estate
transactions.8 The three money laundering charges related to
individual “referral” payments that Abrams made to
Prudential after the Yoakum Drive and Benedict Canyon
Drive transactions.
After a jury trial, Grasso was convicted on all conspiracy,
bank fraud, and money laundering charges, and on the loan
fraud charges relating to the Claridge Drive, Alta Drive,
Mandeville Canyon Road, and Claircrest Drive transactions.
Grasso moved for acquittal on all charges or in the alternative
for a new trial. The district court denied these motions,
rejecting his sufficiency of the evidence claims. The court
sentenced Grasso to twelve months and one day in prison and
$13 million in restitution.
II
On appeal, Grasso argues that the district court erred in
denying his motion for acquittal, see Fed. R. Crim. P. 29,
because the evidence was insufficient to support a guilty
verdict on the conspiracy, bank fraud, loan fraud, and money
laundering counts for which he was convicted.9
8
The loan fraud charges arose from five separate transactions: Claridge
Drive, Alta Drive, Mandeville Canyon Road, and Claircrest Drive, as
discussed above, as well as a fifth property that Abrams and Fitzgerald
purchased on Roscomare Road in Los Angeles. Grasso was acquitted on
the loan fraud counts relating to the Roscomare Road transaction, which
are therefore not part of this appeal.
9
Grasso also argues that the district court violated his Sixth Amendment
right to confrontation by admitting a statement from Tim Holland, a co-
conspirator who controlled one of Abrams’s in-house escrow companies.
Although the Sixth Amendment limits the admissibility of testimonial
14 UNITED STATES V. GRASSO
We have jurisdiction under 28 U.S.C. § 1291. We review
denials of Rule 29 motions for acquittal de novo. United
States v. Gonzalez-Diaz, 630 F.3d 1239, 1242 (9th Cir. 2011).
In considering a claim that the evidence adduced at trial was
insufficient to sustain a conviction, “[a] reviewing court must
consider the evidence presented at trial in the light most
favorable to the prosecution.” United States v. Nevils,
598 F.3d 1158, 1164 (9th Cir. 2010) (en banc) (citing Jackson
v. Virginia, 443 U.S. 307, 319 (1979)). This means that “a
reviewing court ‘must presume—even if it does not
affirmatively appear in the record—that the trier of fact
resolved any such conflicts in favor of the prosecution, and
must defer to that resolution.’” Id. (quoting Jackson, 443 U.S.
at 326). Second, the court must determine whether the
evidence, viewed in that manner, “is adequate to allow any
rational trier of fact to find the essential elements of a crime
beyond a reasonable doubt.” Id. (internal quotation marks
and alterations omitted).
A
We begin with Grasso’s appeal of his conviction for
conspiracy to commit loan fraud and bank fraud. To convict
Grasso of conspiracy, the government must first prove that a
conspiracy existed. “To prove a conspiracy under 18 U.S.C.
§ 371, the government must first establish: (1) an agreement
to engage in criminal activity, (2) one or more overt acts
taken to implement the agreement, and (3) the requisite intent
to commit the substantive crime.” Rizk, 660 F.3d at 1134
evidence, see Crawford v. Washington, 541 U.S. 36 (2004), co-conspirator
statements in furtherance of a conspiracy are not testimonial, United States
v. Allen, 425 F.3d 1231, 1235 (9th Cir. 2005), and therefore we reject this
argument.
UNITED STATES V. GRASSO 15
(quoting United States v. Sullivan, 522 F.3d 967, 974 (9th
Cir. 2008)). “Once the existence of the conspiracy is shown,
evidence establishing beyond a reasonable doubt a knowing
connection of the defendant with the conspiracy, even though
the connection is slight, is sufficient to convict him of
knowing participation in the conspiracy.” United States v.
Meyers, 847 F.2d 1408, 1413 (9th Cir. 1988). We have
explained that a defendant may have a “slight connection” to
a conspiracy even if the defendant did not know all the
conspirators, did not participate in the conspiracy from its
beginning or participate in all its enterprises, or otherwise
know all its details. See United States v. Reed, 575 F.3d 900,
924 (9th Cir. 2009). However, “[i]t is not a crime to be
acquainted with criminals or to be physically present when
they are committing crimes.” United States v. Herrera-
Gonzalez, 263 F.3d 1092, 1095 (9th Cir. 2001).
Where the defendant has a connection (even if slight) to
the conspiracy, the government must also show that the
defendant’s connection to the conspiracy is knowledgeable;
“that is, the government must prove beyond a reasonable
doubt that the defendant knew of his connection to the
charged conspiracy.” Meyers, 847 F.2d at 1413. To establish
a knowing connection, “[t]here need not, of course, be proof
that the conspirators were aware of the criminality of their
objective,” Ingram v. United States, 360 U.S. 672, 678
(1959). Instead, the government must show that the
defendant was aware of “the unlawful object toward which
the agreement [was] directed,” United States v. Krasovich,
819 F.2d 253, 255 (9th Cir. 1987); see also id. (“[k]nowledge
of the objective of the conspiracy is an essential element of
any conspiracy conviction.”) (citing Ingram, 360 U.S. at
678). The government may rely on circumstantial evidence
and inferences drawn from that evidence in order to prove the
16 UNITED STATES V. GRASSO
defendant’s knowing connection to the conspiracy. See
United States v. Johnson, 297 F.3d 845, 868–69 (9th Cir.
2002).
Here, it is undisputed that the government sufficiently
proved the existence of a conspiracy to commit bank fraud
and loan fraud. As we explained in Rizk, “Abrams,
Fitzgerald, and others associated with them initiated and
carried out a scheme to defraud mortgage lenders.” Rizk,
660 F.3d at 1128. Nor does Grasso contest that he
participated in the conspiracy; rather, the disputed issue is
whether he did so knowingly.
To that end, Grasso argues that the government failed to
adduce sufficient evidence to prove he had “knowledge of the
objective of the conspiracy,” id. at 1134. According to
Grasso, Abrams and Fitzgerald targeted and manipulated him
because of his “highly respected and extremely successful”
real estate practice in Los Angeles. Grasso claims that the
evidence showed that his involvement in the conspiracy was
limited to the legitimate aspects of the real estate transactions,
and he was unaware of the fraudulent steps in Abrams and
Fitzgerald’s scheme.
Viewing the facts in the light most favorable to the
prosecution, Nevils, 598 F.3d at 1164, we conclude that the
government presented more than sufficient evidence that
Grasso knew the objectives of the fraudulent scheme. A
rational jury could determine beyond a reasonable doubt that
as early as July 2000, Grasso knew that the real estate
transactions were structured to deceive Lehman Brothers,
GreenPoint Bank, and other federally insured banks, and that
he assisted in this deception. The evidence showed that
Grasso assisted his co-conspirators in convincing lenders that
UNITED STATES V. GRASSO 17
various properties were sold for more than their actual sales
prices. Grasso personally benefitted from falsely inflating the
purchase price for his Claridge Drive property, and he
personally inflated the MLS listing in the Alta Drive
transaction. He was aware of the role Cal Title played in
creating two different title insurance policies, one showing
the inflated purchase price and one showing the true purchase
price. Matykowski’s testimony that he joked with Grasso
about forging the signature of a straw purchaser, along with
other evidence, indicated that Grasso knew that the
conspirators furthered the scheme by using the names of
straw purchasers who might not even be aware of the
transaction. Finally, the evidence showed that Grasso was an
expert in his field, so the jury could reasonably conclude that
he was not duped by Abrams and Matykowski into innocently
carrying out the acts described above.
