7th Circuit Reverses Mail and Wire Fraud Conviction of Contractor for Alleged Bid Rigging

Steven Fenzl was the principal of Urban Services of America, Inc. ("Urban"). Fenzl was charged with alleged mail fraud and wire fraud in the U.S. District Court for the Northern District of Illinois. The charges related to alleged bid-rigging under the Sherman Act on a 2005 contract to refurbish the City of Chicago's garbage carts.
Urban had won bids from the City in the past--however it had been subject to investigation on the allegation that Fenzl's partner and co-defendant, Douglas Ritter, had cashed checks from the City written to other contractors. As a result of the investigation, Fenzl and Ritter were afraid that Urban would not be awarded the contract even if it submitted the lowest bid. So Fenzl and Ritter persuaded three other companies to bid on the contract who would not otherwise have done so, with the understanding that if one of the companies were awarded the bid by the City, it would subcontract the fulfillment to Urban. Urban also submitted a bid, which was the lowest. The City awarded Urban the contract. However, the City was unaware of Urban's communications with the other bidders. All bidders, including Urban, had to certify to the City that they had not entered into any agreements with other bidders relating to the price of the bids. Fenzl was indicted in 2009, and was convicted at trial last year.
Last week, the 7th U.S. Court of Appeals reversed Fenzl's convictions, in an opinion authored by Judge Posner, U.S. v. Fenzl, No. 11-2459 (7th Cir. 2012), available here. The Court held that it was difficult to see what was wrongful about Urban's alleged "scheme,"  since it increased, rather than reduced, competition among the bidders. It noted that the theory behind the government's fraud charges against Fenzl was infirm, since "[n]o evidence was presented that the more bidders there
were, the more likely Urban’s bid was to be accepted and that this would result in a higher price to the City for getting its garbage carts spruced up." Even if there were fewer bidders, Urban still would have likely been awarded the contract as the low bidder.
The Court rejected Fenzl's companion argument, that he could not have committed mail or wire fraud since the City did not lose any money as a result of his conduct. It observed that "there is no requirement that the victim have incurred, or the defendant have intended him to incur, a pecuniary loss. [Cit.] If you steal money from a person, it is theft even if you intended to, and did, replace the money before he noticed it was missing." (Citing U.S. v. Joshua, 648 F.3d 547, 553 (7th Cir. 2011)).
Fenzl was also charged with fraud relating to failure to subcontract to a woman or minority-owned business enterprise. However, the trial court ordered him acquitted of this charge. The Court of Appeals ordered Fenzl to be retried on the charge.


Four Executives Acquitted in Florida Hurricane Catastrophe Fraud Case

As reported in the Miami Herald, four former executives for Vanguard Fire and Casualty Co. were acquitted yesterday in the U.S. District Court for the Northern District of Florida in Tallahassee on charges that they allegedly defrauded the Florida Hurricane Catastrophe Fund of $20 million. The charges arose from the 2004 hurricane season, one of the most deadly and destructive for Florida, in which the State was hit by four hurricanes, Charley, Frances, Ivan and Jeanne.

The defendants were tried by a bench trial (i.e. trial by the judge without a jury). U.S. District Judge Robert Hinkle found in favor of the executives, former Vanguard President William Sanders, former CEO Thomas Stinson, Richard Magsam and John Henry Axley III, holding that there could not have been any fraud because the defendants told hurricane fund officials what they were doing and why they were doing it.

Image source: www.afn.org/~savanna/hurricanes.htm


Chinese-American Former Motorola Employee Acquitted on Espionage Charge

Image source: World Military Forum

On February 28, 2007, Hanjuan Jin, a Chinese-American and engineer for Motorola, attempted to board a one-way flight for Beijing, China, at Chicago's O'Hare International Airport. She was stopped by Federal agents before she could board the flight and found to be carrying a computer and other electronic storage devices containing more than 1,000 proprietary Motorola documents.

