Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

 

The government’s case in many instances will evolve or shift to some extent over the course of a criminal prosecution. It may be a long time between indictment and trial, and the prosecution may come into possession of new evidence before trial, or may not have thoroughly reviewed the evidence which it does possess until after the return of the indictment. In addition, the prosecution may adjust its arguments or evidence in reaction to the defense. Whatever the reason, the prosecution in many criminal cases may determine to argue or present evidence at trial regarding a theory of criminality which differs to some degree from the crimes alleged in its original indictment. A thorough prosecutor will sometimes seek to provide for such a shifting theory by obtaining a superseding indictment from the grand jury, but in other cases the prosecution may not notice any need to do so or may simply neglect to do so. In any event, attorneys should carefully evaluate the prosecution’s arguments and proof at trial, as well as the trial court’s instructions to the jury, in order to determine whether a variance or amendment of the indictment has occurred. Following is a brief survey of the Eleventh Circuit Court of Appeals’ current position on amendments to or variances with the indictment.

“A constructive amendment occurs when the essential elements of the offense as alleged in the indictment are altered to broaden the potential bases for conviction beyond what the indictment contains.” United States v. Tampas, 493 F.3d 1291 (11th Cir. 2007) (citing United States v. Narog, 372 F.3d 1243, 1247 (11th Cir. 2004); United States v. Keller, 916 F.2d 628, 634 (11th Cir. 1990)); see also United States v. Ward, 486 F.3d 1212, 1227 (11th Cir. 2007). A constructive amendment of the indictment constitutes per se reversible error because it violates a defendant’s Fifth Amendment right to be tried on charges presented to the grand jury. See United States v. Tampas, 493 F.3d 1291 (11th Cir. 2007) (citing United States v. Weissman, 899 F.2d 1111, 1114 (11th Cir. 1990)). Under the Fifth Amendment, “a defendant can only be convicted for a crime charged in the indictment. It would be fundamentally unfair to convict a defendant on charges of which he had no notice.” Ward, at 1227 (citing Keller, at 632-33). The mere presentation of evidence not referenced in the indictment, such as pursuant to Federal Rule of Evidence 404(b), does not constitute an amendment or variance. See United States v. Lavigne, 282 Fed.Appx. 790, 793 (11th Cir. 2008) (unpublished).

In contrast, “a variance occurs when the facts proved at trial deviate from the facts contained in the indictment but the essential elements of the offense are the same.” Ward, 486 F.3d at 1227 (citing Keller, at 634; United States v. Flynt, 15 F.3d 1002, 1005-06 (11th Cir. 1994)). A variance only requires reversal where the defendant can establish that his or her rights were substantially prejudiced. Id. (citing Keller, at 633).

The Court has found no constructive amendment where an indictment charged the defendant with distributing crack cocaine and the trial court instructed the jury that it could find the defendant guilty if he had distributed either cocaine or crack cocaine, based upon the fact that the type of drug is not an element under the controlled substance statute, 21 U.S.C. § 841, United States v. Porter, 293 Fed.Appx. 700, 703, 04 (11th Cir. 2008) (unpublished); where the government argued in its closing arguments that it need not prove that all of the defendants named in the indictment were members of the scheme, but the indictment charged the defendant with conspiring with two named co-defendants as well as “other persons” United States v. Nunnally, 249 Fed.Appx. 776, 778 (11th Cir. 2007) (unpublished); where the trial court failed to instruct the jury that it had to find that the defendant embezzled a specific amount, but the indictment alleged that the defendant embezzled property having a value in excess of $5,000, Tampas, at 1291; where the trial court instructed the jury that it could still convict the defendant on the substantive mail and wire fraud counts of the indictment if it was unable to reach agreement on the conspiracy charge did, despite the fact that the government had referenced the conspiracy in the substantive counts of the indictment, Ward, at 1227, 28; where, despite the fact that the indictment alleged that the defendant possessed “more than 20 kilograms of cocaine,” the trial court instructed the jury that it could find the defendant guilty if it found that he possessed “a measurable amount” of a controlled substance, United States v. Knight, 213 Fed.Appx. 835, 838, 39 (11th Cir. 2007) (unpublished); where the government alleged in its indictment that the defendant committed an act “on or about” a particular date, but the proof at trial showed that the act was committed on a different date, United States v. Strevell, 185 Fed.Appx. 841 (11th Cir. 2006) (unpublished); where the indictment charged the defendant with an offense involving cocaine, but the proof at trial and the trial court’s jury instructions referred to crack cocaine, United States v. Rutherford, 175 F.3d 899, 906 (11th Cir. 1999); where the government’s indictment alleged that a certain person was the victim of the defendant’s extortion, but the proof at trial demonstrated that the person had no connection with the money obtained, United States v. Flynt, 15 F.3d 1002, 1006 (11th Cir. 1994); where the district court deviated in its instructions to the jury from the allegations in the indictment concerning a non-essential element of the crime, United States v. Lignarolo, 770 F.2d 971, 981 (11th Cir. 1985); where the government proved events of a conspiracy at trial which were not listed in the overt acts section of the indictment, United States v. Gold, No. 83-3231, 83-3230, 83-3267, 83-3239, 1984 WL 48339 (11th Cir. 1984); and where the government dropped two alleged co-conspirators from its conspiracy allegations at trial, United States v. Davis, 679 F.2d 845, (11th Cir. 1982).

However the Eleventh Circuit has found constructive amendments of indictments and improper broadening of the potential bases for conviction where the indictment charged the defendants with knowing or having reasonable cause to believe that pseudoephedrine would be used to manufacture methamphetamine, but the trial court instructed the jury that it could convict the defendants if it found that they knew or had reasonable cause to believe that the pseudoephedrine would be used to make “any controlled substance,” Narog, at 1249; where the government charged that the defendant knowingly and “willfully” committed money laundering, but the court redacted the term “willful” from its charge on the definition of “intentional,” United States v. Cancelliere, 69 F.3d 1116, 1121 (11th Cir. 1995); where the indictment alleged that the defendant conspired with a particular person and the trial court instructed the jury that it could convict the defendant if it found he conspired with “any” person, Keller, at 636; where the RICO charges in the indictment charged that the “enterprise” was a particular organized crime family but the court instructed the jury that it could convict the defendants if it found a different enterprise, United States v. Weissman, 899 F.2d 1111, 1115 (11th Cir. 1990); and where the trial court instructed the jury that it could convict the defendant if it found the elements of an offense which had not been charged in the indictment, United States v. Peel, 837 F.2d 975, 979 (11th Cir. 1988).

 

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We have tried to sum up for readers the labyrinthine facts and developments in the shocking and fascinating case of Marc Dreier, drawing upon excellent and thorough articles on the subject by Roger Parloff in Fortune Magazine and by Robert Kolker in New York Magazine.

I. The Rise

Marc Stuart Dreier grew up on the South Shore of Long Island, the son of a Polish refugee who built a chain of movie theaters. He graduated from Lawrence High School in the Five Towns.

Dreier attended Yale and then Harvard Law School. On graduation, he became an associate with Rosenman & Colin in New York, and later became a partner.