We reached a similar conclusion in Rizk. Like Grasso,
Rizk argued that the evidence was insufficient to establish
that she knew of the objective of the conspiracy. Rizk,
660 F.3d at 1134. We disagreed, holding that a rational jury
could have found beyond a reasonable doubt that Rizk
intended to defraud the victim lenders in light of evidence
that Rizk significantly overvalued the properties in preparing
her appraisals, requested that the MLS database be
manipulated to show higher sales prices, and knew her
appraisals were being used to get loans on the properties. Id.
at 1134–35. Like Grasso, Rizk also raised the defense that
she was “duped and used” by Abrams and Fitzgerald, but we
held that the government had introduced sufficient evidence
to overcome this defense by showing that Rizk was an
“experienced appraiser,” “knew that her appraisals were
being used to finance the purchase of properties,” and “was
unduly influenced by the values put forth by Abrams and
18 UNITED STATES V. GRASSO
Fitzgerald.” Rizk, 660 F.3d at 1135. Here, too, the
government’s evidence, taken in the light most favorable to
the prosecution, see Nevils, 598 F.3d at 1164, was sufficient
for the jury to reject Grasso’s exculpatory theory and to find
beyond a reasonable doubt that he had “knowledge of the
objective of the conspiracy.” Rizk, 660 F.3d at 1135.
B
Next, we consider Grasso’s appeal of his convictions for
loan fraud associated with the Claridge Drive, Alta Drive,
Mandeville Canyon Road, and Claircrest Drive transactions.
To obtain a loan fraud conviction, the government must prove
that the defendant “[1] knowingly [made] any false statement
or report . . . for the purpose of influencing in any way [2] the
action of . . . a bank insured by the Federal Deposit Insurance
Corporation.” 18 U.S.C. § 1014.
1
Grasso begins by challenging his loan fraud conviction
for the Claridge Drive transaction. Grasso claims that the
government did not prove that he had sufficient knowledge
that the false statements he made to obtain loans to buy the
Claridge Drive property would influence a federally insured
bank, and so failed to prove that he made his false statements
for that purpose.
We disagree with this argument. Contrary to Grasso’s
claims, the government can prove the knowledge element of
§ 1014 by showing that Grasso made false statements for the
purpose of obtaining a loan, knowing that those statements
UNITED STATES V. GRASSO 19
would be submitted to federally insured banks.10 See United
States v. Bellucci, 995 F.2d 157, 159 (9th Cir. 1993) (per
curiam) (“Section 1014’s proscription of knowing
misrepresentation reach[es] a defendant’s knowledge of the
statement’s presentation to banks generally[,] as distinguished
from a particular bank.”) (internal quotations omitted)
(quoting United States v. Lentz, 524 F.3d 69, 71 (5th Cir.
1975)). In Bellucci, the defendant submitted a loan
application with false statements through his mortgage
broker, who eventually conveyed them to a bank. 995 F.3d
at 159. Because Bellucci had a long career as a developer
and builder and thus “was familiar with the manner in which
the lending process operates,” and even testified that he
understood his broker “would use the loan applications to go
shop for loans,” the court concluded that “a rational jury
could easily infer beyond a reasonable doubt that Bellucci
knew [that his broker] would present his loan application to
a variety of financial institutions, including banks.” Id. Here,
evidence at trial showed that Grasso was an experienced real
estate agent who, like Bellucci, was well-versed in the
mortgage lending process. For instance, Grasso and his
partner Babajian, as a team, were the top-grossing real estate
agents at Prudential in California in 2002. The evidence also
showed Grasso’s understanding that the Claridge Drive deal
would operate on the scheme’s basic blueprint, which was
generally to obtain funding from banks that did not impose
rigorous standards on their lending agents. Taking this
evidence together, a jury could reasonably conclude that
Grasso knew that his false statements made to obtain a loan
10
Congress amended § 1014 in 2009 to cover “mortgage lending
businesses,” but this expanded definition applies only prospectively and
therefore does not cover the events in this case. Fraud Enforcement and
Recovery Act of 2009 (FERA), Pub.L. No. 111–21, §§ 2(c)(2), 4(f).
20 UNITED STATES V. GRASSO
would ultimately influence an insured bank. See Bellucci,
995 F.3d at 159.11
2
Grasso next argues that there was insufficient evidence to
convict him of loan fraud because he was involved only in the
legitimate first step of the real estate transactions, had no
knowledge of the scheme to defraud banks, and did not make
any false statements to a federally insured financial institution
in the Alta Drive, Claircrest Drive, and Mandeville Drive
transactions.12
This argument also fails. Under Pinkerton v. United
States, a defendant charged with participating in a conspiracy
may be subject to liability for offenses committed as part of
that conspiracy, even if the defendant did not directly
participate in each offense. 328 U.S. 640, 647 (1946); see
also United States v. Hernandez-Orellana, 539 F.3d 994,
1007 (9th Cir. 2008). Pinkerton “renders all co-conspirators
criminally liable for reasonably foreseeable overt acts
11
Grasso also argues that the government failed to demonstrate a nexus
between GreenPoint Mortgage and GreenPoint Bank that was sufficient
to satisfy § 1014’s federal jurisdictional element for the Claridge Drive
transaction. Because we have already concluded that Grasso knew his
false statements would ultimately influence a bank under Bellucci, we
reject this argument. Bellucci, 995 F.3d 159; cf. United States v. McDow,
27 F.3d 132, 136 (5th Cir. 1994).
12
Although Grasso addresses this argument to all four of his loan fraud
convictions (for the Claridge Drive, Alta Drive, Mandeville Canyon Road,
and Claircrest Drive transactions), it is inapplicable to Grasso’s Claridge
Drive loan fraud conviction, because Grasso personally made false
statements in his loan application and related documents for Claridge
Drive. We affirm that count for the reasons discussed above.
UNITED STATES V. GRASSO 21
committed by others in furtherance of the conspiracy they
have joined, whether they were aware of them or not.”
Hernandez-Orellana, 539 F.3d at 1007. Although we have
noted there may be due process limitations to imposing
Pinkerton liability on defendants “with extremely minor roles
in the conspiracy,” United States v. Bingham, 653 F.3d 983,
997 (9th Cir. 2011), or where “the relationship between the
defendant and the substantive offense is slight,” United States
v. Castaneda, 9 F.3d 761, 766 (9th Cir. 2003), overruled on
other grounds by United States v. Nordby, 225 F.3d 1053 (9th
Cir. 2000), such concerns are not present in this case.
Taking the evidence adduced at trial in the light most
favorable to the government, a reasonable juror could find all
the necessary elements to impose Pinkerton liability, contrary
to Grasso’s contention that he had nothing to do with the
fraud. Abrams and Matykowski testified that Grasso was
well aware of the conspiracy’s fraudulent purpose and had a
substantial role in it by the time the Alta Drive, Mandeville
Canyon Road, and Claircrest Drive transactions occurred.
Moreover, Abrams admitted that he committed loan fraud in
each of these transactions, which took place according to the
scheme’s basic blueprint. Because Grasso was aware of this
blueprint, he could reasonably have foreseen Abrams’s loan
fraud in those transactions. Thus, there is no due process
problem in holding him liable for Abrams’s acts under
Pinkerton. Because there is sufficient evidence to uphold
Grasso’s convictions for loan fraud under Pinkerton, it does
not matter whether Grasso was aware of when or whether
Abrams committed the acts constituting loan fraud in each
transaction. Hernandez-Orellana, 539 F.3d at 1007.
22 UNITED STATES V. GRASSO
C
We now turn to Grasso’s appeal of his conviction for
bank fraud, based on his role in the scheme to defraud
Lehman Brothers and GreenPoint Bank. The bank fraud
statute, 18 U.S.C. § 1344(1), provides criminal penalties for
anyone who “knowingly executes, or attempts to execute, a
scheme or artifice – . . . (1) to defraud a financial
institution.”13 Grasso argues that the government failed to
adduce sufficient evidence that he had knowledge of the
object of the scheme to defraud banks or that he had the
requisite intent to defraud. See Rizk, 660 F.3d at 1135
(stating that one of the “essential elements” of bank fraud
under § 1344(1) is that the defendant executed or attempted
to execute the fraudulent scheme “with the intent to
defraud”).
