Lead Opinion
Kyle Grasso appeals his convictions for money laundering, bank fraud, loan fraud, and conspiracy to commit loan and bank fraud, stemming from a Los Angeles-based scheme to defraud mortgage lenders. We conclude that the evidence adduced at trial, taken in the light most favorable to the government, was adequate to enable a rational trier of fact to find the essential elements of each conviction. See United States v. Nevils,
I
We have already explained how this scheme operated in United States v. Rizk,
A
The scheme, as crafted by Mark Abrams, a mortgage broker, and Charles Elliott Fitzgerald, a real estate developer, took advantage of the real estate frenzy of the early 2000s. The conspirators would enter into a purchase agreement for a home in an exclusive Westside Los Angeles community, and then obtain a loan for significantly more than the sale price, pocketing the extra money. For this scheme to work, the conspirators had to exert control over multiple aspects of each real estate transaction. Among other things, the sellers and agents had to keep the true purchase price of the home confidential; the appraisal reports had to show the falsely inflated values of the homes; the title and escrow companies had to prepare two sets of documents, one showing the actual purchase price (for the seller) and one showing the inflated purchase price (for the lender); .and finally the Multiple Listing Service (MLS) had to show the falsely inflated sales price of the homes. Abrams and Fitzgerald coordinated the efforts of a range of colleagues to make this conspiracy work. Abrams relied on Jamieson Matykowski, one of his employees, and Richard Maize, who controlled Americorp Funding, among others. Americorp, a mortgage broker, would send loan packages to lending agents for review and approval. The conspirators generally targeted banks that did not require their lending agents to use rigorous documentation and approval standards. Over the course of the scheme, the conspirators conducted roughly 80 fraudulent transactions. The banks that ultimately financed the loans that their lending agents approved, including Lehman Brothers (through its lending agent, Aurora Loan Services), GreenPoint Bank (through its lending agent, GreenPoint Mortgage), and RBC Mortgage Company, together lost at least $46 million in the Abrams-Fitzgerald conspiracy.
Grasso was one of Abrams and Fitzgerald’s recruits for this scheme. Grasso and his partner Joseph Babajian were successful real estate agents in the same affluent area that Abrams and Fitzgerald targeted, Westside Los Angeles. From 2000 to January 2001, Grasso and Babajian were the top-producing real estate agents at Fred Sands Realtors in Beverly Hills. Grasso and Babajian subsequently left Fred Sands and became affiliated with Prudential California Realty. Prudential compensated Grasso and Babajian for their move by conveying an ownership interest in several of Prudential’s subsidiaries to Grasso and Babajian’s wholly owned company, FSC Ventures. One of these subsidiaries was Cal Title, a title insurance company whose lax approval process would become
At trial, the government presented evidence to prove that Grasso became involved in the Abrams-Fitzgerald scheme some time in 2000 and worked with them through at least late 2002. According to the government, Grasso. participated primarily by identifying houses to be included in the scheme, ensuring that the seller would keep the sales price confidential, managing the information reported in the MLS listings, and obtaining the title insurance and escrow documents needed for the conspiracy through his access to Cal Title. The government’s case against Grasso rested heavily on evidence relating to six real estate transactions, which we describe in the order they occurred.
1
We begin with Grasso’s purchase of a property on Claridge Drive, Beverly Hills for his personal use. In July 2000, after Grasso separated from his wife, he was in the market for his own home, and focused on the Claridge Drive property. According to the evidence adduced at trial, Abrams thought that Grasso’s skills and contacts were useful in furthering the scheme and wanted to “ingratiate” himself with Grasso to induce him to continue helping with the fraud. Therefore, Abrams offered to help Grasso purchase the Claridge Drive property by following the same basic blueprint used for other transactions in the scheme.' Under the plán, Abrams would front Grasso the money for a down payment, Grasso would obtain an inflated loan, and then use the extra funds to pay Abrams back. According to Abrams, Grasso knew how the scheme worked and was a willing participant. Matykowski confirmed that Grasso acknowledged he was “going to do one of our deals” by inflating the purchase price of the Claridge Drive property “to forego putting a large down payment down.”