In 1987, Dreier married Elisa Peters, an associate at Rosenman & Colin. The couple had a son, Spencer, in 1989, and a daughter, Jackie, in 1992. He moved to Houston-based Fulbright & Jaworski’s New York litigation office in 1989. In 1995, Dreier left Fulbright & Jaworski and briefly worked at Duker & Barrett.

In 1996, Dreier started his own firm, Dreier & Baritz, with securities lawyer Neil Baritz. He developed a business practice whereby he entered into agreements with other lawyers and law firms, promising to handle the collection of their gross revenue and payment of their office expenses in exchange for paying guaranteed salaries and incentive bonuses.

II. Sheldon Solow and Kosta Kovachev

It is rumored that Dreier received money to start the firm from New York real estate developer Sheldon Solow, owner of Solow Realty, a billionaire son of a bricklayer turned developer.

               Dreier represented Solow in several matters. One such matter was a dispute over a mansion in East Hampton with Peter Morton, founder of the Hard Rock Cafe, with each man staking a claim to the same multimillion-dollar East Hampton beach house. Another case involved a dispute between Solow and Peter Kalikow, another real estate developer and former owner of the New York Post, over $7 million loaned by Solow to Kalikow while Kalikow’s company was in bankruptcy. Dreier, at the request of Solow, took out full page ads in the Post and the New York Times which looked like legal notices, inviting creditors of Kalikow to call a company called Evergence Capital Advisors.

Evergence Capital Advisors was actually the name of a dissolved Florida corporation formerly owned by a friend of Dreier’s, Kosta Kovachev. Kovachev was a Serbian who attended Columbia University and Harvard Business School and became a banker and securities broker. He was sued by the Securities and Exchange Commission for his involvement in a Ponzi scheme selling time-shares in Florida which defrauded approximately 600 investors in 30 states out of $28 million. Dreier represented Kovachev in the proceeding.

The telephone numbers in the newspaper ads led to Dreier’s offices. More than 50 creditors called the numbers, but never received a response. The U.S. bankruptcy judge sanctioned Solow and Dreier $335,000 over the ads. Solow and Dreier are still appealing the sanctions.

Acquaintances describe Dreier as incredibly charming, but a ruthless litigator. In 2002, Dreier’s wife sued him for divorce. That same year, Baritz severed his ties with Dreier, and in 2003 the firm became Dreier LLP, with about 60 attorneys.

III. The Scheme

Beginning in November 2004, Dreier began to sell promissory notes to hedge funds. Dreier claimed that the notes were issued by Solow Realty, and represented to the funds that he was marketing agent for Solow. In reality, Solow and Solow Realty had no knowledge of the notes, and the notes were forged by Dreier along with fraudulent audit reports on the letterhead of one of Solow Realty’s accounting and firms, Berdon LLP. Dreier would tell fund representatives that Solow was trying to raise $500 million to purchase properties, and that Solow did not want to borrow money from banks for reasons of secrecy and because Solow did not want to be accountable to anyone. He claimed that the notes would return 11% interest a year.

Dreier and his co-conspirators, including Kovachev and a man named Armando Ruiz, would host meetings and conference calls with fund representatives. They would give fund representatives telephone numbers purportedly for Solow Realty’s CEO or Controller, but which actually went to Dreier and his accomplices. Dreier created fake e-mail addresses and obtained no-contract cell phones for the scheme.

The phony notes were purchased by nearly 40 investment funds, including Fortress Investment Group, GSO Capital Partners LP, Elliott Associates, Eton Park, Westford Global Asset Management, Perella Weinberg Partners, Verition and Blackstone Group.

In order to come up with the funds to make quarterly interest payments on the phony notes, Dreier expanded Dreier LLP. The firm eventually employed approximately 260 attorneys and approximately 300 staff and had offices in New York City, Los Angeles, Pittsburgh, Santa Monica, Stamford and Albany, New York. The firm’s New York City office leased 11 floors in a building designed by architect I.M. Pei at 499 Park Avenue.

Dreier lured new attorneys to the firm by guaranteeing them $1 million in salary before bonuses. He financed the expansion by factoring receivables. Although the firm had “partners,” Dreier remained the sole equity partner, which limited oversight.

Dreier amassed a large quantity of luxury property, including a $10 million condominium in Manhattan; two mansions in the Hamptons; properties in the Caribbean; an art collection worth $40 million, including works by Henri Matisse, AndyWarhol and David Hockney; and a 120-foot yacht. Dreier threw lavish parties with private performances by Diana Ross, Bon Jovi or Alicia Keys, and hosted a celebrity golf tournament.

 

IV. The Fall

By 2008, however, Dreier had a total of $180 million in debt to hedge funds, as well as annual interest payments of $20 million. He began selling a new form of phony note, allegedly issued by the Ontario Teachers Pension Plan (OTPP) and backed by BCE, the parent company of Bell Canada.

In September of 2008, Dreier failed to meet his obligations to one of the funds, likely GSO Capital Partners LP, and the fund demanded to meet with representatives of Solow Realty at Solow Realty’s offices. On October 15, 2008, Dreier, Kovachev and the fund representatives arrived at Solow Realty’s offices, and Dreier, without Solow’s knowledge, proceeded to hold a meeting in Solow Realty’s conference room in which Kovachev pretended to be Solow Realty’s Controller.

 

Finally, in late October 2008, a prospective buyer of the phony notes finally contacted the Solow Realty’s audit firm, Berdon LLP, whose name had been forged on the notes, and discovered the scheme. Berdon notified Solow, and Tom Manisero, a lawyer for Berdon, telephoned Dreier.

 

Dreier lied to Manisero, stating that he had only attempted to sell the notes once. He had several other telephone calls with Manisero, which were recorded by the U.S. Attorney’s Office. During the calls, Dreier admitted that the audit reports were fake, and that he was ashamed. On the final call, Dreier attempted to offer Manisero a “settlement.” Meanwhile, the Verition hedge fund discovered the irregularities with the phony notes.

 

On December 1, a bankruptcy attorney with the firm Norman Kinel sent Dreier an e-mail asking for $38.5 million out of the firm’s escrow account for one of the firm’s clients to pay its creditors. However, less than half of the money remained in the escrow account.

 

While Dreier was under investigation, he offered Fortress Investment Group $33 million of the phony OTPP notes. A Fortress representative, Howard Steinberg, asked to meet with the OTPP representative in person, and Dreier arranged for a meeting with OTPP’s general counsel in Toronto. On December 2, Dreier flew to Toronto met with the general counsel, Michael Padfield, himself to discuss alleged business opportunities and got his business card. He then proceeded to meet with Steinberg at OTTP’s offices, posing as the general counsel. Steinberg became suspicious and asked the receptionist if Dreier was actually the general counsel, and was told he was not. The police were contacted, and Dreier was arrested for criminal impersonation.

 

            Prosecutors allege that, after the initial call from Manisero, Dreier attempted to move funds to a personal account Dreier used for his Caribbean properties. On December 3, Dreier’s 19-year-old son, Spencer, attempted to deliver a message from Dreier to about 40 partners of Dreier LLP, but was shouted out of the conference room. Furthermore, at around this time, Dreier succeeded in having the firm’s bank transfer $10 million in escrow monies to one of his personal accounts. At this time also, Kovachev also went to the firm’s offices and took two paintings.