In making its case that Grasso was guilty of bank fraud,
the government relied on the same evidence of Grasso’s
knowledge that supported his conviction for conspiracy to
commit bank fraud. Accordingly, Grasso’s argument that the
evidence was insufficient fails for the same reason that his
challenge to his conspiracy conviction fails: viewing the facts
in the light most favorable to the prosecution, there was
ample evidence that Grasso was well aware of the scheme’s
13
In 2009, Congress amended 18 U.S.C. § 20(1), which supplies the
definition of “financial institution” for § 1344, to cover “mortgage lending
businesses” such as GreenPoint Mortgage and Aurora. See United States
v. Bennett, 621 F.3d 1131, 1138 (9th Cir. 2010). This amendment applies
prospectively, however, and with respect to the events in this case, the
only definition of “financial institution” in § 20(1) relevant here was
“insured financial institution.” FERA §§ 2(a)(3), 4(f).
UNITED STATES V. GRASSO 23
fraudulent objective and that he intentionally furthered the
fraud. See supra at 16–18.14
D
Finally, we address Grasso’s argument that the
government presented insufficient evidence to convict him of
money laundering when he received two “referral fees” for
the Yoakum Drive and Benedict Canyon Drive transactions.
Grasso argues that Abrams gave him referral fees for access
to Cal Title, that the loan fraud and bank fraud scheme could
not have occurred without such access, and, therefore, that the
money laundering offense merged into the underlying loan
fraud and bank fraud offenses and cannot be separately
punished.
1
To address this argument, we first consider the relevant
legal framework. Under the money laundering statute,
18 U.S.C. § 1956(a)(1), the government must prove that a
defendant: [1] knew that money being used in a financial
transaction was the “proceeds of some form of unlawful
activity,” and [2] then conducted or attempted to conduct a
financial transaction with such proceeds; [3] for the purpose
14
As he argued with respect to his loan fraud convictions, Grasso also
contends here that there was an insufficiently close connection between
GreenPoint Mortgage and GreenPoint Bank to satisfy § 1344’s federal
jurisdictional element. Because we have already concluded that the
government adduced sufficient evidence to establish that Grasso knew that
the scheme was aimed at federally insured banks, we again reject this
argument. Cf. United States v. Edelkind, 467 F.3d 791, 797–98 (1st Cir.
2006).
24 UNITED STATES V. GRASSO
of either promoting an unlawful activity or for concealment.
See 18 U.S.C. § 1956(a)(1) (emphasis added).
In United States v. Santos, the Supreme Court attempted
to define the term “proceeds” but could not reach a five-
justice majority to do so. 553 U.S. 507 (2008). In Santos, the
defendant was convicted of running an illegal lottery, in
which “runners” took bets from gamblers and delivered the
money to “collectors.” 553 U.S. at 509. Those collectors, in
turn, passed the money along to defendant Santos, who then
paid the runners and collectors for their services and
disbursed awards to the lottery winners. Id. The government
charged Santos with money laundering under § 1956(a) on
the theory that the money used to pay the runners, collectors,
and lottery winners was the proceeds of his illegal lottery and
that Santos was using that money to promote the carrying on
of the lottery activity. Id. at 509–10.
On appeal, the Court considered whether the word
“proceeds” in § 1956 meant the gross receipts of an illegal
activity, or only the net receipts, i.e., the profits of that
activity. Writing for a four-justice plurality, Justice Scalia
concluded that both definitions of “proceeds” were plausible,
and that “because the ‘profits’ definition of proceeds is
always more defendant-friendly than the ‘receipts’ definition,
the rule of lenity dictates that it should be adopted.” Id. at
513. In supporting this conclusion, the plurality noted that
defining “proceeds” to mean “receipts” would frequently lead
to a “merger problem”: “nearly every violation of the illegal-
lottery statute would also be a violation of the money
laundering statute, because paying a winning bettor is a
transaction involving receipts that the defendant intends to
promote the carrying on of the lottery.” Id. at 515. The
plurality noted that Congress would not have “wanted a
UNITED STATES V. GRASSO 25
transaction that is a normal part of a crime it had duly
considered and appropriately punished elsewhere in the
Criminal Code to radically increase the sentence for that
crime” by application of the money-laundering statute. Id. at
517. Because Santos’s payments to the runners, collectors
and lottery winners were a normal part of the cost of doing
business (and not pure profit), the plurality concluded the
payments did not constitute “proceeds” for purposes of the
statute. Id.
Four justices rejected this analysis and dissented. The
dissent contended that “proceeds” should be defined as “gross
receipts,” and would leave any “merger problems” to district
judges’ discretion at sentencing. Id. at 547 (Alito, J.,
dissenting). Under this analysis, Santos’s payments to the
runners, collectors and lottery winners were made out of the
gross receipts of the lottery business and thus constituted
“proceeds” for purposes of the statute.
Justice Stevens, in a concurrence, rejected both
definitions of “proceeds,” and adopted a case-by-case
approach. He was particularly troubled by the fact that the
dissenting opinion allowed “the Government to treat the mere
payment of the expense of operating an illegal gambling
business as a separate offense.” Id. at 527 (Stevens, J.,
concurring). Considering both “common sense” and the “rule
of lenity,” Justice Stevens agreed with Justice Scalia that
there was no reason to think Congress intended that “revenue
generated by a gambling business that is used to pay the
essential expenses of operating that business,” which is “a
normal part of a crime it had duly considered and
appropriately punished elsewhere in the Criminal Code,”
should also be punished as money laundering. Id. at 528.
Justice Stevens explained that this result was “particularly
26 UNITED STATES V. GRASSO
unfair in [Santos] because the penalties for money laundering
are substantially more severe than those for the underlying
offense of operating a gambling business.” Id. at 527.
Congress had capped the maximum sentence for engaging in
an illegal lottery to five years, an “important limitation” that
would be “eviscerated” if a court could impose a sentence of
up to twenty years, the statutory maximum for money
laundering. Id. Justice Stevens concluded that Congress
could not have intended such a “perverse result.” Id. at 528.
Although Justice Stevens agreed that proceeds meant
“profits” in the lottery scheme, he agreed with the four
justices in dissent that proceeds did not mean profits in every
case. Among other things, he explained, “the legislative
history of § 1956 makes it clear that Congress intended the
term ‘proceeds’ to include gross revenues from the sale of
contraband and the operation of organized crime syndicates
involving such sales.” Id. at 526–27.
Santos quickly caught the attention of Congress, which
amended § 1956 in 2009 to define “proceeds” as “any
property derived from or obtained or retained, directly or
indirectly, through some form of unlawful activity, including
the gross receipts of such activity.” FERA § 2(f). The
amendments effectively endorsed Justice Alito’s dissent and
overruled any interpretation of “proceeds” based on Justice
Scalia’s and Justice Stevens’ opinions. See S. Rep. 111-10,
at 432 (2009) (explaining that the plurality decision in Santos
was “erroneous” and “contrary to Congressional intent.”).
Under the current version of § 1956, there could be no debate
that Grasso’s “referral fees” for the Yoakum Drive and
Benedict Canyon Road transactions would be separately
punishable as money laundering. The 2009 amendments are
UNITED STATES V. GRASSO 27
not retroactive, however, see FERA § 4(f), and so we must
apply Santos in assessing Grasso’s merger argument.
In analyzing the three opinions produced by the Santos
court, we have derived the controlling rule that “‘proceeds’
means ‘profits’ where viewing ‘proceeds’ as ‘receipts’ would
present a ‘merger’ problem of the kind that troubled the
plurality and concurrence in Santos.” See United States v.
Van Alstyne, 584 F.3d 803, 814 (2009). Our subsequent case
law has identified three factors we consider in determining
when such a “merger problem” arises.