Jin was charged in the U.S. District Court for the Northern District of Illinois with espionage and theft of trade secrets. Prosecutors alleged that Jin intended to provide the information to Sun Kaisens, a Chinese telecommunications company and supplier to the Chinese military.

Yesterday, as reported by the Chicago Tribune, U.S. District Judge Ruben Castillo, following a bench trial, found Jin guilty on the trade secrets counts, but acquitted her on the espionage count. The Judge held that while there was evidence that Jin intended to betray Motorola, there was no evidence that she intended to betray her adopted country.

The Jin case is one of a series of recent prosecutions of alleged espionage on behalf of the People's Republic of China. This week, prosecutors in California obtained an indictment against the Pangang Group, a Chinese company, for conspiracy to commit economic espionage against chemical giant DuPont, and last July, Chunlai Yang, a computer programmer, was indicted for allegedly stealing trade secrets from trading exchange operator CME Group.

Florida Attorney and Police Officers Acquitted of Federal Mortgage Fraud Charges

Prosecutors with the U.S. Attorney's Office for the Southern District of Florida have dropped charges of mortgage fraud against Plantation, Florida, attorney Steven Stoll and police officer Dennis Guarancino, according to the Miami Herald. Stoll and Guarancino were charged in relation to a $16.5 million dollar loan fraud scheme by Guarancino's brother, Joseph Guarancino, also a police officer, which involved purchasing and flipping properties. However, their trial last month ended in a mistrial when the jury could not reach a verdict. The Government has stated that it will re-try Joseph Guarancino. Three other Plantation police offers and an FBI agent were acquitted by a jury in April.


Contact the attorneys of Gillen Withers & Lake LLC for your criminal and civil matters, in Savannah or Atlanta.

California Businessman Acquitted on Tax Charges; Did Not Review or Authorize Tax Filings Due to Kidnapping of Son

Earlier this month, as reported in the Wall Street Journal's MarketWatch, a Federal jury in the U.S. District Court for the Central District of California acquitted Howard H. Berger, a business consultant, on four criminal tax charges. The charges stemmed from Mr. Berger's alleged filing of 2006 personal and partnership tax returns allegedly claiming a false charitable donation of $1 million.

The defense at trial presented compelling evidence that Mr. Berger never personally reviewed or authorized his 2006 return. The compelling evidence was that, four days before the return was due in October of 2007, Mr. Berger's ex-wife kidnapped their 4 year-old son from his preschool and fled with the child to her native country of South Africa. Furthermore, this was not the first time the former Mrs. Berger had abducted the child--she had refused to return to the U.S. after taking the child to visit her family in 2005. It took Mr. Berger 8 months working with the U.S. State Department to obtain a court order for the return of his son. The defense furthermore undermined the testimony of IRS agents regarding alleged false statements by Mr. Berger regarding his access to the charity's bank accounts or statements.

Image source: discoverlosangeles.com/photos.html

Alabama Legislators and Casino Employees to Be Re-Tried


The U.S. District Court for the Southern District of Alabama has postponed the retrial of eight defendants on corruption charges relating to the gambling industry and various State legislators and employees, originally scheduled to commence on October 3, until January 9, 2012, according to Forbes.com. The charges stemmed from an FBI investigation into alleged bribery of legislators relating to an upcoming vote on a gambling bill. Two of the defendants, Alabama State Senator Quinton Ross and VictoryLand casino lobbyist Bob Geddie, were acquitted on August 11, following a nine week trial and an additional week of jury deliberations. The jury deadlocked as to the other defendants. None of the defendants were convicted.

The Court stated that ti would rule on whether to retry the defendants together or in separate trials. The defense has opposed severance, citing that the defendants were all tried jointly and claiming that the government is attempting to change the rules midway through the game.

The defense raised concerns regarding the rescheduled date, suggesting that it might conflict with the college football National Championship game in New Orleans. 

