United States v. Christopher Johns, 2012 U.S. App. LEXIS 14570

Background

Johns and Banks orchestrated a scheme to acquire distressed homes at inflated prices and siphon manufactured equity back to Banks, with Johns collecting broker fees.
The Ten Hoves, Coleman, and Spellers were leveraged in close succession: each faced foreclosure or distress and agreed to a deal that would return equity to Banks at closing.
Johns arranged a fraudulent second mortgage to a nonparty (Fledderman) listing Banks as recipient, and misstated the encumbrance to the Chapter 13 trustee.
The trustee denied approval for the sale, but Johns proceeded anyway, enabling Banks to disburse cerrtain funds to creditors and Johns to collect fees.
Johns was indicted on four counts of bankruptcy fraud and one count of receiving property to defeat bankruptcy; he challenged sufficiency of evidence, jury instructions, and sentencing calculations.
The district court found no valid mortgage securing the $30,000, and held that some equity was either actual or intended loss for sentencing; on appeal, the Seventh Circuit affirmed in part, reversed in part, and remanded for further proceedings.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Sufficiency of evidence for counts 1-3	Johns argues there was no genuine mortgage securing $30,000 to Banks.	Government argues no underlying valid mortgage and misstatement to trustee was false.	Convictions sustained; no genuine mortgage existed, so statement to trustee was false.
Jury instructions on mortgage law	Jury should decide feasibility of a valid mortgage under Wisconsin law with appropriate instructions.	No need for Wisconsin mortgage instructions where law shows no valid mortgage existed as a matter of law.	Instructional error not reversible; no prejudice since no mortgage existed as a matter of law.
Count Four sufficiency—intent to defeat Bankruptcy Code	Johns intended to defeat the Bankruptcy Code by bypassing trustee approval and siphoning equity.	He argues no intent to defeat the Code because creditors were paid in full and debtor exited bankruptcy.	Evidence supports intent to defeat the Bankruptcy Code; count four affirmed.
Loss calculation for sentencing (counts 1-3 and related conduct)	Loss should include manufactured equity from multiple sales, including Spellers’ home.	No actual or intended loss for some sales; not all equity constitutes loss under guidelines.	Remanded to determine whether Spellers’ sale yields loss; reversed as to Ten Hoves and Coleman losses; Speller loss remanded.
Vulnerable victim enhancement	Sellers in financial distress were vulnerable victims warranting enhancement.	Financial distress alone not sufficient; victims must suffer actual or intended loss.	Enhancement improper if no victims; may be proper if Spellers suffered loss and were vulnerable; remand to resolve on remand.

Key Cases Cited

United States v. Douglas, 874 F.2d 1145 (7th Cir. 1989) (sufficiency review standard; Jackson v. Virginia framework)
Stewart, 33 F.3d 764 (7th Cir. 1994) (vulnerable-victim concept; no financial loss required for §3A1.1)
Knapp and Spencer Co. v. Drew, 160 F.2d 413 (8th Cir. 1908) (spirit of bankruptcy act and administration of estate)
In re Payman, 40 F.2d 194 (2d Cir. 1930) (frustration of bankruptcy administration principle)
Stewart (cited within), 960 F.2d 955 (11th Cir. 1992) (Yount; instrumentality/victim concept in scams)
United States v. Goodstein, 883 F.2d 1362 (7th Cir. 1989) (broad interpretation of §152 components and intent)