First, we look to whether a given transaction was a
“central component” of the underlying scheme. Van Alstyne,
584 F.3d at 815. In Van Alstyne, a defendant was charged
with 19 counts of mail fraud for running a Ponzi scheme and
three money laundering convictions. Id. at 809. In
considering the defendant’s challenge to the money
laundering convictions, we struck down the two based on
regular distributions to individual investors in the Ponzi
scheme. Because “issuing distribution checks that
supposedly represented generous returns on his victims’
investment was a central component of the ‘scheme to
defraud,’” we held that convicting the defendant of money
laundering “for the bank transfers inherent in the ‘scheme’
central to the mail fraud charges” would raise a merger
problem. Id. at 815. On the other hand, we held that the
money laundering conviction based on the refund of an
investor’s entire investment after the scheme began to unravel
did not raise such a merger problem. Id. We reasoned that
the refund check was not part of the “core scheme” because
the payment “undermined rather than advanced” the Ponzi
scheme. Id. at 815–16; see also United States v. Bush,
626 F.3d 527, 538 (9th Cir. 2010) (reasoning that transfers of
28 UNITED STATES V. GRASSO
proceeds from a four-year, $36 million Ponzi scheme were
not central to “carrying out the scheme’s objective[s]” in part
because the defendant had “operated his scheme for several
years” before transferring funds to his account, and
concluding that the transfers did not raise a merger problem);
United States v. Phillips, 704 F.3d 754, 766 n.11 (9th Cir.
2012) (looking to whether the money laundering transaction
was a “central component” of the underlying scheme); United
States v. Moreland, 622 F.3d 1147, 1166 (9th Cir. 2010)
(same).
Second, we consider whether the inclusion of the money
laundering charges leads to “‘a radical increase in the
statutory maximum sentence’ for the underlying offense,”
because five justices in Santos also expressed this concern.
Bush, 626 F.3d at 538 (quoting United States v. Kratt,
579 F.3d 558, 562 (6th Cir. 2009)).15 In other words, when
Congress caps a defendant’s maximum sentence for the
underlying offense at something radically less than the
maximum sentence for money laundering, we may infer that
Congress did not intend the “important limitation” on the
penalty for the underlying offense to be “eviscerated” by the
penalty for a money laundering conviction. Santos, 553 U.S.
at 527. By contrast, where a defendant’s underlying mail and
wire-fraud convictions carried a statutory maximum sentence
of thirty years, Congress’s choice of penalty would not be
“eviscerated” by the ten-year statutory maximum sentence for
money laundering. See Bush, 626 F.3d at 538; see also
15
Although the dissent questions our reliance on Bush and Phillips
because they followed the Sixth Circuit’s approach, see dis. op. at 45–46,
we see no irreconcilable conflict between these cases and Van Alstyne,
which did not consider this issue in conducting its merger analysis.
Therefore, we are bound by our precedent.
UNITED STATES V. GRASSO 29
Phillips, 704 F.3d at 766 n.11 (9th Cir. 2012) (holding that
Santos’s concern regarding the evisceration of Congress’s
choice of a low statutory maximum penalty for an underlying
offense did not apply where the underlying offenses carried
maximum sentences of twenty years, and the money
laundering offense carried a lower maximum sentence of ten
years).
Third, we generally consider the money used in co-
conspirator transfers in crimes such as the sale of contraband,
fraud, or bribery as constituting the “proceeds” of such crimes
for purposes of the money laundering statute. In United
States v. Webster, we concluded that when “a money
laundering count is based on transfers among co-conspirators
of money from the sale of drugs, ‘proceeds’ includes all
‘receipts’ from such sales.” 623 F.3d 901, 906 (9th Cir.
2010). We acknowledged that Justice Scalia’s plurality
opinion stated that the merger problem might exist for certain
payments among conspirators, but concluded that this was a
minority view that was not controlling. Id. Rather, we relied
on the four justices in dissent, plus Justice Stevens, who
agreed that “the legislative history of § 1956 makes it clear
that Congress intended the term ‘proceeds’ to include gross
revenues from the sale of contraband and the operation of
organized crime syndicates involving such sales.” Id.
In United States v. Wilkes, we extended Webster’s
rationale beyond drug cases and into the context of fraud and
bribery. 662 F.3d 524 (9th Cir. 2011). In Wilkes, the
ringleader of a scheme involving kickbacks to a Congressman
in exchange for lucrative government contracts challenged his
30 UNITED STATES V. GRASSO
conviction of concealment money laundering.16 The
defendant challenged his conviction on two grounds. He first
argued that his use of multiple transfers to indirectly pay off
the Congressman did not constitute “concealment,” id. at
545–47. Second, relying on Santos, Wilkes argued that his
transfer of funds to pay off the Congressman “was merely an
expense associated with the bribery, and, thus, not
‘proceeds’” under the money laundering statute. Id. at
548–49. We rejected both arguments. We first held that the
government had proven concealment because “the effort to
disguise the source of the money was an additional act that is
separately punishable.” Id. at 547. With respect to
defendant’s Santos argument that there was insufficient
evidence that the bribes constituted “proceeds,” we concluded
that “[u]nder Webster, [the defendant’s] money laundering
count was based on a transfer to a co-conspirator of money
from honest services fraud and bribery such that ‘proceeds’
would include all ‘receipts’ from the fraud.” Id. at 549.
Accordingly, we rejected defendant’s argument that because
the kickback payments were an inherent part of the scheme to
defraud, they could not constitute proceeds for purposes of
the money laundering statute, and concluded that defendant’s
transfers to the Congressman “constituted ‘proceeds’ of the
scheme to defraud,” id.
16
To establish the sort of concealment money laundering involved in
Wilkes, the government was required to prove that the defendant: [1]
knew that money being used in a financial transaction was the “proceeds
of some form of unlawful activity,” and [2] then conducted a financial
transaction with such proceeds; [3] “to conceal or disguise the nature, the
location, the source, the ownership, or the control of the proceeds.”
18 U.S.C. § 1956(a)(B)(i) (emphasis added). Because both promotional
and concealment money laundering require the government to prove that
the defendant knowingly used the “proceeds” of an unlawful activity,
Wilkes’s analysis of Santos is applicable here. Cf. Dis. op. at 44.
UNITED STATES V. GRASSO 31
We disagree with the dissent’s argument that Wilkes’s
determination that kickback payments to the Congressman
were “proceeds” is inconsistent with Van Alstyne. Dis. op. at
45. Van Alstyne did not have occasion to address co-
conspirator transfers, while Webster and Wilkes appropriately
relied on five justices’ views in Santos in concluding that
such transfers did not raise a merger problem. Van Alstyne’s
statement that a merger problem may be triggered when
confederates in a scheme shared profits was based on a
summary of Justice Scalia’s plurality opinion, 584 F.3d at
815, and does not necessarily extend beyond the situation
identified by Justice Stevens, that of illegal gambling
operations. Accordingly, we are bound by our precedent in
Webster and Wilkes.17
17
The dissent’s reliance on the Fourth Circuit’s opinion in United States
v. Cloud, 680 F.3d 396, 407 (4th Cir. 2012) is also misplaced. In defining
and applying “essential expenses,” Cloud relies on the Santos plurality’s
reasoning that the term “proceeds” excludes any payout to a co-
conspirator. Id. at 403–09. We have not interpreted Santos so broadly,
relying instead on Justice Stevens’s case-by-case approach. See, e.g.,
Wilkes, 662 F.3d at 549. Other circuits have likewise refused to interpret
Santos as broadly as the Fourth Circuit. See Kratt, 579 F.3d at 562
(holding that “proceeds” means “profits” only when imposing a money
laundering count “leads to a radical increase in the statutory maximum
sentence, and only when nothing in the legislative history suggests that
Congress intended such an increase”); Garland v. Roy, 615 F.3d 391, 402
(5th Cir. 2010) (applying the presumption that “proceeds” means “gross
receipts” unless there is adequate legislative history to rebut the
presumption); United States v. Fishman, 645 F.3d 1175, 1193–94 (10th
Cir. 2011) (holding, in light of the fractured nature of Santos, that the
opinion is confined to its factual setting so that “proceeds” means “profits”
only where an illegal gambling operation is involved); United States v.
Demarest, 570 F.3d 1232, 1242 (11th Cir. 2009) (same).
32 UNITED STATES V. GRASSO
2
We now apply these principles to Grasso’s argument that
the government’s money laundering charges for the Yoakum
Drive and Benedict Canyon Road transactions raise a merger
problem. Under the applicable case law, Grasso’s argument
turns on whether the government has provided sufficient
evidence that the referral fees are “proceeds” of loan fraud
and bank fraud. We first consider whether viewing
“proceeds” as “receipts” in this context would raise a merger
problem “of the kind that troubled the plurality and
concurrence in Santos.” Van Alstyne, 584 F.3d at 814.