New York Attorney Salvatore J. Piemonte Acquitted on Federal Charges of Allegedly Aiding and Abetting Drug Dealers

Salvatore J. Piemonte, a former prosecutor for the Onondage County District Attorney's Office in Syracuse, New York, for seven years, and former a local judge, was indicted last November in the U.S. District Court for the Northern District of New York for allegedly aiding and abetting the sale of marijuana, according to Syracuse.com. The government charged that Mr. Piemonte allegedly accepted a large sum of money from drug dealers in exchange for providing them with false documentation. The documentation allegedly falsely represented that a courier for the drug dealers had been arrested, and the drug dealers purportedly intended to show the documentation to their supplier in Canada in a scheme to pocket the proceeds from their drug sales. 

Happily, yesterday, a jury acquitted Mr. Piemonte on the charges following trial. His defense centered on a frequent theme in such prosecutions--that the drug dealer witnesses for the government had fabricated the allegations in order to get their sentences reduced. The Blog congratulates Mr. Piemonte and his counsel on the victory. 

Image source: http://unconfirmedsources.com/?itemid=3885

Diamond Store Owner Arthur Hiaeve Acquitted on Federal Money Laundering Charges on Venue Grounds

Arthur "Avi" Hiaeve, owner of the Manhattan diamond store, Hiaeve & Co., was acquitted last Wednesday on money laundering charges in the U.S. District Court for the Eastern District of New York. According to Reuters, Senior District Judge Allyne Ross granted Mr. Hiaeve's motion for judgment of acquittal on the seven counts of laundering drug money through his business as well as charges of avoiding currency reporting requirements, holding that a single telephone call by Mr. Hiaeve to a government informant was insufficient to establish venue in the Eastern District, and that Mr. Hiaeve should have been prosecuted in Manhattan in the Southern District of New York. The prosecution responded that Mr. Hiaeve allegedly had reason to know that he was laundering money coming from drug operations operating in the Eastern District of New York. Double jeopardy bars a subsequent prosecution of Mr. Hiaeve in Manhattan.

The government had alleged that Mr. Hiaeve laundered at least $106,000 on five occasions. Employees of Hiaeve, Kevin and Tanny Donaldson, were also charged with laundering drug money and entered pleas of guilty to conspiracy to distribute controlled substances and money laundering, respectively. Mr. Hiaeve is still involved in a civil forfeiture suit involving $3 million in diamonds and $17,900 in seized currency.

 Source: Elite Choice

New York Senator May Be Retried in Wake of Supreme Court's "Honest Services" Fraud Decision

New York Senator Joseph L. Bruno was indicted in January of 2009 on eight counts of fraud. A jury in the U.S. District Court for the Northern District of New York acquitted Bruno, who is now 81 years old and the former Republican Majority Leader of the New York State Senate, on five of the remaining charges and deadlocked on the sixth in December of 2009. The charges were based on allegations that Bruno allegedly took approximately $3 million in kickbacks from businesses seeking to do business in New York, as well as labor unions. In particular, Bruno s alleged to have accepted $280,000 in "consulting fees" from companies associated with Loudonville, New York, businessman Jared Abbruzzese. Bruno was sentenced to two years' imprisonment last May, but has remained free pending his appeal in the U.S. Court of Appeals for the Second Circuit.

Now the U.S. Attorney's Office has filed a brief with the Court of Appeals requesting that the dismiss the charges against Bruno and remand his case for a new trial, as reported in the Saratogan. The prosecution argued that Bruno's convictions under 18 United States Code Section 346--the honest services fraud statute--cannot stand following the U.S. Supreme Court's decision in U.S. v. Skilling, the case against former Enron executive Jeffrey Skilling, as the Blog has noted here. However, it maintains that it can obtain another indictment of Bruno under the statute, as amended by Skilling. The government contends that it will be able to prove a quid pro quo if Bruno is ordered retried. Bruno and his counsel have filed a brief with the Court of Appeals arguing that any retrial of Bruno would violate double jeopardy.