The plan moved forward over the summer. Grasso entered into a purchase agreement with Jose Menendez, the owner of the Claridge Drive property, to purchase the house for $890,000.
At closing, Abrams’s in-house escrow company prepared fraudulent documents reflecting a purchase price of $995,000, but sent a settlement statement to Menendez stating the correct $890,000 sales price.
2
At the same time he was purchasing the Claridge Drive property, from August to
The Alta Drive transaction unfolded as follows. In early August 2000, Abrams offered $2,000,000 to Shaghzo in the name of Abrams’s father, a straw purchaser. According to Abrams, Grasso knew that Abrams’s father was not actually purchasing the home. After Shaghzo accepted the $2,000,000 offer, Grasso withdrew the $2,050,000 MLS listing for the house and relisted it for $4,495,000. This false relisting caused a problem, however: when Shaghzo found out about it, he ordered Grasso to correct the misinformation, and Grasso agreed to do so. Abrams and Fitzgerald then submitted a fraudulent loan application for an inflated purchase price of $4,395,000 to Aurora Loan Services for approval. A loan for the full amount was funded by Lehman Brothers. After the sale closed in September 2000, and the escrow company disbursed the loan proceeds from Lehman Brothers, Abrams paid Grasso’s firm $46,436 in commissions. Several months later, MLS reported the property sold at its true price of $2,000,000. To prevent Aurora Loan Services and Lehman Brothers from seeing this accurate listing, Grasso again arranged to change the MLS listing to show a sales price of $4,495,000.
3
In January 2001, after Grasso became affiliated with Prudential and obtained an indirect interest in Cal Title, Abrams and Fitzgerald began using Cal Title to provide title insurance for their purchases. Cal Title was willing to prepare two title insurance policies, one with the inflated purchase price (which would be provided to- the lender) and the second with the actual purchase price (that the seller could review). Although Abrams and Fitzgerald attempted to use other title companies for their transactions, these companies soon declined to work with them, and Abrams and Fitzgerald began using Cal Title exclusively, whether or not.Grasso or Babajian was acting as the agent for the transaction.
Sometime in 2001, Grasso called Matykowski to complain that Abrams and Fitzgerald had been using Cal Title for transactions where he was not the agent. Grasso was agitated about this development, and forbade the Abrams-Fitzgerald team from using Cal Title unless Grasso and Babajian were in the deal. Abrams later told Matykowski that he agreed to pay Grasso and Babajian — via Prudential — a commission on transactions where Cal Title was involved, even when they were not serving as agents.
4
From approximately February 2001 through summer 2002, Grasso represented Abrams and Fitzgerald in their acquisition of four additional properties relevant to this appeal. For a property on Mandeville Canyon Road, Beverly Hills, Grasso submitted several unsuccessful purchase offers using the names of different straw buyers, before submitting a third, successful offer on behalf of “Jamieson Matykowski and/or assignee.” While the transaction was in escrow, Matykowski purportedly assigned the purchase agreement to yet another straw buyer. As in the Alta Drive transaction, the straw buyer was not the true purchaser and in fact did not know the conspirators had used his name. In addition to multiple straw purchasers, the conspirators also used two different escrow companies: the original escrow company resigned after determining it
Grasso also assisted the conspirators in purchasing a property on Claircrest Drive in Beverly Hills. According to Matykowski, Grasso was aware that the conspirators were using a straw purchaser for this property, as well. At one point, Matykowski testified, he was in Grasso’s office, and jokingly told Grasso, “Turn your back for a second I’m going to sign this contract.” Matykowski then forged the name “Hugo Wendt” on the purchase offer. Grasso treated this forgery as “just normal.” Once the seller accepted the offer for the Claircrest Drive property, Grasso asked the escrow officer to assign the purchase agreement to a different straw purchaser. Abrams and Fitzgerald paid FSC Ventures $21,490 in commissions for this transaction when it closed.