On their face, the loan fraud counts do not raise such a
merger problem. The loan fraud statute, § 1014, criminalizes
knowingly “mak[ing] any false statement or report” to
defraud an insured institution, while § 1956 criminalizes
knowingly “conduct[ing] a financial transaction” involving
proceeds of an unlawful activity for specified purposes.
Because these statutes criminalize different types of behavior,
the money laundering counts did not increase Grasso’s
sentence for the same behavior underlying the loan fraud
counts.
Unlike the loan fraud counts, the bank fraud count
charged Grasso with the entire Abrams-Fitzgerald “scheme
to defraud,” and so encompasses the Yoakum Drive and
Benedict Canyon Drive transactions. But we reject Grasso’s
merger argument here as well. First, Abrams’s two kickbacks
to Grasso were not a “central component” of the underlying
scheme. Van Alstyne, 584 F.3d at 815. Given that the
Abrams and Fitzgerald scheme lasted three years and
involved roughly 80 fraudulent transactions, and that Abrams
and Fitzgerald generally secured access to Cal Title through
UNITED STATES V. GRASSO 33
Grasso’s participation in their real estate transactions, the two
isolated referral payments to Grasso at the end of the scheme
were not “central” to the scheme’s success. See Bush,
626 F.3d at 537. The fact that the scheme operated
successfully for several years before Abrams and Fitzgerald
ever gave Grasso a kickback is powerful evidence of the
kickbacks’ “irrelevance to the overarching fraud scheme.” Id.
Moreover, Abrams’s kickbacks to Grasso drained off funds
that Abrams could have re-invested in purchasing another
property to extract fraudulent loan proceeds, thus hindering
the scheme in the same way the returned investment in Van
Alstyne hindered the defendant’s Ponzi scheme. Van Alstyne,
584 F.3d at 815–16.
Second, the inclusion of the money laundering charges
did not threaten “‘a radical increase in the statutory maximum
sentence’ for the underlying offense.” Bush, 626 F.3d at 538
(quoting Kratt, 579 F.3d at 562). Here, the underlying bank
fraud count has a 30-year statutory maximum, while the
money laundering count has a 20-year statutory maximum.
As in Bush and Phillips, the statutory cap on the penalty for
bank fraud is not “eviscerated” by the maximum penalty for
money laundering, and thus raises no inference regarding
Congressional intent.18 Finally, we have declined to define
18
As noted above, the Santos plurality and Justice Stevens focused on
how a money laundering charge could affect the statutory maximum
chosen by Congress for the underlying offense. This question of
Congressional intent is distinct from a district court’s exercise of
discretion in fashioning an appropriate sentence, which is inherently
limited by the Sentencing Guidelines and the parsimony principle of
18 U.S.C. § 3553(a). Here, for instance, Grasso’s guidelines range was 97
to 121 months, but he received just twelve months and one day of
imprisonment for his crimes. See Phillips, 704 F.3d at 766 n.11; see also
Bush, 626 F.3d at 538.
34 UNITED STATES V. GRASSO
“proceeds” to mean “profits” when a money laundering
conviction is based on kickbacks and transfers to co-
conspirators in schemes to defraud such as Abrams’s. See
Wilkes, 662 F.3d at 547.
Because the money laundering convictions in this case do
not raise a merger problem with respect to either the loan
fraud or bank fraud convictions, we define “proceeds” to
mean “gross receipts,” and conclude that these referral fees
may be viewed as “proceeds” of the loan and bank fraud. On
that basis, we reject Grasso’s argument that the government
presented insufficient evidence that his money laundering
charges were based on “separate and distinct” activity from
the Yoakum Drive and Benedict Canyon Drive transactions.
It is undisputed that the remaining elements of promotion
money laundering, under § 1956(a)(1)(A)(i), were fulfilled
here. The government adduced evidence that Grasso knew
that the referral fees were derived from the Benedict Canyon
and Yoakum Drive transactions, and that Grasso knew these
activities involved bank and loan fraud. Further, the
testimony of Abrams and Matykowski sufficiently
demonstrates that Grasso had the requisite intent to promote
the carrying on of loan fraud, as his demands for money were
intended to ensure the conspirators’ ongoing access to Cal
Title. We therefore affirm Grasso’s money laundering
conviction under § 1956(a)(1)(A)(i), and need not consider
whether it could be alternatively upheld under
§ 1956(a)(1)(B)(i).
III
We conclude that there was sufficient evidence to support
Grasso’s convictions for conspiracy, loan fraud, bank fraud,
UNITED STATES V. GRASSO 35
and money laundering, and that the district court therefore did
not err in denying Grasso’s motion for acquittal.
AFFIRMED.
BERZON, Circuit Judge, concurring in part and dissenting in
part:
I concur in Parts I and II.A–C of the panel’s opinion but
write separately with regard to Part II.A and respectfully
dissent from Part II.D.
I.
The Reed case relied on in Part II.A of the panel’s opinion
says the following: “Once a conspiracy is established, only a
slight connection to the conspiracy is necessary to support a
conviction. The term ‘slight connection’ means that a
defendant need not have known all the conspirators,
participated in the conspiracy from its beginning, participated
in all its enterprises, or known all its details. A connection to
the conspiracy may be inferred from circumstantial evidence.
Innocent association, even if it is knowing, does not amount
to a ‘slight connection.’” United States v. Reed, 575 F.3d
900, 924 (9th Cir. 2009) (internal citations, quotation marks,
and alterations omitted); see Maj. Op. at 15–16. The majority
relies on Reed, and, although it slightly paraphrases the
language of the opinion, I understand the majority opinion to
incorporate Reed’s holding concerning the limited import of
the “slight connection” locution. I therefore concur in Part
II.A of the opinion.
36 UNITED STATES V. GRASSO
I nonetheless write separately, to express my concern that
some of the quotations in Part II.A could be read, in isolation,
to suggest that a defendant may be convicted without in any
way participating in a conspiracy, if he simply has knowledge
of the conspiracy and a “connection” to its participants. See
Maj. Op. at 15–16. That, of course, is not the law. See, e.g.,
United States v. Tran, 568 F.3d 1156, 1164–65 (9th Cir.
2009) (reversing a conspiracy conviction because there was
no “evidence . . . from which it could be inferred — much
less proved beyond a reasonable doubt — that [the defendant]
participated in the conspiracy in any manner”) (emphasis
added).
More than thirty-five years ago, a panel of this court
endeavored to provide greater clarity regarding one aspect of
the law of conspiracy, and in so doing, emphasized the risk of
“proliferat[ing]” “statement[s]” of law that are “highly
misleading if taken out of the context of the particular cases
in which . . . made.” See United States v. Dunn, 564 F.2d
348, 356 (9th Cir. 1977).1 In the process, the court stated that
“evidence establishing beyond a reasonable doubt a
connection of a defendant with [a] conspiracy, even though
the connection is slight, is sufficient to convict him with
knowing participation in the conspiracy.” Id. at 357
(emphasis added). At the same time, the panel noted that
“after much reflection, [it was] of the mind that” that
1
In Dunn, the government argued that “‘[o]nce the existence of a
conspiracy is clearly established, slight evidence may be sufficient to
connect a defendant with it,’ quoting from United States v. Knight,
416 F.2d 1181, 1184 (9th Cir. 1969).” Id. at 356 (some internal quotation
marks omitted). We observed that the quoted statement from Knight
“obviously was [not] intended to state . . . the law regarding evidence,” id.,
and clarified that the evidence must be “establish[ed] beyond a reasonable
doubt,” id. at 357.
UNITED STATES V. GRASSO 37
statement of law “may be of doubtful appellate application
when the issue for review concerns whether the defendant
was connected with the conspiracy at all.” Id. at 357 n.21.
The court quoted with approval a decision of the Fifth
Circuit, explaining that this rule “‘finds its proper application
where persons are clearly connected to the conspiring group
or are found acting in such a manner as unmistakably to
forward its purposes.’” Id. at 357 n.21 (quoting United States
v. Alvarez, 548 F.2d 542, 544 (5th Cir. 1977)).