Associate of Former Arizona Representative Rick Renzi Sentenced to 3 Years' Probation for Conspiracy and Embezzlement; Follows Acquittal of Mr. Andrew Beardall on All Charges

Yesterday, Dwayne Lequire, a former accountant at an insurance firm run by former Republican U.S. Representative for Arizona Rick Renzi was sentenced to three years probation in the U.S. District Court for the District of Arizona, according to KTAR.com.

Representative Renzi represented Arizona's 1st Congressional District until declining to seek re-election in 2008. He is alleged to have siphoned off approximately $400,000 from his family insurance business based in Sierra Vista, Arizona, to finance his Congressional campaign. He was indicted in a 47 count indictment relating to the insurance conduct and to a land swap which was unsealed in February of 2008. Last year, the trial court suppressed the wiretap evidence gathered against Representative Renzi, holding that Federal Bureau of Investigation agents and federal prosecutors ``conducted an unreasonable wholesale interception of calls they knew to be attorney-client communications.'' Representative Renzi has challenged the indictment in the Ninth Circuit Court of Appeals, and the criminal proceedings are on hold pending the appeal.

Lequire was convicted in July on eight counts of embezzlement. He was alleged to have diverted customers' insurance premiums to Representative Renzi. Lequire did not benefit from the activity, however.

Another associate of Representative Renzi, Andrew Beardall of Rockville, Maryland, was charged with conspiracy and two counts of insurance fraud for allegedly helping Representative Renzi cover up the transfer, however Mr. Beardall was subsequently acquitted on all charges.

(Postscript: It is the Blog's understanding that Mr. Beardall has filed a Hyde Amendment petition following his acquittal and we wish him and his counsel success in their pursuit).

Executives of Canada's Royal Group Technologies (now part of Georgia Gulf Corp.) Acquitted of Fraud Charges

A Judge in Oshawa, Ontario, a suburb of Toronto, acquitted six former executive of Royal Group Technologies on Friday, according to the Toronto Star. Royal Group is a manufacturer of plastic materials for the housing construction industry. The company is a subsidiary of Georgia Gulf Corporation, an Atlanta-based, manufacturer and marketer of chlorovinyls and aromatics, which purchased Royal Group in 2006 for $1.7 billion.

The executives, including Royal Group's founder, Vic De Zen, president Doug Dunsmuir, former chief financial officers Ron Goegan and Gary Brown, ex vice-president Luciano (Lu) Galasso and accounting director Gordon Brocklehurst, were charged with fraud in 2006 relating to a purchase of a property in Vaughan, Ontario, in 1998 for $20.5 million by a company tied to the defendants, which was then re-sold on the same day to Royal Group for $27.4 million. The defendants were also charged over their receipt of more than $2 million in bonuses for the sale of a subsidiary of Royal Group in 2002. The defendants were charged following an investigation by the Royal Canadian Mounted Police's Market Enforcement Team, designed to combat white collar crime.

The defendants' counsel argued that the defendants satisfied all disclosure requirements, and that the bonuses appeared in Royal Group's annual circular. Mr. Justice Richard Blouin acquitted the defendants immediately after hearing final oral arguments. The trial ran a total of 49 days, beginning last April. Canada's Federal Public Prosecution Service will determine whether or not to appeal the Judge's decision.

Life in Shambles for New Hampshire Psychiatrist Acquitted of VA Charges

Dr. William Weeks had a life many would envy. He was a prominent psychiatrist, a professor at Dartmouth College, a physician at the local Department of Veterans’ Affairs hospital, a nationally-recognized expert on rural healthcare, the head of his town’s School Board and treasurer of his church.

However, as reported by Fox News, his life fell apart after 2004 when investigators conducting an audit began looking at five $1.5 million contracts between Dr. Weeks and the VA hospital. The VA was believed to have developed an animus against Dr. Weeks over his articles in medical journals discussin how the VA could improve healthcare to veterans in rural areas by using non-VA providers. The investigation led in 2009 to Dr. Weeks being charged with five misdemeanor charges of violations of conflict of interest rules. The government alleged that Dr. Weeks placed himself on both sides of the contracts and funneled unused grant monies to his expense account at Dartmouth to pay for a sabbatical.  The VA also filed a civil action against him.