 

            Dreier posted bail in Canada, and arrived back on New York on December 7, where he was arrested upon arrival. Kovachev was also arrested. Authorities have also subpoenaed all documents from Dreier LLP relating to Armando Ruiz.

On January 29, Dreier was charged with seven counts wire fraud, securities fraud, and money-laundering. He initially pled not guilty, but filed affidavits admitting large portions of the allegations against him. Drier was placed under house arrest in his condominium in Manhattan. He is represented by attorney Gerald Shargel, who has formerly represented members of the Mafia. Dreier’s friend, Erinch Ozada, a Turkish hedge fund manager, is reported to be cooperating with the government.

In the meantime, Dreier LLP has ceased to exist. Attorneys and employees of Dreier LLP have unpaid salaries and unreimbursed expenses.

In all, Dreier is alleged to have committed $700 million in fraud against 13 hedge funds and three individuals, resulting in $400 million in losses, and to have taken $40 million from his clients’ escrow accounts. On Monday, May 11, 2009, Dreier pled guilty to all charges before U.S. District Court Judge Jed Rakoff in the U.S. District Court for the Southern District of New York. He faces a potential 20 years on some counts.

Over 200 creditors have already filed more than $450 million in claims against Dreier LLP. Investigators report that any monies are mostly gone. The government has seized Dreier’s luxury property in order to forfeit the property or distribute it among creditors. There has been some interest in the movie or book rights to Dreier’s saga, however New York’s Son of Sam laws prevent such exploitation.

 

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Each administration puts its own stamp within the Department of Justice on what priorities, or initiatives it will pursue. Not surprisingly, the Obama Department of Justice is pursuing Financial Institution Fraud as one of its top three initiatives behind National Security and combating the Mexican drug cartels. In the 100 day progress report released last week, the report stated the,

• Department of Justice has placed a distinct focus on financial crimes. Indeed, the Attorney General has said that “the Justice Department must wage an aggressive effort against financial fraud and market manipulation.”
• Moreover, the Department has devoted significant attention to preventing, investigating, and prosecuting mortgage fraud. The Federal Bureau of Investigation is currently investigating more than 2,100 mortgage fraud cases, up almost 400 percent from five years ago. The Bureau also has more than doubled the number of agents investigating mortgage scams, has created a National Mortgage Fraud Team at headquarters in Washington, and is working hand-in-hand with our partners at other agencies.

Of course, this only makes sense in the context of failing financial institutions and is reminiscent to me of the DOJ days of the late 80s and early 90s when financial institution fraud related to the savings and loan scandals resulted in significant prosecutions of officers and directors of those failed institutions. We plan a more in depth analysis of this DOJ initiative in coming weeks.

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Our summary retrospective of Justice Souter’s contributions to the Supreme Court’s criminal law jurisprudence continues. In addition to writing for the majority in many important criminal decisions, Justice Souter has authored concurring decisions in many cases, including criminal cases. While the Justice’s concurrences in criminal cases have typically been brief, Justice Souter has frequently raised important alternative views on issues on which he disagrees with the majority, or raises issues which the majority has overlooked.

Most recently, in Gall v. U.S., 128 S.Ct. 586 (2007) Justice Souter authored a concurring opinion in which he expressed his view that the best resolution of the tension between the Sixth Amendment right to trial by jury and consistency in sentencing was for Congress to enact a new statutory system of mandatory sentencing guidelines which provide for jury findings on all facts necessary to set the upper range of sentencing discretion. Justice Souter also concurred with the majority in U.S. v. Knights, 534 U.S. 112 (2001), in which the majority held that no more than reasonable suspicion was required to support a warrantless search of a probationer’s apartment, reserving the question of whether the Court’s holding in Whren v. U.S., 517 U.S. 806 (1996) that the subjective intentions of investigating officers play no role in searches based upon probable cause should also extend to searches based upon reasonable suspicion. In Illinois v. McArthur, 531 U.S. 326 (2001), the majority of the Court held that police officers preventing the petitioner from entering his home unaccompanied by an officer for about two hours while the officers obtained a warrant to search the home constituted a reasonable seizure of the premises pursuant to the Fourth Amendment. Justice Souter joined the majority in a concurring opinion in which the Justice observed that the exigent circumstances created by the risk that the defendant would have destroyed the illegal drugs stashed on the property would have justified a warrantless search of the premises by the police. In his concurrence in Florida v. White, 526 U.S. 559 (1999), which involved the warrantless seizure of an automobile from a public place by police as contraband under Florida’s contraband forfeiture law, Justice Souter took issue with the majority’s holdings to the extent that they endorsed the warrantless seizure of anything alleged to be “contraband,” holding that “[t]he Fourth Amendment does not concede any talismanic significance to use of the term ‘contraband’ whenever a legislature may resort to a novel forfeiture sanction in the interest of law enforcement, as legislatures are evincing increasing ingenuity in doing…” (citing Bennis v. Michigan, 516 U.S. 442, 443-446, 458 (1996); U.S. v. James Daniel Good Real Property, 510 U.S. 43, 81-82 & n. 1 (1993) (Thomas, J., concurring in part and dissenting in part)). And in Carlisle v. U.S., 517 U.S. 416 (1996), Justice Souter disagreed with the majority opinion that a district court possesses inherent authority to grant a motion for a judgment of acquittal, observing that Congress might possess the power to abrogate courts’ inherent authority legislatively, citing Federal Rule of Criminal Procedure 29(c).

 

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            Supreme Court Justice David Hackett Souter has announced his intention to retire at the end of the Court’s term in June. In his 19 years on the Court, Justice Souter has been a key vote in many cases and has written over 150 majority, plurality, concurring and dissenting opinions, including in many criminal cases. In the area of criminal law, Justice Souter has issued numerous opinions fairly consistently advancing the rights of defendants at all stages of criminal proceedings. Federal Criminal Defense Blog salutes Justice Souter and his highly distinguished tenure on the Court by listing some of his significant opinions in the criminal arena, beginning today with majority and plurality opinions.

            Criminal defense attorneys everywhere will be familiar with Kyles v. Whitley, 514 U.S. 419 (1995) in which the Court, in an opinion delivered by Justice Souter, reversed the defendant’s conviction and held that a state prosecutor has a duty to learn of any favorable evidence known to the others acting on the government's behalf in the case, including the police, and has a duty to turn over all exculpatory evidence to the defense, pursuant to  Brady v. Maryland, 373 U.S. 83 (1963). And in Missouri v. Seibert, 542 U.S. 600 (2004), Justice Souter authored a majority opinion holding that warnings pursuant to Miranda v. Arizona, 384 U.S. 436 (1966) given to a defendant in the middle of an interrogation are ineffective and any statements given during the interrogation are inadmissible. And in Corley v. U.S., 129 S.Ct. 1558 (2009) discussed on this Blog, Justice Souter delivered the majority’s opinion that 18 U.S.C. § 3501 does not alter the rule that confessions made during periods of detention which violate the prompt presentment requirements of Federal Rule of Criminal Procedure 5(a) are inadmissible pursuant to the rule of McNabb v. United States, 318 U.S. 332 (1943) and Mallory v. United States, 354 U.S. 449 (1957).