Despite the doubts expressed by the Dunn court, in the
intervening years, we have “repeatedly proliferated . . . th[e]
statement” that a defendant may be convicted of “knowing
participation in [a] conspiracy” based on evidence of a
“slight” “connection” with the conspiracy. See id. at 356–57.
As other judges have noted, this is a misleading, or at least
ambiguous, standard. It could be read to “mean that once A
and B conspire, . . . [a] ‘slight connection’ is enough to
convict C of the same crime, an intolerable proposition.” See
United States v. de Ortiz, 883 F.2d 515, 524 (7th Cir. 1989)
(Easterbrook, J., concurring), reh’g granted and judgment
vacated on other grounds, 897 F.2d 220 (7th Cir. 1990). It
also could be read to “mean that an appellate court must keep
in mind the possibility that evidence may be slight
quantitatively although substantial qualitatively — that a
single piece of evidence may be enough in context, an
unexceptionable proposition.” Id. On the other hand,
“[m]ere casual association with conspiring people is not
enough,” see United States v. Bautista-Avila, 6 F.3d 1360,
1362 (9th Cir. 1993), though on its face, “casual association”
certainly sounds like a “slight connection.”
As Judge Easterbrook has observed, the phrase “slight
connection” is ultimately best understood to mean that “if
38 UNITED STATES V. GRASSO
someone joins the conspiracy, ‘slight’ activity to accomplish
its objectives is enough, that peripheral conspirators commit
the crime no less than the mastermind.” See de Ortiz,
883 F.2d at 524. “This interpretation follows the definition
of the crime (agreement plus one overt act) and is not
troubling. That we have to tease it out of a formula with
dubious alternative meanings, though, is a mark against its
use.” Id. A panel of the Second Circuit has agreed. See
United States v. Huezo, 546 F.3d 174, 184–85 (2d Cir. 2008)
(Newman, J., concurring, joined by Walker, J., and
Sotomayor, J., in relevant part).
Here, there is no doubt that Grasso committed overt acts
in furtherance of the conspiracy. As the panel opinion
explains, Grasso “assisted his co-conspirators in convincing
lenders that various properties were sold for more than their
actual sales prices.” Maj. Op. at 16–17. He also “personally
inflated the MLS listings in the Claridge Drive and Alta Drive
transactions.” Maj. Op. at 17. We therefore have no
occasion to consider whether our case law repeating the
“slight connection” standard is a useful statement of the law
“when the issue for review concerns whether the defendant
was connected with the conspiracy at all,” see Dunn,
564 F.2d at 357 n.21, or whether, instead, the use of the
phrase “slight connection” should be abandoned as
ambiguous and misleading.
II.
I respectfully dissent from Part II.D. Under our case law,
Grasso’s convictions for money laundering cannot stand.
UNITED STATES V. GRASSO 39
A.
As the majority recognizes, under the statute here
applicable, 18 U.S.C. § 1956 (2006), now superseded,2 a
defendant ordinarily could not be charged with both a
criminal offense and a separate money laundering offense for
the same conduct, when the “very nature of the scheme
require[d] . . . [the] payment[]” that is charged as money
laundering. See United States v. Van Alstyne, 584 F.3d 803,
814 (9th Cir. 2009). Such double charging — which we have
denominated the “merger problem” — was only permissible
if the government proved that the payment charged as money
laundering was made with the “profits (as opposed to gross
proceeds)” of the underlying scheme. See United States v.
Ali, 620 F.3d 1062, 1072 (9th Cir. 2010). To determine
whether a money laundering charge triggered the “merger
problem,” we “must focus on the concrete details of the
particular scheme” underlying the separate criminal charges
against the defendant. See Van Alstyne, 584 F.3d at 815
(internal quotation marks omitted).
As is clear from the majority’s own explanation of the
intricacies of the scheme in which Grasso was involved, the
money laundering counts charged Grasso with conducting
payment of “essential expenses of” the bank fraud with which
Grasso was also charged. See United States v. Santos,
553 U.S. 507, 528 (2008) (Stevens, J., concurring). The bank
fraud count charged Grasso with carrying out a “scheme and
artifice to defraud the victim lenders,” including Lehman
Brothers, GreenPoint Bank, and RBC Mortgage Company.
See 18 U.S.C. § 1344. “[I]nstrumental to the co-conspirators’
2
See 18 U.S.C. § 1956(c)(9) (2009).
40 UNITED STATES V. GRASSO
operation” was their use of Cal Title — in which Grasso held
an “ownership interest” — “to prepare . . . title insurance
policies . . . with [an] inflated purchase price.” See Maj. Op.
at 6, 9. The co-conspirators then “provided” the falsified title
reports “to the lender[s],” to obtain inflated loans. See id. at
9. “Although Abrams and Fitzgerald [initially] attempted to
use other title companies for their transactions, these
companies soon declined to work with them, and Abrams and
Fitzgerald began using Cal Title exclusively, whether or not
Grasso . . . was acting as the agent for the transaction.” See
id. Relevant here, Abrams and Fitzgerald used Cal Title to
submit lenders with false title reports for the Benedict
Canyon and Yoakum Drive transactions.
The money laundering counts, in turn, charged Grasso
with successfully demanding that his co-conspirators —
Abrams and Fitzgerald — pay him commissions for their use
of Cal Title in carrying out the Benedict Canyon and Yoakum
Drive transactions. See 18 U.S.C. § 1956(a)(1)(A)(i).
Without Cal Title, the scheme could not have generated the
false title reports necessary to obtain inflated loans from the
defrauded lenders. Grasso “forbade” his co-conspirators from
using Cal Title unless they paid him a commission. See Maj.
Op. at 9. “The very nature of the scheme thus required” the
co-conspirators to make regular commission payments to
Grasso. See Van Alstyne, 584 F.3d at 815.
Nor is it of any moment that, as the government argues,
the payments to Grasso for services provided also
“promote[d] future fraud.” The Fourth Circuit recently
rejected a similar argument in a case reversing a defendant’s
money laundering convictions arising out of an “extensive
mortgage fraud conspiracy.” See United States v. Cloud,
680 F.3d 396, 399 (4th Cir. 2012). The scheme there at issue
UNITED STATES V. GRASSO 41
“involved convincing people to invest in real estate properties
that, unbeknownst to the buyers, Cloud had recently
purchased for a lesser amount. The scheme also involved
falsification of loan applications . . . .” See United States v.
Abdulwahab, 715 F.3d 521, 530 (4th Cir. 2013) (discussing
Cloud, 680 F.3d at 399–400) (internal citation omitted).
Cloud “lured his coconspirators with promises of payment,”
including commissions for recruiting buyers to the scheme.
See Cloud, 680 F.3d at 405, 407. In response to the
government’s contention that the payments were designed
only “to perpetuate the scheme,” and therefore constituted
promotional money laundering, see 18 U.S.C.
§ 1956(a)(1)(A)(i), the court emphasized that the payments
were also for “services performed,” namely for “past and
essential expenses of [the] mortgage fraud conspiracy,”
Cloud, 680 F.3d at 407–08.
Indeed, any payment for services already rendered in the
context of a fraud scheme also promotes future fraudulent
activity by the person paid, by creating an expectation that the
person will be paid again. In any case involving ongoing
fraud, the government’s approach — which, I note, the
majority does not endorse — would obliterate the limitations
our cases have set forth regarding the merger problem.
Because the government introduced no evidence that the
Benedict- and Yoakum-related commission payments were
made with profits, as opposed to gross revenues, of the
overall bank fraud scheme, Grasso’s convictions for money
laundering must be reversed. See Van Alstyne, 584 F.3d at
815.
42 UNITED STATES V. GRASSO
B.
To avoid the straightforward result compelled by our
precedents, the majority points to four reasons why the
transactions charged as money laundering, despite being
necessary to the fraud scheme, supposedly pose no merger
problem. None of the majority’s theories works.
1.