Fortunately for Dr. Weeks, he was acquitted on all counts following an eight day trial in April. However, his life had been ruined. He was terminated from his position, his marriage fell apart, he had incurred six-figure legal bills and he had attempted to commit suicide three times—twice by carbon monoxide and once by pills. The VA agreed to pay Dr. Weeks $800,000 to settle his civil claims. However, it insisted that he resign his position as a condition. Darmouth also agreed to pay the VA to settle allegations of improper conduct involving the administration of contracts with the hospital. Prosecutors continue to maintain that the prosecution was justified.


Alabama Contractor Roger Taylor Acquitted of Conspiracy, Bribery and Obstruction Charges Following Federal Trial; Avoyelles Parish Sheriff Bill Belt and Family Acquitted

On Tuesday, a jury in the U.S. District Court for the Northern District of Alabama in Tuscaloosa found construction contractor Roger Taylor not guilty on one count of conspiracy, five counts of bribery and two counts of obstructing justice, according to Tuscaloosa News. Mr. Taylor was one of numerous individuals investigated in relation to Alabama's Community College System. Mr. Taylor, co-owner of Hall-Taylor Construction, and was alleged to have bribed former two-year college Chancellor Roy Johnson by paying for more than $92,000 in construction costs and appliances at Johnson’s home in Opelika, Alabama, in exchange for awards of construction management work within the system. The government alleged that Mr. Taylor  was awarded $4 million in no-bid state contracts from 2002 to 2006 in exchange for the alleged bribes.

Mr. Taylor's trial began on October 25. He  was originally charged with 17 counts, but the majority of these were dropped after a successful appeal by a co-defendant. At trial, however, the prosecution failed to present any testimony showing that Johnson alleged directed or threatened college presidents to hire Hall Taylor on contracts for a massive makeover of the college system. On the contrary, witnesses testified that another construction management firm received a fair share of the contracts. The witnesses at the trial also praised Hall-Taylor's work. Mr. Taylor's counsel made the trial into a referendum on Johnson's credibility. Johnson pled guilty to 14 charges of conspiracy, bribery, witness tampering and money laundering in January of 2008. He is scheduled to be sentenced on November 18.

17 individuals, including former state legislators, college presidents and the system chancellor, have either pled guilty or been found guilty by a jury as a result of the investigation. A spokesperson for the U.S. Attorney’s Office for the Northern District of Alabama issued a statement that the prosecution believed it had presented sufficient evidence to find Mr. Taylor guilty of the bribery and obstruction charges, but that it respected the jury's verdict. The government has a companion civil forfeiture case against Hall-Taylor's assets. Mr. Taylor's counsel stated that the prosecution intimidated and threatened witnesses at the grand jury investigating Johnson, and have indicated that Mr. Taylor may seek recourse for the prosecution's actions.

In other positive Federal criminal news, Bill Belt, the former Sheriff of  Avoyelles Parish, Louisiana, his wife, Tracy Belt, and his sister, Julie Bernard, were found not guilty of conspiracy, mail fraud and obstruction of justice last week by a jury in the U.S. District Court for the Western District of Louisiana after a trial which also began on October 25, according to Towntalk.com.

In 1988, Sheriff Belt allegedly contracted with Michael and Rae Johnson to install pay  telephones  for prisoners in Avoyelles Parish in a venture called Cajun Callers. Under the agreement, Cajun Callers would pay a monthly commission to the Sheriff's Office. The Johnsons made large amounts of money  from the venture, which they failed to pay taxes on. Johnson subsequently became a Louisiana  State Judge, but  was removed from the bench due to ethical violations relating to Cajun Callers. The government alleged that Sheriff Belt was paid kickbacks.

In 1990, Sheriff Belt's future wife began keeping the books for two companies She owned: Southern Louisiana Communications, which operated public pay phones; and Central Louisiana Communications, which operated phones in Louisiana parish jails.

