Background
Kenneth V. Knight, a licensed attorney, was convicted by a jury of (1) conspiracy to commit bankruptcy fraud (18 U.S.C. §§ 371, 157); (2) aiding and abetting bankruptcy fraud (18 U.S.C. § 152(7)); (3) aiding and abetting making a false statement in a bankruptcy case (18 U.S.C. § 152(3)); and (4) five counts of aiding and abetting money laundering (18 U.S.C. § 1957). He moved for acquittal or a new trial; the district court granted a new trial on most counts and acquitted on the false-statement count (conditionally granting a new trial on that count). The government appealed.
Underlying facts: from 2008–2009, client Brandon Barber received substantial real-estate proceeds (several transactions). Approximately $1.2 million of funds passed through Knight’s IOLTA; Knight made disbursements at Barber’s direction to business entities, vendors, and some personal debts. Knight formed NWARE at Barber’s request and handled escrowed funds from other transactions.
Barber filed Chapter 7 in July 2009. His Statement of Financial Affairs (SOFA) reported only about $4,000 income for 2008. The government argued Barber received large personal sums in 2008 (including $314,000 wired into Knight’s IOLTA) that were not disclosed; it alleged Knight knowingly aided concealment.
Trial evidence: extensive documentary record, witness testimony (including co-defendants who pled guilty), and expert testimony with competing views on whether IOLTA use was proper and what bankruptcy disclosures were legally required. Jury convicted after six hours of deliberation.
District court’s Rule 33 analysis: after reviewing the record, the court concluded the government’s evidence was highly circumstantial, left substantial gaps, and preponderated against the verdict as to conspiracy, bankruptcy fraud, and money-laundering counts (granting new trials). The court granted a judgment of acquittal on the false-statement count; alternatively it conditionally granted a new trial, citing a defective jury instruction. The court of appeals reversed the acquittal on the false-statement count but affirmed the new-trial grants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court abused discretion in granting new trial on conspiracy (18 U.S.C. § 371, § 157) | Gov: evidence showed Knight agreed with Barber to use IOLTA to conceal assets pre-bankruptcy; circumstantial evidence supported conspiracy. | Knight: evidence was speculative; no direct proof of intent to defraud creditors or agreement to commit bankruptcy fraud. | Affirmed district court — new trial appropriate; evidence preponderated against verdict and was largely speculative. |
| Whether district court abused discretion in granting new trial on aiding/abetting bankruptcy fraud (18 U.S.C. § 152(7)) | Gov: Knight knowingly and fraudulently transferred/concealed Barber’s funds through IOLTA in contemplation of bankruptcy. | Knight: transfers were often entity funds, ordinary-course transactions, or legitimate legal assistance; no clear intent to defraud creditors. | Affirmed — district court reasonably weighed conflicting evidence and found government’s proof insufficient (new trial warranted). |
| Whether court erred in granting judgment of acquittal on false-statement count (18 U.S.C. § 152(3)) | Gov: sufficient circumstantial evidence that Knight aided Barber’s false SOFA income statement (e.g., $314,000 Executive Plaza funds were personal income Knight knew about). | Knight: he did not participate in making the false oath; legal ambiguity about reporting entity income; no independent acts showing he influenced income disclosure. | Reversed district court’s acquittal — evidence was sufficient for a reasonable jury to find Knight aided and abetted the false-statement regarding Barber’s income. |
| Whether conditional new trial on false-statement count was proper because jury instruction was defective | Gov: instruction did not match the specific charged false statement; but theory at trial and indictment focused on specific income nondisclosure. | Knight: instruction allowed conviction on uncharged false statements; plain error affected substantial rights. | Affirmed district court’s grant of a new trial on false-statement count — instruction was defective and could have led jury to rely on uncharged statements. |
Key Cases Cited
- United States v. Campos, 306 F.3d 577 (8th Cir. 2002) (trial court may weigh evidence and grant a Rule 33 new trial sparingly; standard for abuse of discretion)
- United States v. Johnson, 474 F.3d 1044 (8th Cir. 2007) (new-trial remedy reserved for cases where evidence preponderates heavily against verdict)
- In re Addison, 540 F.3d 805 (8th Cir. 2008) (civil bankruptcy context: converting assets on eve of bankruptcy is not fraud absent other indicia of deceit)
- Milavetz, Gallop & Milavetz v. United States, 559 U.S. 229 (2010) (interpretation of "in contemplation of bankruptcy" addressed in professional conduct/bankruptcy context)
- United States v. White, 737 F.3d 1121 (7th Cir. 2013) (elements of bankruptcy-fraud statute explained)
- United States v. Mitchell, 388 F.3d 1139 (8th Cir. 2004) (elements of aiding and abetting)
- United States v. Reed, 297 F.3d 787 (8th Cir. 2002) (jury may infer guilt from disbelief of defendant’s denials when corroborative evidence exists)