            Justice Souter had Georgia on his mind early in his career on the Court when he delivered the unanimous opinion for the Court in Ford v. Georgia, 498 U.S. 411 (1991), in which the majority held that the Georgia Supreme Court erred in concluding that the petitioner’s claim pursuant to Batson v. Kentucky, 476 U.S. 79 (1986), which prohibits racially-based exercise of peremptory challenges by the prosecution, was untimely pursuant to State v. Sparks, 257 Ga. 97, 98, 355 S.E.2d 658, 659 (1987), in which the Georgia Supreme Court held that a Batson objection must be made within the period of the jurors’ selection and the administration of their oaths, because the Sparks rule was not “firmly established and regularly followed” at the time of the petitioner’s trial. In Wade v. U.S., 504 U.S. 181 (1992), Justice Souter, again writing for a unanimous Court, held that federal district courts have the authority to review the government’s refusal to file a substantial-assistance motion and to grant a remedy if they find that the refusal was based on an unconstitutional motive. Justice Souter authored the majority opinion in Old Chief v. U.S., 519 U.S. 172 (1997), in which the Court reversed the petitioner’s conviction for  possession of a firearm by anyone with a prior felony conviction in violation of 18 U.S.C. § 922(g)(1), holding that a district court abuses its discretion where it refuses a defendant’s offer to concede a prior judgment under Federal Rule of Evidence 403 and admits the full judgment over the defendant’s objection. In Shepard v. U.S., 544 U.S. 13 (2005) he wrote a majority opinion holding that in applying the Armed Career Criminal Act, 18 U.S.C.A. § 924(e), a sentencing courtcannot look to police reports or complaint applications to determine whether an earlier guilty plea necessarily admits, and supports a conviction for, generic burglary. Justice Souter wrote the majority’s holding in Watson v. U.S., 128 S.Ct. 579 (2007) that a person who trades drugs for a gun does not receive the gun in violation of 18 U.S.C. § 924(c)(1)(A), which provides for a mandatory minimum sentence where a defendant uses a firearm during a drug trafficking crime.

            Less pro-defense, Justice Souter authored the majority opinion in U.S. v. Wells, 519 U.S. 482 (1997) which held that material of falsehood was not an element of making false statements to a federally insured bank under 18 U.S.C. § 1014. And he rejected the petitioner’s arguments that 18 U.S.C. § 666(a)(2), which proscribes bribery of State and local officials of entities, was unconstitutional because of a lack of any jurisdictional requirement of a connection to federal money in Sabri v. U.S., 541 U.S. 600 (2004), holding that the statute was an instance of necessary and proper legislation.

 

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Spam e-mail is nearly universally despised. However, recipients of spam may not fully appreciate the inventiveness and intricateness of some spammers' methods, however dubious or illegal, before considering the charges against Missouri residents Amir Ahmad Shah, age 28, and Osmaan Ahmad Shah, age 25, who operated a company I2O. As reported by IDG News Service, the brothers, along with Paul Zucker of New Jersey and Liu Guang Ming, a citizen of China, were indicted today by a federal grand jury for an e-mail spamming scheme which targeted more than 2,000 U.S. colleges and universities and sold more than $4.1 million worth of products to students. The scheme involved e-mail extracting programs which illegally harvested more than 8 million student e-mail addresses. The defendants then sent targeted spam e-mails to students in at least 31 campaign selling a variety of products and services, including digital cameras, MP3 players, teeth whiteners, pepper spray, magazine subscriptions and spring break travel offers. They developed programs to falsify header information and rotate URLs, subject lines, content, reply addresses and other information to avoid spam filters. The defendants would include false and misleading information in the e-mails suggesting an association with the college or university, using fictitious names, claiming to be "campus representatives," and that the businesses selling the products were "alumni owned." They also created dozens of identical websites for each e-mail campaign to conceal the source of the e-mails and to keep the e-mails from being blocked by spam filters, and initially set up the hosting for the websites in China. The defendants made money through referral fees for sending spam for products and services sold by others, and by buying products in bulk and reselling them. They also offered "offshore hosting" services for other spammers.

Federal investigators began investigating the Shah brothers in 2005, after University of Missouri officials identified them as the source of the spamming. The brothers proceeded to remove all Missouri students' e-mails from their lists, but continued to spam other colleges and universities. The defendants are charged in the indictment with 26 counts of aiding and abetting each other to access a protected computer without authorization and transmit commercial e-mails with the intent to deceive or mislead the recipients about the origin of the messages, and the indictment seeks $4.1 million in forfeiture and other property. Colleges and universities have spent large amounts repairing the damage from the hacking and spamming and in implementing protective measures.

Spamming is regulated by the CAN-SPAM Act of 2003, codified at 15 U.S.C. s 7704, which prohibits false, misleading or deceptive information in spam, as well as for sexually explicit spam without sufficient warnings, and carries a maximum sentence of 5 years imprisonment. Some sources estimate that spam now comprises 95% of the e-mails in the world.

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In follow up to the post earlier today on the Fifth Circuit's letter to counsel in the Minor case, it seems that the Fifth Circuit is obviously troubled by the proof, if any, between the agency receiving federal funds, the Administrative Office of the Mississippi Courts, and the allegedly corrupt activity of Minor and the judges (Whitfield and Teel) that he sought to influence. First, the limiting cases on 666 violations have generally interpreted that statute very broadly, but a reasonable reading of the Court’s questions indicates a concern for the level of proof of the “nexus” between the Administrative Office of the Mississippi Courts and any agent, or activity of a particular matter before the judges.

Secondly, if such a nexus is required, it seems the Court is concerned whether the issue has been properly preserved both at trial and on appeal.

Thirdly, and most surprisingly, the Fifth Circuit, obviously knows what effect a reversal of those counts would have on the other counts of conviction, “even if the convictions on those other counts were not to be reversed?” The posing of that question by the Fifth Circuit seems almost gratuitous. Counts of conviction are routinely reversed that either don’t effect the sentence imposed, or that require re-sentencing consistent with the Court’s opinion. One has to look no further that Governor Siegelman’s recent case in front of the Eleventh Circuit. Quite frankly, re-sentencings happen all of the time after the reversal of some counts of conviction. Just odd that the Fifth Circuit would pose that question publicly.

As for Paul Minor’s quest for vindication before the Fifth Circuit, sadly, the court's letter indicates that they are going to affirm the other counts of conviction.

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Yesterday, the Fifth Circuit in a letter to counsel, requested additional briefing regarding Counts 11, 12, 13, and 14, which allege a violation of 18 U.S.C. § 666 (what I've always referred to as the devil statute). In Minor the government charged that the agency receiving government funds was the administrative office of the courts of Mississippi. Generally you see a Section 666 violation when someone has stolen monies from say, a local transit authority, which receives in excess of $5,000 in a given year (thereby conferring federal jurisdiction). And, we all know that almost any program receives that amount from the federal government now.

The Fifth Circuit requested additional briefing on the following questions:

1) What evidence shows that the Mississippi judges were influenced or rewarded in connection with matters related to the Administrative Office of the Courts of Mississippi?

2) Describe the nexus that the “in connection with” clause of 666 requires between the Administrative Office of the Courts of Mississippi and the particular matters in front of the judges supposedly influenced by Minor’s actions.

3) What was the proof of that nexus?

4) Did the appellants adequately preserve the issue in the district court and did they adequately raise the issue on appeal?