Rae Johnson testified at trial that Tracy Belt would allegedly take money collected from the pay phones and deposit it and then write three checks in identical amounts--one of which was to her husband's tax account from which taxes were never paid. Johnson stated that she would allegedly cash one of the other checks and deliver the money to Mrs. Belt. Sheriff Belt's counsel undermined Johnson's account of the triple-check scheme on cross-examination, however. Counsel argued in closing that Johnson was a liar who escaped prosecution herself by making up stories about the Belts. The government also presented the testimony of a convicted male pedophile who installed the Cajun Callers phones in the jails, and another convicted felon who served time for crimes including insurance fraud.

LAPD Officer Acquitted on Weapons Export Charges

It is a rather slow news day, so the Blog would like to take the opportunity to note that, earlier this month, a jury in the U.S. District Court for the Central District of California acquitted Los Angeles Police Department Officer Johnny Augustus Baltazar on charges of illegally exporting weapons and ammunition to the Central American nation of Belize, as reported in the L.A. Times. Baltazar was alleged to have purchased eight .40-caliber handguns, two 9-millimeter handguns and more than 1,500 rounds of ammunition from the LAPD police academy store for his Belize business, Elite Security. The guns and ammunition were shipped inside a safe, however the shipment was stopped by Belize officials who determined that the shipment was allegedly not in compliance with regulations banning the export of handguns larger than 9 mm. The officials sent the shipment back, and Baltazar planned to substitute smaller caliber guns for the larger caliber ones, however Immigration and Customs Enforcement agency discovered them and started an investigation.

Baltazar's counsel emphasized the confusing nature of export regulations to the jury at trial. He cited errors by the shipping company. He also argued that Baltazar was a law-abiding person merely looking to build a business in Belize for his retirement. A juror questioned following the verdict stated that he believed that Baltazar was merely following the advice of the shipping company. Baltazar remains an LAPD officer, however he has been on leave since the LAPD was notified of the investigation.

Sheriff Deputies Acquitted on Charges of Alleged Leaks and False Statements in Road Dog Cycle Motorcycle Gang Racketeering Investigation

Two years ago, Deputy Sheriff David Swanson and Sheriff's Captain Raul DeLeon of the Stanislaus County Sheriff's Department in California were indicted in the U.S. District Court for the Eastern District of California for making alleged false statements to federal investigators regarding leaks during a federal investigation of Road Dog Cycle in Denair, California. The owners of Road Dog Cycle, Robert and Brent Holloway, were also indicted for heading a racketeering enterprise, which involved members of the East Bay Dragons outlaw motorcycle club of California; the Merced, California, chapter of the Hell's Angels; and the Red Devils outlaw motorcycle club of Sweden. The defendants were charged with acts of trafficking in stolen motor vehicle parts, robbery, making extortionate extensions of credit and collecting extensions of credit by extortionate means.

Swanson was charged with allegedly leaking confidential law enforcement information to an associate of Robert Holloway who informed Holloway of search warrants which were to be executed at Road Dog Cycle. DeLeon was similarly charged with allegedly concealing his relationship with Robert Holloway and having contact with Holloway during the execution of a State search warrant at the residence of one of Holloway's employees in order to enable the employee to conceal evidence. Swanson and DeLeon faced a maximum of 15 years imprisonment.

Well, as reported by the Modesto Bee, the prosecution of Swanson and DeLeon turned out to be a case of prosecutorial overreaching when a jury acquitted Swanson and DeLeon on all charges earlier this month. Following the verdict, one juror told reporters that Swanson and DeLeon had been "railroaded." The problems in the government's case caused it at one point to offer Swanson the chance to plead to one felony count with no jail time and not even any probation. Even courthouse employees told the defense that they did not believe that he could have conspired to impede the federal investigation into the Holloways' activities.