In summer 2002, Abrams and Fitzgerald purchased two more Beverly Hills properties, one on Yoakum Drive and the other on Benedict Canyon Drive. Although they did not use either Grasso or Babajian as their real estate agent, they did use Cal Title. Consistent with Abrams’s prior agreement, Abrams paid Prudential (which in turn paid Grasso and Babajian through FSC Ventures) a three percent commission for each transaction, which together amounted to $50,833. Abrams made these payments separately after the deals closed and the bank had already wire transferred the loan proceeds; the payments did not go through escrow or show up on the settlement statements for the transactions. Abrams and Grasso characterized these payments as “referral fees.”
B
In August 2007, a grand jury indicted Grasso for one count of conspiracy to commit bank fraud and loan fraud, in violation of 18 U.S.C. § 371.
The indictment also charged Grasso with one count of bank fraud and aiding and abetting, in violation of 18 U.S.C. §§ 2,
After a jury trial, Grasso was convicted on all conspiracy, bank fraud, and money laundering charges, and on the loan fraud charges relating to the Claridge Drive, Alta Drive, Mandeville Canyon Road, and Clairerest Drive transactions. Grasso moved for acquittal on all charges or in thé alternative for a new trial. The district court denied these motions, rejecting his sufficiency of the evidence claims. The court sentenced Grasso to twelve months and one day in prison and $13 million in restitution.
II
On appeal, Grasso argues that the district court erred in denying his motion for acquittal, see Fed.R.Crim.P. 29, because the evidence was insufficient to support a guilty verdict on the conspiracy, bank fraud, loan fraud, and money laundering counts for which he was convicted.
We have jurisdiction under 28 U.S.C. § 1291. We review denials of Rule 29 motions for acquittal de novo. United States v. Gonzalez-Diaz,
A
We begin with Grasso’s appeal of his conviction for conspiracy to commit loan fraud and bank fraud. To convict Grasso of conspiracy, the government must first prove that a conspiracy existed. “To prove a conspiracy under 18 U.S.C. § 371, the government must first establish; (1) an agreement to engage in criminal activity, (2) one or more overt acts taken to implement the agreement, and (3) the requisite intent to commit the substantive crime.” Rizk,
Where the defendant has a connection (even if slight) to the conspiracy, the government must also show that the defendant’s connection to the conspiracy is knowledgeable; “that is, the government must prove beyond a reasonable doubt that the defendant knew of his connection to the charged conspiracy.” Meyers,
Here, it is undisputed that the government sufficiently proved the existence of a conspiracy to commit bank fraud and loan fraud. As we explained in Rizk, “Abrams, Fitzgerald, and others associated with them initiated and carried out a scheme to defraud mortgage lenders.” Rizk, 660 F.3d at 1128. Nor does Grasso contest that he participated in the conspiracy; rather, the disputed issue is whether he did so knowingly.
To that end, Grasso argues that the government failed to adduce sufficient evidence to prove he had “knowledge of the objective of the conspiracy,” id. at 1134. According to Grasso, Abrams and Fitzgerald targeted and manipulated him because of his “highly respected and ex
Viewing the facts in the light most favorable to the prosecution, Nevils,
We reached a similar conclusion in Rizk. Like Grasso, Rizk argued that the evidence was insufficient to establish that she knew of the objective of the conspiracy. Rizk,
B
Next, we consider Grasso’s appeal of his convictions for loan fraud associated with the Claridge Drive, Alta Drive, Mandeville Canyon Road, and Claircrest Drive transactions. To obtain a loan fraud conviction, the government must prove that the defendant “[1] knowingly [made] any false statement or report ... for the purpose of influencing in any way [2] the action of ... a bank insured by the Federal Deposit Insurance Corporation.” 18 U.S.C. § 1014.
1
Grasso begins by challenging his loan fraud conviction for the Claridge
We disagree with this argument. Contrary to Grasso’s claims, the government can prove the knowledge element of § 1014 by showing that Grasso made false statements for the purpose of obtaining a loan, knowing that those statements would be submitted to federally insured banks.
2
Grasso next argues that there was insufficient evidence to convict him of loan fraud because he was involved only in the legitimate first step of the real estate transactions, had no knowledge of the scheme to defraud banks, and did not make any false statements to a federally insured financial institution in the Alta Drive, Claircrest Drive, and Mandeville Drive transactions.