First, contrary to the majority’s assertion, the payments to
Grasso for the Benedict and Yoakum transactions did not
“hinder[] the scheme.” See Maj. Op. at 33. For that dubious
proposition, the majority relies on our decision in Van
Alstyne, in which we construed a “Ponzi scheme [that]
depended on attracting new investments and using some but
not all of the amount collected to pay returns to earlier
investors.” See Van Alstyne, 584 F.3d at 815. We held that
“distribution checks” periodically issued to individual
investors pursuant to the scheme were not chargeable as both
mail fraud and money laundering. Id. The checks were
funded not by any investment returns, “but by the investors’
own principal,” and were issued to cause investors to
“believe[] they had invested wisely,” and to encourage them
to invest additional funds. See id. at 808–09, 815. Because
issuance of the checks was necessary to inspire investor
confidence in the Ponzi scheme and to attract additional
investment, the distribution checks were “a central
component of the scheme to defraud,” and therefore ran
squarely into the merger problem. See id. at 815 (internal
quotation marks omitted).
With regard to a separate transaction — on which the
majority focuses — we held that there was no merger
UNITED STATES V. GRASSO 43
problem. See id. at 815–16. That transaction was a “full[]
refund[]” of “one investor’s [initial] outlay,” pursuant to that
investor’s demand. See id. at 815. “Returning the entire
amount of th[at] . . . investment,” we explained, “undermined
rather than advanced the core scheme, as the funds returned
. . . would not be available to lull other investors into
maintaining their investment.” Id. at 815–16.
Unlike the full refund in Van Alstyne, Grasso’s
commission payments for use of Cal Title were “essential
expenses” of the underlying fraudulent scheme. See Santos,
553 U.S. at 528 (Stevens, J., concurring). As explained, after
some time, Cal Title was the only title company that Grasso’s
co-conspirators could use to generate the necessary false
reports. To use Cal Title, the conspirators had to pay Grasso
a commission. Like the periodic distribution payments that
presented a merger problem in Van Alstyne, the commission
payments to Grasso prevented the scheme from using some
amount of funds to expand the scheme even further, but that
is always the case when a scheme pays its “essential”
“operating” “expenses,” such as the commissions paid to the
“runners” who “gathered bets from gamblers” in the lottery
scheme in Santos. See id. (emphasis added); id. at 509
(plurality opinion). By construing a necessary payment as
somehow undermining the fraud, the majority’s strained
analogy to the money laundering count upheld in Van Alstyne
threatens to eviscerate Santos’s core holding.
2.
The majority fares no better by contending that the
merger problem vanishes because Abrams paid Grasso
commissions only for the Benedict and Yoakum transactions,
and not for other fraudulent transactions carried out earlier.
44 UNITED STATES V. GRASSO
See Maj. Op. at 32. Abrams’s commission payments to
Grasso were in fact an integral part of each instance of bank
fraud once title companies other than Cal Title refused to
participate in the conspirators’ scheme.
In support of its pronouncement that the payments to
Grasso for services rendered were “irrelevan[t] to the
overarching fraud[ulent] scheme,” Maj. Op. at 33, the
majority relies on a case which, on plain error review,
construed eighteen monetary transactions to the defendant’s
personal bank account as not “central to carrying out the
scheme’s objective[s],” United States v. Bush, 626 F.3d 527,
533, 537–38 (9th Cir. 2010). Again, “the concrete details of
the particular scheme” must be examined to understand the
context for the court’s analysis. See Van Alstyne, 584 F.3d at
815 (internal quotation marks omitted).
In Bush, the transactions charged as money laundering
were complete before some of the conduct separately charged
as fraud was even carried out. See Bush, 626 F.3d at 537–38.
There was no merger problem with regard to separate wire-
fraud charges — related to a Ponzi scheme — because the
“necessity of the transfers . . . was limited to Bush’s personal
interest in veiling the sources of his income from public
authorities.” Id. at 538. The court explained that the
transactions were made only after authorities began
investigating his business associates; “[r]ather than risk
investors sending money directly to his [business] account,
Bush deflected attention by steering the investments overseas
first.” Id. As the court appropriately recognized, “[t]aking
additional steps to hide completed criminal activity is not
central to the solicitations necessary for a Ponzi scheme to
continue operating.” Id.
UNITED STATES V. GRASSO 45
Here, Grasso’s demands that his co-conspirators pay him
commissions essential to the ongoing fraudulent scheme
cannot fairly be analogized to the transactions in Bush. The
commissions were not simply payments for participation in
the conspiracy but for providing an essential service, once the
service was not otherwise obtainable.
3.
Nor is the merger problem mitigated by the fact that the
money laundering count exposed Grasso “only” to “an
additional 20 years of imprisonment,” beyond the 30-year
“statutory maximum for the underlying bank fraud charge.”
See Bush, 626 F.3d at 538; Maj Op. at 33.
As an initial matter, it is far from clear that under our case
law, the extent of the increase in the statutory maximum
sentence is a relevant consideration in determining whether
the merger problem exists. In Van Alstyne, we noted that the
Sixth Circuit held that proceeds “‘means profits only when
the § 1956 predicate offense creates a merger problem that
leads to a radical increase in the statutory maximum sentence
and only when nothing in the legislative history suggests that
Congress intended such an increase.’” Van Alstyne, 584 F.3d
at 814 (quoting United States v. Kratt, 579 F.3d 558, 562 (6th
Cir. 2009)) (emphasis added). We nonetheless construed the
Santos plurality and concurrence differently from the Sixth
Circuit, holding that there was a merger problem based on the
defendant’s conviction for both mail fraud and money
laundering, without regard to the applicable statutory
maximums — 30 years for mail fraud and 20 years for money
laundering. See id.; 18 U.S.C. §§ 1341, 1956. Indeed, Van
Alstyne nowhere mentioned the statutory maximum for mail
fraud in its consideration of the merger problem. The case on
46 UNITED STATES V. GRASSO
which the majority relies, Bush — again decided on plain
error review, see 626 F.3d at 533 — followed the Sixth
Circuit’s approach, rather than our own.3
In any event, the extent of the “additional” sentencing
exposure that Grasso “face[d]” as a result of the money
laundering charge, see Santos, 553 U.S. at 516, was identical
to what Van Alstyne faced, see Van Alstyne, 584 F.3d at 809
(noting that Van Alstyne was convicted of mail fraud in
violation of 18 U.S.C § 1341); 18 U.S.C § 1341 (providing a
statutory maximum of 30 years). As we are bound by
precedents involving “nearly identical facts,” see United
States v. Vasquez-Ramos, 531 F.3d 987, 989 (9th Cir. 2008)
(per curiam), the statutory maximums at issue are simply not
a basis for treating Grasso’s case differently than Van
Alstyne’s. Nor, were we considering the issue ab initio,
could it fairly be said that a 20-year increase of a 30-year
sentence is not “radical[],” see Santos, 553 U.S. at 517, in the
ordinary sense of being “marked by a considerable departure
from the usual or traditional,” see Webster’s Collegiate
Dictionary 1025 (11th ed. 2003) (defining “radical”).
4.
The majority’s final rationale for resisting the merger
problem here is that there is ostensibly no such problem when
a “money laundering conviction is based on . . . transfers to
co-conspirators.” See Maj. Op. at 34. To be sure, some
3
United States v. Phillips, 704 F.3d 754 (9th Cir. 2012), also cited by
the majority, also reviewed a money laundering conviction only for plain
error, id. at 762, and followed Bush, rather than Van Alstyne, in assessing
the relevance of the increase in the defendant’s sentence, see id. at 766
n.11.
 UNITED STATES V. GRASSO 47
transfers of funds among co-conspirators raise no merger
problem. But while some such transfers merely involve co-
conspirators “reaping the fruits of their crimes,” others
represent payments of essential expenses of a fraud scheme.
See Cloud, 680 F.3d at 406 n.4. In the latter instance, a
merger problem plainly exists.
Again, the Fourth Circuit’s cogent analysis is instructive.