Columbus, GA, Attorney Acquitted; Middle District of Georgia Instruction on Money Laundering of Fees Paid for Legal Representation

Mark Shelnutt, a distinguished attorney and member of the Columbus, Georgia, community, was found not guilty by a jury in the United States District Court for the Middle District of Georgia, the Honorable Clay D. Land, United States District Judge, presiding, on 36 counts brought by the government, including conspiracy, aiding and abetting a conspiracy to distribute cocaine, concealment money laundering, false statements and attempted bribery. Mr. Shelnutt was represented in the trial by attorneys Thomas Withers and Craig Gillen and the firm of Gillen Withers & Lake LLC. The Government was represented by attorneys Charles Bourne, David Stewart and Joe Newman of the United States Attorneys Office for the Southern District of Georgia.

The 6 day trial saw testimony by convicted drug dealers, federal agents and attorneys, as well as numerous supporters of Mr. Shelnutt, including several ministers with the United Methodist Church, which included the late Reverend Joseph Roberson, head of the South Columbus United Methodist Church and Cabinet member of the South Georgia United Methodist Conference, who died in an auto collision near Statesboro, Georgia, on Saturday. This blog has been on a hiatus for the trial, and we would like to thank all those who supported Mr. Shelnutt throughout the trial, as well as to send our condolences to Reverend Roberson's family and congregation.

The allegations arose from Mr. Shelnutt's representation of Torrance Hill, a convicted drug trafficker. The central allegation was that Mr. Shelnutt laundered money which Hill paid him as legal fees.

Mr. Shelnutt was charged under the concealment money laundering provision, 18 U.S.C. s 1956(a)(1)(B). The companion federal money laundering statute, 18 U.S.C. s 1957, contains an express exemption for "transaction necessary to preserve a person’s right to representation as guaranteed by the sixth amendment to the Constitution…" 18 U.S.C. s 1957(f)(1). However, no such exemption for legal fees exists in s 1956. Two weeks before Mr. Shelnutt's trial began, the Eleventh Circuit Court of Appeals issued an opinion in United States v. Velez, No. 09-10199, 2009 WL 3416116 (11th Cir., October 26, 2009), in which it reaffirmed s 1957(f)(1)'s exemption of payment of fees for legal representation from transactions which can constitute money laundering.

The parties and the Court agreed that mere payment of attorney's fees, even from drug proceeds, was lawful. Mr. Withers and Mr. Gillen argued to the Court that if legal fees were lawful in an attorney's hands, the fees could not be "magically transformed" into unlawful fees no matter what the attorney might do with them afterwards. After considering these issues, Judge Land crafted an instruction to the jury on s 1956(a)(1)(b), which read as follows:


             I am first going to explain the law to you regarding the substantive offense of money laundering. I will then explain to you the separate charge of conspiracy to commit money laundering. I will then explain the other offenses alleged in the Indictment.

             Counts Five through Thirty-Five of the Indictment allege that Defendant engaged in money laundering. Title 18, United States Code, Section 1956(a)(1)(B), makes it a Federal crime or offense for anyone to knowingly engage in certain kinds of financial transactions commonly known as money laundering. The Government alleges that the Defendant committed this crime on thirty-one separate occasions. You must consider each separate alleged count and determine whether the Government proved beyond a reasonable doubt the essential elements for each separate count.

             The Defendant can be found guilty of the offense of money laundering only if all of the following facts are proved beyond a reasonable doubt:

First: That the Defendant knowingly conducted, or attempted to conduct, a “financial transaction;”

Second: That the Defendant knew that the funds or property involved in the financial transaction represented the proceeds of some form of unlawful activity;

Third:    That the funds or property involved in the financial transaction did in fact represent the proceeds of “specified unlawful activity” - - in this case the proceeds of the distribution of controlled substances, also known as illegal drugs; and

Fourth:            That the Defendant engaged in the financial transaction knowing that the transaction was designed in whole or in part to conceal or disguise the nature, location, source, ownership or the control of the proceeds of the distribution of a controlled substance.