Taking the evidence adduced at trial in the light most favorable to the government, a reasonable juror could find all the necessary elements to impose Pinkerton liability, contrary to Grasso’s contention that he had nothing to do with the fraud. Abrams and Matykowski testified that Grasso was well aware of the conspiracy’s fraudulent purpose and had a substantial role in it by the time the Alta Drive, Mandeville Canyon Road, and Claircrest Drive transactions occurred. Moreover, Abrams admitted that he committed loan fraud in each of these transactions, which took place according to the scheme’s basic blueprint. Because Grasso was aware of this blueprint, he could reasonably have foreseen Abrams’s loan fraud in those transactions. Thus, there is no due process problem in holding him liable for Abrams’s acts under Pinkerton. Because there is sufficient evidence to uphold Grasso’s convictions for loan fraud under Pinkerton, it does not matter whether Grasso was aware of when or whether Abrams committed the acts constituting loan fraud in each transaction. Hernandez-Orellana,
C
We now turn to Grasso’s appeal of his conviction for bank fraud, based on his role in the scheme to defraud Lehman Brothers and GreenPoint Bank. The bank fraud statute, 18 U.S.C. § 1344(1), provides criminal penalties for anyone who “knowingly executes, or attempts to execute, a scheme or artifice — ... (1) to defraud a financial institution.”
In making its case that Grasso was guilty of bank fraud, the government re
D
Finally, we address Grasso’s argument that the government presented insufficient evidence to convict him of money laundering when he received two “referral fees” for the Yoakum Drive and Benedict Canyon Drive transactions. Grasso argues that Abrams gave him referral fees for access to Cal Title, that the loan fraud and bank fraud scheme could not have occurred without such access, and, therefore, that the money laundering offense merged into the underlying loan fraud and bank fraud offenses and cannot be separately punished.
1
To address this argument, we first consider the relevant legal framework. Under the money laundering statute, 18 U.S.C. § 1956(a)(1), the government must prove that a defendant: [1] knew that money being used in a financial transaction was the “proceeds of some form of unlawful activity,” and [2] then conducted or attempted to conduct, a financial transaction with such proceeds; [3] for the purpose of either promoting an unlawful activity or for concealment. See 18 U.S.C. § 1956(a)(1) (emphasis added).
' In United States v. Santos, the Supreme Court attempted to define the term “proceeds” but could not reach a five-justice majority to do so.
On appeal, the Court considered whether the word “proceeds” in § 1956 meant the gross receipts of an illegal activity, or only the net receipts, i.e., the profits of that activity. Writing for a four-justice plurality, Justice Scalia concluded that both definitions of “proceeds” were plausible, and that “because the ‘profits’ definition of proceeds is always more defendant-friendly than the ‘receipts’ definition, the rule of lenity dictates that it should be adopted.” Id. at 513,
Four justices rejected this analysis and dissented. The dissent contended that “proceeds” should be defined as “gross receipts,” and would leave any “merger problems” to district judges’ discretion at sentencing. Id. at 547,
Justice Stevens, in a concurrence, rejected both definitions of “proceeds,” and adopted a case-by-case approach. He was particularly troubled by the fact that the dissenting opinion allowed “the Government to treat the mere payment of the expense of operating an illegal gambling business as a separate' offense.” Id. at 527,
Although Justice Stevens agreed that proceeds meant “profits” in the lottery scheme, he agreed with the four justices in dissent that proceeds did not mean profits in every case. Among other things, he explained, “the legislative history of § 1956 makes it clear that Congress intended the term ‘proceeds’ to include gross revenues from the sale of contraband and the operation of organized crime syndicates involving such sales.” Id. at 526-27,
Santos quickly caught the attention of Congress, which amended § 1956 in 2009 to define “proceeds” as “any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity.” FERA § 2(f). The amendments effectively endorsed Justice Alito’s dissent and overruled any interpretation of “proceeds” based on Justice Scalia’s and Justice Stevens’ opinions. See S. Rep. Ill— 10, at 432 (2009) (explaining that the plurality decision in Santos was “erroneous” and “contrary to Congressional intent.”).