5) If the Fifth Circuit reverses any of the Counts 11-14, what effect would that have on any of the other counts of conviction, “even if the convictions on those other counts were not to be reversed?”

The Court gave the parties until May 15 to file briefs of less than 15 pages.

More commentary on this later.
 

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As previously reported here, the Department of Justice and UBS entered into a deferred prosecution agreement wherein UBS is to pay a fine and disclose to DOJ the names of its some 52,000 clients that have used UBS to park income in violation of U.S. tax laws. The New York Times reports today that the President of Switzerland has asked Treasury Secretary, Timothy Geithner, to drop what the Times inexactly reports to be a lawsuit to disclose the names of the UBS clients. In fact, under the deferred prosecution agreement, UBS has to cooperate with DOJ by providing the client’s names. My guess, Mr. Geithner, who had his own tax issues, isn’t going to touch this one. DOJ has already prosecuted two folks whose names UBS disclosed and, inevitably, many more such prosecutions will follow.

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Today the Eleventh Circuit held in United States v. Carter, No. 08-14460, that a search of the home of a probationer is reasonable under the Fourth Amendment, if supported by reasonable suspicion. Carter was on probation in 2007, however, his probation did not contain a Fourth Amendment waiver provision. His probation officer though, was suspicious that his lifestyle could not be supported by the unskilled labor he performed and he, along with other probation officers, searched Carter’s town home, which lead to him being charged with possession with intent to distribute crack and possession of a firearm by a convicted felon.

Carter moved to suppress the evidence discovered during the warrantless search. Relying on the balancing test set forth in United States v. Knights, 534 U.S. 112 (2001), Judge Carnes writing for the Court, noted that the Knights case first addressed the probationer’s individual privacy interests - in short - not much. Then Judge Carnes addresses the “governmental interests at stake” - in short - for a guy like Carter - prior violent crime and drug conviction - “the government’s interest in monitoring the probationer is particularly high.” This may be a common sense conclusion, but Judge Carnes draws this conclusion virtually out of thin air, citing only U.S.S.G. 4B1.1(a)(providing enhanced penalties for criminals with a history of drug felonies or crimes of violence). However, U.S.S.G. 4B1.1 says nothing about probationers, or the government’s interest in monitoring them more closely. 

Judge Carnes ultimately holds that “the search in this case need only be supported by reasonable suspicion to be reasonable under the Fourth Amendment” and that the search of Carter’s home was permissible.

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In a case of remarkable chutzpah, Mark Anthony McBride, plead guilty in Atlanta on Friday to a two count information charging him with one count of conspiring to obtain million of dollars in fraudulent mortgages and other loans and one count of bankruptcy fraud.

McBride plead to a scheme he started in 2001 after being released from prison and continued until he reported back to prison in 2002. As soon as he was released from prison in 2006 he was back at making a living in the only, apparent. fashion he knew, being a con artist by completing fraudulent mortgage loans, car loans, lines of credit and continued his scheme until his arrest in September of 2008 for violating his federal probation.

Showing exceptional criminal ingenuity, McBride was able to retain the proceeds of his fraud by filing 8 bankruptcies in Georgia, Alabama and South Carolina.

Methinks McBride's schemes have come to an end. He faces up to 35 years in prison at his sentencing, which is scheduled for July 9, 2009.

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U.S. Attorney David Nahmias said on Thursday that more charges are expected in the continuing investigation of inmate abuse at the Fulton County Jail. On Thursday, two lieutenants, Lt. Earl Glenn and Lt. Robert Hill, pleaded innocent to federal charges of using excessive force and lying to FBI agents investigating the case.

Nahmias has taken an unusual interest in this case, announcing last month the initial arrest of Curtis Jerome Brown, on civil rights, obstruction and false statement charges.

Last week Nahmias said that more charges were expected in the investigation of inmate abuse.

Judge Shoob has monitored conditions at the jail following a lawsuit filed on behalf of inmates accusing the jail of overcrowding and dangerous conditions.

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An article on Easter Sunday in the Atlanta Journal Constitution states what most readers will probably guess—that the gloom of the economy and financial desperation are fueling an increase in cases of fraud. The article notes that Ponzi schemes, mortgage fraud and other frauds have increased nationwide as well as in Georgia. It relates some recent noteworthy frauds in the State:

• Georgia’s “Bernie Madoff,” Wendell Ray Spell, who bilked investors out of $60 million in a Ponzi scheme involving financing of construction equipment;
• CRE Capital, an Alpharetta firm which purported to pay investors 10 percent a month from trading U.S. and Japanese currencies, but which turned out to be a Ponzi scheme which defrauded at least 120 investors of more than $28 million. CRE’s President James G. Ossie was indicted in January in the Northern District of Georgia on 10 counts of wire fraud;
• Woodstock, Georgia, real estate agent Joseph S. Jetton was sentenced last year to 14 years in prison and ordered to pay $11.2 million in restitution for mortgage fraud; and
• Georgianne Carlisle, a former insurance company executive from Taylorsville, Georgia, pled guilty last week to embezzling $1.2 million in insurance premiums.

The article references FBI statistics, which relates that pending federal prosecutions for fraud more than doubled from 279 in 2003 to 529 in 2007, and that embezzlement arrests jumped by more than a third over the same period to more than 22,000. It quotes sources claiming that Atlanta is a hot spot for mortgage fraud. Katherine Addleman, Director of the Securities and Exchange Commission’s Atlanta regional office, is quoted as stating that the worsening economy actually serves to expose frauds, since the fraudulent schemes run out of money. The FBI’s most recent Preliminary Semiannual Uniform Crime Report for January to June 2008 showed the rate of larceny-theft down 1.2 percent nationwide, but with an increase of .5 percent in the Southeast. These numbers likely have increased and will undoubtedly increase further if financial desperation from the declining state of the economy grows.

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Bernard Madoff pled guilty this morning to all charges in the criminal complaint against him in the Southern District of Georgia and United States District Judge Denny Chin accepted the plea, as reported at the Wall Street Journal Law Blog and elsewhere. Judge Chin also revoked Madoff's bond and remanded him to custody. Madoff's sentencing is scheduled for June 16.

In his allocution, the full text of which is available at the WSJ, Madoff admitted that he operated a Ponzi scheme through his business, Bernard L. Madoff Securities LLC. He admitted that he would receive funds from clients for investment which he never invested but instead deposited in a bank account at Chase Manhattan Bank. Madoff stated that when his clients wanted to cash out their gains or principal, he would pay them with other clients' monies from the account. Madoff admitted that he induced investors through a purported “split strike conversion strategy,” in which the client's money would allegedly be invested in a number of common stocks within the Standard & Poor’s 100 Index, and intermittently in Government-issued securities, allegedly selling option contracts on the stocks to limit his clients' liability caused by stock losses.

Madoff admitted to lying to clients and sending false trade confirmations and account statements. He also admitted to making false  certified audit reports and financial statements to the SEC and giving false testimony during an SEC hearing in 2006. Later, he concealed his fraud by wiring money from the U.S. to a United Kingdom corporation, Madoff Securities International Ltd., in order to create an appearance of actual securities transactions.

Madoff expressed remorse and shame for his actions, and asserted that he believed the scheme would end and that he would be able to extricate himself and his clients from the scheme. He also sought to protect his family to some degree, by stating that the other activities of his business, which were managed by his brother and his sons, were legitimate.