             The term “conducts” means initiating, concluding, or participating in initiating or concluding a transaction. “Knowingly conducted” means that conduct was done voluntarily and intentionally and not because of accident or mistake.

             The term “transaction” means a purchase, sale, loan, pledge, gift, transfer, delivery or other disposition of funds or property; and, with respect to a financial institution, includes a deposit, withdrawal, transfer between accoiints, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, or use of a safe deposit box.

             The term “financial transaction” means a transaction which in any way or degree affects interstate or foreign commerce involving one or more “monetary instruments” which includes coin or currency of any country, travelers or personal checks, bank checks or money orders, or investment securities or negotiable instruments in such form that title thereto passes upon delivery. The term “financial transaction” also means a transaction involving the use of a “financial institution” which is engaged in, or the activities of which affect, interstate or foreign commerce in anyway or degree. The term “financial institution” includes a bank.

             The term “interstate or foreign commerce” includes any commercial activity that involves transportation or communication between places in two or more states or between some place in the United States and some place outside the United States.

             The term “proceeds of some form of unlawful activity” means profits of some form of unlawful activity and not simply gross receipts.

             The term “knowing that the funds or property involved in the financial transaction represented the proceeds of some form of unlawful activity” means that the Defendant knew that such funds or property involved in the transaction represented proceeds from some form, though not necessarily which form, of activity that constitutes a felony offense under state or Federal or foreign law.

             The term “specified unlawful activity means distribution of a controlled substance. “Controlled substances” means illegal drugs.

             In this case, the Government alleges that the Defendant committed the crime of money laundering for each of the separate amounts listed in Counts Five through Thirty-Five of the Indictment by doing the following:

1)       Knowingly receiving the money as alleged from Torrance Hill;

2)       That the money Defendant received from Torrance Hill which he is accused of laundering actually came from illegal drug proceeds;

3)       That Defendant knew that the money he received from Torrance Hill came from illegal drug proceeds; and

4)       That the Defendant received the money and deposited it for the purpose of concealing or disguising the nature, location, source, ownership, or control of the proceeds from the distribution of illegal drugs.

In order for you to find the Defendant guilty as to these money laundering counts, you must find beyond a reasonable doubt the existence of all of these elements.

             I instruct you that it is not illegal for an attorney who represents a defendant accused of a crime to accept payment of his attorney fees in cash. It is also not illegal for an attorney to receive attorney’s fees from someone accused of a crime who pays those attorney’s fees from money that the person got from illegal activities. In other words, if you found here that Torrance Hill paid the Defendant attorney’s fees and that the source of those fees was Hill’s illegal drug activities, then the Defendant’s receipt of those attorney’s fees, without proof of concealment as described previously, is not money laundering or a federal crime.

              Just as it is not a federal crime for a Defendant to receive an attorney’s fee from illegal drug activities, it is not a federal crime to conceal a legitimate attorney’s fee, even if the fee comes from illegal proceeds. To be money laundering, the concealment must be concealment of illegal proceeds other than those that are paid for legitimate attorney’s fees.

The Shelnutt prosecution raised serious issues and concerns for criminal defense attorneys who represent clients charged with drug offenses, or in other contexts, where there is a high likelihood that any legal fees paid to counsel may be derived from unlawful activity. The defense argued that the prosecution of Mr. Shelnutt for money laundering could set a frightening precedent whereby the government could choose to prosecute any criminal defense attorney or money laundering for accepting payment for legal fees which was also proceeds of unlawful activity. The Court acknowledged these concerns and addressed them in the instruction it crafted for the jury. Fortunately, there have to date been very few prosecutions of attorneys under s 1956 for receiving attorney's fees, however the Shelnutt prosecution and the Court's instruction illustrate the need for either an amendment to s 1956 to contain an exemption for payment of legal fees similar to s 1957, or for the courts to make clear, as the Court's instruction did in this case, that (1) it is not illegal for an attorney to receive attorney's fees from money a person got from illegal activity and (2) it is not illegal to conceal monies received as legitimate attorney's fees.