In Cloud, several of the money laundering convictions
reversed on appeal involved payments to co-conspirators; “it
was only through the promise of these payments that Cloud
was able to persuade his coconspirators to do business with
him.” Abdulwahab, 715 F.3d at 531. In so concluding, the
Fourth Circuit carefully examined the “nature of the
payment” and its relevance to the scheme. Cloud, 680 F.3d
at 406 n.4; accord Van Alstyne, 584 F.3d at 815. The court
distinguished the scheme that Cloud perpetuated from the
scheme in an earlier case, United States v. Halstead, 634 F.3d
270 (4th Cir. 2011), in which co-conspirators orchestrated
insurance fraud. The Halstead defendants were charged with
money laundering only because ill-gotten funds were
ultimately transferred to their checking accounts. Cloud,
680 F.3d at 406 n.4 (citing Halstead, 634 F.3d at 273, 279).
In Halstead, the fact that the defendants ultimately paid
themselves posed no merger problem, as they “were not
paying the expenses of the fraud, but rather were reaping the
fruits of their crimes.” Cloud, 680 F.3d at 406 n.4.
The majority misconstrues our own case law in
concluding that we have foreclosed all Santos-based
challenges to money laundering convictions simply because
predicated on payments to co-conspirators. In Van Alstyne,
for instance, we noted that a “‘merger’ problem may . . . be
triggered when multiple participants share profits.” 584 F.3d
48 UNITED STATES V. GRASSO
at 815. The two cases on which the majority relies — United
States v. Webster, 623 F.3d 901 (9th Cir. 2010), and United
States v. Wilkes, 662 F.3d 524 (9th Cir. 2011) — are not to
the contrary.
Webster involved a conspiracy to distribute
methamphetamine. See Webster, 623 F.3d at 905. Webster
argued on appeal that given the charges for conspiracy to
possess with intent to distribute methamphetamine, 21 U.S.C.
§ 846, and possession with intent to distribute
methamphetamine, 21 U.S.C. § 841(a)(1), Santos barred an
additional charge for money laundering, without proof that
the “proceeds” involved in the relevant transactions
represented “profits.” Webster, 623 F.3d at 905. Webster did
not specify the transactions that gave rise to the money
laundering charge, and nothing in the opinion indicates that
the charge was for transactions involving “essential
expenses” of the underlying drug conspiracy. See Santos,
553 U.S. at 528 (Stevens, J., concurring).4 We rejected
Webster’s challenge to his money laundering conviction,
explaining that under the relevant statutes, the drug crimes
with which Webster was charged “need not involve the
exchange of money”; there was accordingly no merger
problem. See Webster, 623 F.3d at 906. We also noted that
Justice Stevens’s concurrence in Santos took the position that
the legislative history of the money laundering statute,
18 U.S.C. § 1956, indicated that no merger problem exists in
the particular case in which a money laundering charge is
based on a transaction involving “‘gross revenues from the
4
My review of Webster’s briefs on appeal, and his letter pursuant to
Rule 28(j) in which he initially raised the merger argument, confirms that
Webster never argued that the transactions were for expenses necessary
to consummate the charged drug crimes.
UNITED STATES V. GRASSO 49
sale of contraband and the operation of organized crime
syndicates involving such sales.’” Id. (quoting Santos,
553 U.S. at 526 (Stevens, J., concurring)). Because the four
dissenting Justices in Santos agreed with Justice Stevens in
that regard, see Santos, 553 U.S. at 531–32 (Alito, J.,
dissenting), we concluded that a majority of the Supreme
Court had held that no merger problem existed where “a
money laundering count is based on transfers among co-
conspirators of money from the sale of drugs.” Webster,
623 F.3d at 906. As the majority recognizes, see Maj Op. at
29, Webster alone does not stand for the broad proposition
that payments to co-conspirators more generally present no
merger problem.
Turning to Wilkes, the defendant was charged with honest
services wire fraud, bribery, and money laundering, in
connection with a scheme to bribe a member of Congress,
Randall “Duke” Cunningham. See 662 F.3d at 530.
Cunningham secured “millions of dollars in appropriations
for . . . [the] benefit” of Wilkes and another co-conspirator.
Id. at 531. “[T]hrough a complicated series of financial
transactions among multiple companies, Wilkes paid off
$525,000 on Cunningham’s second mortgage.” Id. Wilkes
was charged with money laundering for making a wire
transfer in the course of those transactions. On appeal,
Wilkes argued that the wire transfer at issue was “merely an
expense associated with the bribery, and, thus, not
‘proceeds.’” Id. at 549. Wilkes explained that unlike the
defendant in Santos, who was charged with promotional
money laundering, Wilkes was charged with concealment
money laundering. Id. Rather than using funds associated
with the bribery scheme to remit payment directly to
Cunningham, “Wilkes transferred the $525,000” from one of
his companies, to “another of his accounts, WBR Equities.”
50 UNITED STATES V. GRASSO
Id. at 547. The panel emphasized the measures that Wilkes
took to disguise the source of the funds:
Wilkes could have sent the $525,000 from
WBR Equities to Cunningham or Coastal
Capital directly. Again, he did not. Instead,
he wired $525,000 from WBR Equities to
Parkview Financial, Inc. In the meantime,
Parkview Financial and Coastal had engaged
in a series of transactions of their own, which
provided additional buffers between the
corrupt contract and the payoff of
Cunningham’s mortgage. Concealing this
connection appears to be the dominant, if not
the only, purpose of these multi-layered
transactions.
Id. Because of the extensive steps Wilkes took to conceal the
source of the funds, Wilkes’s conduct was separately
chargeable as concealment money laundering, rather than just
as a transaction “that involve[d] nothing but the initial
crime,” namely bribery. See id. at 547, 549. No merger
problem therefore existed.
Wilkes also noted that as in “Webster, Wilkes’s money
laundering count was based on a transfer to a co-conspirator
of money” from a scheme “such that ‘proceeds’ would
include all ‘receipts’ from” that scheme. See id. at 549. But
the opinion contained no analysis in support of that
conclusion. See id. Unlike the majority, I do not read Wilkes
for the expansive proposition that whenever a “transfer to a
co-conspirator” occurred, there could, ipso facto, be no
merger problem.
UNITED STATES V. GRASSO 51
First, as a three judge panel, absent intervening
controlling authority — of which there has been none —
Wilkes could not have overruled Van Alstyne, in which we
noted that a “‘merger’ problem may . . . be triggered when
multiple participants share profits.” 584 F.3d at 815; see
Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (en
banc). Second, as noted, Wilkes expressly rejected the
defendant’s characterization of the “multi-layered
transactions” as essential elements of the overall bribery
scheme. Wilkes, 662 F.3d at 547. Instead, the court held that
the wire transfers were “additional act[s]” separately
chargeable as concealment money laundering. Id. at 547,
549. The majority’s broader reading of Wilkes is foreclosed
by the fact that unlike in Grasso’s case, Wilkes involved no
payments “necessary” to the scheme.5 See Van Alstyne,
584 F.3d at 815.
In short, neither Webster nor Wilkes — individually or
collectively — can sustain the weight that the majority places
on them. Neither case dealt with a payment to a co-
conspirator involving essential expenses of the underlying
scheme. Webster was, in the Fourth Circuit’s useful parlance,
a case in which the defendant merely “reap[ed] the fruits of
[his] crimes.” See Cloud, 680 F.3d at 406 n.4. Wilkes
involved a money laundering charge that did not merge with
the bribery count because it was separately chargeable as
concealment money laundering. See Wilkes, 584 F.3d at 815.
5
Notably, the government has not defended Grasso’s money laundering
convictions on the ground that they were “additional acts” separately
chargeable as concealment money laundering.
52 UNITED STATES V. GRASSO
C.
Only by reading a series of heretofore nonexistent rules
into our case law does the majority avoid the conclusion that
Grasso’s money laundering convictions are barred by Santos
and its progeny. Because a proper analysis of “the concrete
details of the particular scheme” with which Grasso was
charged reveals that the additional money laundering charges
pose an unequivocal merger problem, I would reverse
Grasso’s money laundering convictions. See Van Alstyne,
584 F.3d at 815 (internal quotation marks omitted).