Commentators have remarked on the strange absence of any conspiracy allegation in the criminal complaint against Madoff, however this would not prevent the prosecution from bringing subsequent charges against others, including Madoff's family members. The docket sheet for the case reveals that Madoff entered into an agreement to forfeit property to the government back in December 2008.

Gillen Withers & Lake LLC is headed by former federal prosecutors who vigorously defend and represent their clients at every stage of the process, with an outstanding track record. Contact us at (404) 842-9700 (Atlanta) or (912) 447-8400 (Savannah).

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Bernard Madoff, the mastermind of a $50 billion dollar Ponzi scheme, may enter a guilty plea at his arraignment tomorrow in the United States District Court for the Southern District of New York, as reported in an article today at Law.com. Prosecutors filed an information against Madoff on Friday. One of Madoff's attorneys, Daniel J. Horwitz of Dickstein Shapiro,confirmed on Friday that Madoff would waive indictment. Madoff and his attorneys have been working with the government to determine the extent of the fraud and to locate assets.

70 year-old Madoff was arrested on December 11, 2008. He is alleged to have admitted his crimes to an FBI agent and to his sons.

Madoff was initially released on $10 million bail, which was subsequently revoked after Madoff mailed more than $1 million in jewelry to family and friends. The court ordered Madoff confined to his Park Avenue penthouse on electronic monitoring and surveillance by security guards

The lead attorney for the defense, Ira L. Sorkin, has been alleged to possess a conflict of interest in representing Madoff as a result of the fact that Sorkin's late father had an account with Madoff and Sorkin's representation of  Avellino & Bienes, an investment firm which funneled its clients' money to Madoff. A hearing on the issue has been set for Tuesday.

Meanwhile, the Securities Investor Protection Corp. (SIPC), an industry-funded organization that assists when brokerage firms fail, sent two checks on Friday to two of Madoff's investors. Investors are eligible for up to $500K from the SIPC, and will have until July to file claims.

An international coalition of 34 law firms from North America, Europe and South America who represent banks, hedge funds, public institutions and individuals who were victims of Madoff's fraud are also meeting today at the Park Avenue offices of McCarter & English, a Boston-based law firm, to plan their actions against Madoff

 

Gillen Withers & Lake LLC are white collar and corporate criminal defense attorneys with an outstanding reputation and track record, handling cases throughout Georgia and the nation. Call our Atlanta, Georgia, office at (404) 842-9700 or our Savannah, Georgia, office at (912) 447-8400.

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Misrepresentations in fraud cases in the Eleventh Circuit will no longer be tested according to whether a reasonable or ordinarily prudent person would find them material. That is the result of the Eleventh Circuit’s decision yesterday in United States v. Svete, No. 05-13809 (February 2, 2009), in which the appellants sold financial interests in viatical settlements—agreements with “viators” with terminal conditions who sold their life insurance policies for less than the mature value while the viators were still alive, id. at 2. The government alleged that the appellants made false statements and provided literature containing false statements to investors. Id. at 3. The appellants were indicted for mail fraud, and defended that the investors had signed contracts which provided that the investors did not rely on any representations other than those contained in the contracts, and requested the following jury instruction on fraud:

To prove a fraud crime, the government must show that the defendant under consideration intended to devise or participate in a scheme reasonably calculated to deceive persons of ordinary prudence and comprehension. The person of ordinary prudence standard is an objective standard and is not directly related to the gullibility or level of knowledge and experience of any specific person or persons. For purposes of this offense, the government must prove that a reasonable person of average prudence and comprehension would have acted on the representation made by the defendant under consideration.

Id. The district court rejected the instruction, and the appellants were found guilty and appealed. Id. at 4, 5. The Eleventh Circuit discussed the history of the mail fraud statute to conclude that “Congress has never used any language that would limit the coverage of the mail fraud statute to schemes that would deceive only prudent persons.” Id. at 9.

The Court did recognize the Supreme Court’s holding in Neder v. United States, 527 U.S. 1, 119 S. Ct. 1827 (1999), that materiality of falsehood is an element of mail fraud. Id. at 11 (quoting Neder, 527 U.S. at 25). However, the Court observed that all of the authorities which the Supreme Court relied upon in Neder “support the proposition that materiality may be proved without establishing that the misrepresentation was objectively reliable.” Id. at 12. Oddly, however, in contending that a misrepresentation may be fraudulent even if a reasonable or ordinarily prudent person would not regard it as fraudulent, the Court quoted the following section of the Restatement (Second) of Torts that a matter is “material” if:

(a) a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question; or

(b) the maker of the representation knows or has reason to know that its recipient regards or is likely to regard the matter as important in determining his choice of action, although a reasonable man would not so regard it.”

Id. (quoting Restatement (Second) of Torts § 538, at 80). The Court held that “the purpose of the element of materiality is to ensure that a defendant actually intended to create a scheme to defraud.” Id. at 14. It then proceeded at length to overrule its prior holding in United States v. Brown, 79 F.3d 1550 (11th Cir. 1996) that “mail fraud requires an objective inquiry; a scheme to defraud ‘that is, a violation of the mail fraud statute exists only where a reasonable person ‘would have acted on the misrepresentations: were the misrepresentations reasonably calculated to deceive persons of ordinary prudence and comprehension.’” Brown, at 1558 (emphasis added) (quoting Pelletier v. Zweifel, 921 F.2d 14651498-99 (11th Cir. 1991)); id. at 15-23.

 

Gillen Withers & Lake LLC are white collar and corporate criminal defense attorneys with an outstanding reputation and track record, handling cases throughout Georgia and the nation. Call our Atlanta, Georgia, office at (404) 842-9700 or our Savannah, Georgia, office at (912) 447-8400.

 

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The Securities and Exchange Commission has sued billionaire and owner of the Dallas Mavericks Mark Cuban for alleged insider trading, as reported by the Atlanta Business Chronicle. The SEC alleges that Cuban sold 600,000 shares of Mamma.com, Inc., a Canadian Internet search engine, in June 2004, based upon information about a pending stock offering which had not been made public. The SEC alleges that Cuban knew that the stock offering would be done at a discount price, and would dilute the stakes of existing shareholders in the company. Cuban is alleged to have avoided a loss of more than $750,000 by selling his shares in Mamma.com less than 4 hours after he learned of the impending offering. The SEC is seeking to bar Cuban from further violations, disgorgement of any gains and an unspecified penalty.

Cuban started the company MicroSolutions in Dallas in the 1980s and sold the company in 1990 to CompuServe for $6 million. Cuban then partnered with a college friend and started a company called Audionet, which eventually became Broadcast.com and was purchased by Yahoo in 1999 for $5.9 billion in Yahoo stock. Cuban is currently listed as #133 on Forbes' list of the "World's Richest People," with a net worth of $2.8 billion.

 

Gillen Withers & Lake LLC are white collar and corporate criminal defense attorneys with an outstanding reputation and track record, handling cases throughout Georgia and the nation. Call our Atlanta, Georgia, office at (404) 842-9700 or our Savannah, Georgia, office at (912) 447-8400.

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Former lobbyist Jack Abramoff was sentenced to 4 years imprisonment yesterday, as reported by the Associated Press. The Abramoff scandal shook Washington and contributed to the Republicans' loss of Congress in the 2006 mid-term elections. Following his arrest, Abramoff cooperated with the FBI in investigating his own corruption and that of others. Abramoff assisted the Justice Department in obtaining corruption convictions against former Republican Representative Bob Ney, former Deputy Interior Secretary J. Steven Griles and several aides.

Abramoff told the court that he was a "broken man," and was not the same person "who happily and arrogantly engaged in a lifestyle of political and business corruption." Abramoff's cooperation with the government spared him what could have been a maximum sentence of 11 years. He also faces criminal proceedings in Florida for a fraudulent casino deal.

 

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Edgar Beaudreault, Howard Sperling and Robert Surles were indicted for fraud by a grand jury in the United States District Court for the Northern District of Georgia last week. Beaudreault, Sperling and Surles are alleged to have conspired to defraud Cornell Corrections of California, Inc., a private company which operates correctional facilities for governmental units. Specifically, the defendants are alleged to have induced Cornell Corrections to transfer $13 million, which was to be used to purchase a correctional facility being constructed in Canon City, Colorado and which was to be held in escrow, to an account in Atlanta controlled by the defendants by representing to Cornell Corrections that the account was controlled by a bank. The defendants are alleged to have subsequently transferred the $13 million to other accounts to use for their own purposes.

 

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We have discussed former Georgia Tech worker Donna Gamble, who charged more than $316,000 on a state credit card. Today, as reported by the Atlanta Journal Constitution, the United States District Court for the Northern District of Georgia sentenced Gamble to 2.6 years imprisonment. The sentencing judge, United States District Judge Jack T. Camp characterized as "frivolous" Gamble's purchases on a card issued pursuant to the State's p-card program, which included waverunners, popcorn machines and Auburn University football tickets. In all, Gamble purchased a total of 3,800 items in 2,000 purchases, many made from her computer at the University. Gamble said nothing during the hearing and presented no witnesses on her behalf.

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According to the Atlanta Journal and Constitution, Perimeter Mortgage Funding, which operated from 2001 to 2005 before collapsing, cost lenders $7 million. One of its principals, Kevin Wiggins has pled guilty to one count of conspiracy and two counts of wire fraud in the United States District Court for the Northern District of Georgia, and who faces up to 15 years in prison and a $750,000 fine and who will be ordered to repay the defrauded lenders. Wiggins' sister, Lydia Wiggins Christopher, and appraiser Frank Astwood have also pled guilty. The defendants will be sentenced on Tuesday.

Perimeter Mortgage Funding originated mortgage loans and sold them to larger lenders, including to Fannie Mae, Freddie Mac, Colonial Bank, JP Morgan Chase, Wachovia and Washington Mutual. It collapsed when it ran out of funds to reimburse purchasers of the fraudulent loans.

The prosecution claims that Wiggins would agree to purchase properties and then deed them to straw borrowers, who were really Wiggins' relatives and friends. The borrowers would then secure loans on the properties, either purchase loans or cash out refinancings, using falsified information, including inflated appraisals and false statements about renovations and rental income. Lenders were deceived by photographs showing false renovations and concealing damage to the properties. Wiggins used the proceeds of the loans to purchase the properties and to pay himself and his accomplices, including by having closing attorneys disburse checks to corporations controlled by him.

In all, Wiggins and his accomplices obtained inflated loans on 88 distressed properties, many in Atlanta's West End neighborhood. In one case, a loan for $128,000 was obtained for a home which was purchased for $24,000. Wiggins would not pay the mortgages, and the properties would go into foreclosure. Mortgage fraud by individuals such as Wiggins has made approximately 20 percent of the homes in West End vacant. Wiggins has claimed that he had good intentions for the properties, including a desire to rehabilitate the West End and rent the properties to students before selling them. West End residents Brent Brewer and Paulette Richards, have submitted a video to the court about their community's struggle with mortgage fraud entitled "When a House is Not a Home," and are asking for the maximum sentence for Wiggins.

A recent Fannie Mae report lists Atlanta as the second worst for mortgage fraud, only behind Minneapolis. In June, the United States Department of Justice began "Operation Malicious Mortgage," a nationwide crackdown on mortgage fraud. Last year, Phillip Hill and nine other defendants were convicted in Georgia's largest-ever mortgage fraud case.

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     The decline in the housing market has been accompanied by a huge increase in the area of “foreclosure rescue” fraud, as reported by the Atlanta Business Chronicle. Given the slowdown in the mortgage market and the rise in foreclosures, unscrupulous types have found new areas for fraud. Although foreclosure rescue fraud may take many forms, in its simplest manifestation, companies or consultants seek out homeowners facing foreclosure and offer to help them save their homes for a fee. According to Bill Brennan, Director of the Atlanta Legal Aid Society’s Home Defense Project, homeowners send $800 or $900 to the out-of-state companies which take the money and do nothing. Another form of the scheme involves consultants who convince homeowners voluntarily surrender the titles to their homes to them, and then walk away with all the equity in the home. The companies and consultants review court foreclosure lists and then target their victims through telemarketing and other means.

     States are responding to the rise of foreclosure rescue fraud by passing laws prohibiting foreclosure rescue fraud and giving victims recourse. California and Florida, which have the highest numbers of foreclosures in the nation, have already enacted laws. 19 other states, including Georgia, have introduced bills this year regarding the practice. Georgia’s bill, sponsored by State Senator Gail Davenport of Jonesboro, contains a series of restrictions on foreclosure rescue fraud, including requiring any rescuer obtaining a home through foreclosure to pay the owner at least 82% of the fair market value of the home, and allowing homeowners to obtain treble damages.

     Foreclosures in the metropolitan Atlanta area are up 23% from spring of 2007. Fulton, DeKalb and Gwinnett lead the area in the number of monthly foreclosures.

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    The United States Attorney's Office for the Southern District of Georgia has announced the indictment of Alfredo Rasco and Niurka Rasco of Miami, Florida, who operated a clinic called United Therapy in Savannah. The defendants are charged with 34 counts of health care fraud and aggravated identity theft. The indictment alleges that the Rascos, through United Therapy, provided infusion services to patients, but only administered a fraction of the medicines to patients, while billing Medicare for the full amount. The indictment further alleges that the defendants defrauded Medicare of more than $4.6 million between 2005 and 2008.

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The Eleventh Circuit Court of Appeals has held that the United States must be the ultimate target of a conspiracy to defraud under 18 U.S.C. § 371. Jildardo Mendez wanted a Florida commercial drivers license (CDL), but spoke very poor English. Mendez contacted Steven Baez, a member of the Florida Army National Guard, who was illegally selling DA-348E forms, which were Department of the Army Operator Qualification Records which would allow an individual to waive completion of Florida CDL testing. Mendez paid Baez $1,000 for the form and obtained a Class A CDL, but was arrested during a subsequent investigation of Baez, and charged and convicted of conspiracy to defraud the United States in violation of § 371, and unlawful production of a Florida CDL in violation of 18 U.S.C. § 1028.

Mendez appealed, arguing that the evidence was insufficient to support his conviction pursuant to § 371 because there was no evidence that he was aware of any connection between a Florida CDL and the federal government, and the Eleventh Circuit agreed with him and reversed in United States v. Mendez, No. 07-13443, 2008 WL 2117607, *5 (11th Cir. May 21, 2008) (per curiam). The Court observed that § 371, which provides that it is a crime to “conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner of for any purpose…,” contains two clauses. Id. at *2. Under the “any offense” clause, the government does not have to allege that the United States was the intended victim of the conspiracy, however under the “defraud” clause, “‘the government must prove that the United States was the ultimate target of the conspiracy,” whereas under § 371's “any offense…’” Id. at *2 (quoting United States v. Harmas, 974 F.2d 1262 (11th Cir.1992)). The Court then discussed the United States Supreme Court’s decision in Tanner v. United States, 483 U.S. 107 (1987), in which the Supreme Court reversed the defendants’ convictions for conspiracy to defraud under § 371 where the victim of the conspiracy, the federal Rural Electrification Administration, was a private corporation which merely received financial assistance from, and was supervised by, the United States. Id. The Eleventh Circuit held:

Mendez’s § 371 conviction is precisely what the Tanner Court meant to prevent. The facts to which the parties stipulated do not show that Mendez even knew the federal government was in involved in the issuance of Florida CDLs, let alone that the United States was the ultimate intended target of Mendez’s conduct. Accordingly, under Tanner, there was no basis for the district court to find that Mendez was guilty beyond a reasonable doubt of defrauding the United States under 18 U.S.C. § 371.

Id. at *3.

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     Kirk Wright founded and was Chief Executive Officer of Atlanta-based International Management Associates (IMA), which managed several hedge funds, as reported by the Atlanta Business Chronicle. By 2006, IMA had thousands of clients, had received more than $150 million in investments and also had offices in New York, Los Angeles and Las Vegas. However, IMA actually lost almost all the money invested, yet Wright falsely reported monthly gains to investors. At the same time, Wright diverted millions to his personal use, spending the money on a half million dollar wedding, multiple properties in Atlanta and California, luxury vehicles, jewelry and on relatives.

     When several investors requested distributions early in 2006, IMA collapsed and the investors, including several National Football League players, received bad checks and filed suit against IMA. Wright proceeded to take $500,000 in cash from the company and fled. The Federal Bureau of Investigation conducted a nationwide manhunt and arrested Wright in May of 2006 at the Ritz Carlton hotel in Miami Beach, Florida, finding him in possession of numerous pieces of false identification and equipment for making false identifications.

     Wright was charged with mail fraud, securities fraud and money laundering and was convicted following a two week trial in the United States District Court for the Northern District of Georgia. He faces up to 710 years in prison and $16 million in fines.

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   Donna Rene Gamble was an employee of the Georgia Institute of Technology. As a Tech employee, Gamble had access to one or more Procurement Cards, or "P-Cards," which employees could use for official business purchases, but not personal purchases. However, over the course of five years, Gamble purchased more than 3,800 personal items with her P-Cards, totalling more than $316,000. Gamble then concealed her purchases by creating false receipts and making false entries in accounting records. The money spent by Gamble was grant money to Georgia Tech by the National Science Foundation.
   Gamble plead guilty on May 13 in the United States District Court for the Northern District of Georgia to 22 counts of mail fraud and theft from and organization receiving federal funds. She will be sentenced in July.

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     While many late preparers are busy filling out forms, the United States District Attorney's Office for the Northern District of Georgia has issued a press release to help motivate taxpayers to be honest with the Internal Revenue Service. United States Attorney David Nahmias told the press last Thursday that "The IRS and other federal investigative agencies are also on the lookout for related fraud, and taxpayers need to know that you--not your tax preparer--are ultimately responsible for the information that goes on your tax return" (not a promising sign for the trusty old good faith reliance on professional tax advice defense, but anyway).
    Mr. Nahmias rounded out the release with a string of cautionary tales--or rather recent tax prosecutions by the USAONDGA against both filers and tax preparers. Among the cases are a tax preparer who neglected to file her own tax returns, despite an income of over $400,000, and another preparer which submitted over 100 returns claiming over $460,000 in false Telephone Excise Tax Credits.

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    Tony Pellicano was the "Private Eye to the Star." However, Pellicano's investigative techniques included threats, illegally tapping phones, and bribing police and telephone company officials to run illegal checks. Consequently, Pellicano and his associates are now in a California district court on numerous charges, including wire fraud, identity theft and illegal wiretapping. Hollywood elite who have already testified at the trial include Garry Shandling, Sylvester Stallone, Chris Rock, Paramount Pictures CEO Brad Grey and former Walt Disney Co executive Michael Ovitz.
     Pellicano's activities were finally discovered when he smashed the windshield on the car of investigative journalist Anita Busch and left a dead fish on the car with a rose in its mouth and a note saying "Stop" in 2002. Later, two men tried to kill Bush at her apartment. Police raided Pellicano's Hollywood office and uncovered evidence of his illegal tactics.
     Pellicano is acting as his own attorney at the trial. The prosecution was forced to drop 28 charges when it could not bring forward the witnesses to prove them, and has rested its case.

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The Eleventh Circuit Court of Appeals has issued a ruling which confirms one more element which the government must prove, and which the jury must be instructed on, in order to convict a defendant of fraud. In United States v. Brown, 79 F.3d 1550, 1557 (11th Cir. 1996), the Eleventh Circuit held (or re-confirmed) that, in order to prove the crime of mail fraud, in violation of 18 U.S.C. § 1341, “the government must show the defendant intended to create a scheme ‘reasonably calculated to deceive persons of ordinary prudence and comprehension.”’ (Quoting Pelletier v. Zweifel, 921 F.2d 1465, 1498-99 (11th Cir.1991)). Last week, in United States v. Svete, NO. 05-13809, 2008 WL 788407, *7 (11th Cir. March 26, 2008), the holding of Brown was finally applied to Eleventh Circuit Pattern Jury Instruction (Criminal Cases) 50.1, which, as the Court noted, “does not include the reasonable person standard as articulated in Brown…” id.

In Svete, the defendants were convicted of conspiracy, money laundering and mail fraud for allegedly defrauding investors in “viaticals,” in which persons (“viators”) sell the right to receive benefits under their life insurance policies to purchasers in exchange for tax-free cash. Id. at *1-2. The government alleged that the defendants defrauded purchasers of viaticals by misrepresenting the life expectancies of the viators, the status of the life insurance policies and the risks associated with purchasing certain viatical contracts. Id. at *2. The defendants appealed, arguing that the district court erred in failing to instruct the jury consistent with the language of Brown, and the Eleventh Circuit reversed, stating that:

The inaccuracy of the definition of “scheme to defraud” in the jury instruction seriously impaired defendants' ability to conduct their defense on the substantive counts of mail fraud. Defendants did not have the opportunity to argue in connection with charged law that the contracts, signed by the investors, made it unreasonable for any prudent investor to have relied upon contrary statements by sales agents or [the Defendants’] promotional literature. Defendants did not have the opportunity to argue in connection with charged law that investors should have sought independent advice on investing in viaticals. Such arguments are clearly contemplated by controlling law in this Circuit. Therefore, the district court abused its discretion when it did not include the Brown, [cit.]., language in the jury instruction. [Defendants] are entitled to a new trial on the substantive counts of mail fraud.

 Id. at *7 (citing Brown at 1557).

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