In analyzing the three opinions produced by the Santos court, we have derived the controlling rule that “ ‘proceeds’ means ‘profits’ where viewing ‘proceeds’ as ‘receipts’ would present a ‘merger’ problem of the kind that troubled the plurality and concurrence in Santos.” See United States v. Van Alstyne,
First, we look to whether a given transaction was a “central component” of the underlying scheme. Van Alstyne,
Second, we consider whether the inclusion of the money laundering charges leads to “ ‘a radical increase in the statutory maximum sentence’ for the underlying offense,” because five justices in Santos also expressed this concern. Bush,
Third, we generally consider the money used in co-conspirator transfers in crimes such as the sale of contraband, fraud, or bribery as constituting the “proceeds” of such crimes for purposes of the money laundering statute. In United States v. Webster, we concluded that when “a money laundering count is based on transfers among co-conspirators of money from the sale of drugs, ‘proceeds’ includes all ‘receipts’ from such sales.”
• In United States v. Wilkes, we extended Webster’s rationale beyond drug cases and into the context of fraud and bribery.
We disagree with the dissent’s argument that Wilkes’s determination that kickback payments to the Congressman were “proceeds” is inconsistent with Van Alstyne. Dis. op. at 1100. Van Alstyne did not have occasion to address co-conspirator transfers, while Webster and Wilkes appropriately relied on five justices’ views in Santos in concluding that such transfers did not raise a merger problem. Van Alstyne ’s statement that a merger problem may be triggered when confederates in a scheme shared profits was based on a summary of Justice Scalia’s plurality opinion,
2
We now apply these principles to Grasso’s argument that the government’s money laundering charges for the Yoakum Drive and Benedict Canyon Road transactions raise a merger problem. Under the applicable case law, Grasso’s argument turns on whether the government has provided sufficient evidence that the referral fees are “proceeds” of loan fraud and bank fraud. We first consider whether viewing “proceeds” as “receipts” in this context would raise a merger problem “of the kind that troubled the plurality and concurrence in Santos.” Van Alstyne,
On their face, the loan fraud counts do' not raise such a merger problem. The loan fraud statute, § 1014, criminalizes knowingly “makfing] any false statement or report” to defraud an insured institution, while § 1956 criminalizes knowingly “conducting] a .financial transaction” involving proceeds of an unlawful activity for specified purposes. Because these statutes criminalize different types of behavior, the money laundering counts did not increase Grasso’s sentence for the same behavior underlying the loan fraud counts.
Unlike the loan fraud counts, the bank fraud count charged Grasso with the entire Abrams-Fitzgerald “scheme to defraud,” and so encompasses the Yoakum Drive and Benedict Canyon Drive transactions. But we reject Grasso’s merger argument here as well. First, Abrams’s two kickbacks to Grasso were not a “central component” of the underlying scheme. Van Alstyne,
Second, the inclusion of the money laundering charges did not threaten ‘“a radical increase in the statutory maximum sentence’ for the underlying offense.” Bush,
Because the money laundering convictions in this case do not raise a merger problem with respect to either the loan fraud or bank fraud convictions, we define “proceeds” to mean “gross receipts,” and conclude that these referral fees may be viewed as “proceeds” of the loan and bank fraud. On that basis, we reject Grasso’s argument that the government presented insufficient evidence that his money laundering charges were based on “separate and distinct” activity from the Yoakum Drive and Benedict Canyon Drive transactions.
It is undisputed that the remaining elements of promotion money laundering, under § 1956(a)(l)(A)(i), were fulfilled here. The government adduced evidence that Grasso knew that the referral fees were derived from the Benedict Canyon and Yoakum Drive transactions, and that Grasso knew these activities involved bank and loan fraud. Further, the testimony of Abrams and Matykowski sufficiently demonstrates that Grasso had the requisite intent to promote the carrying on of loan fraud, as his demands for money were intended to ensure the conspirators’ ongoing access to Cal Title. We therefore affirm Grasso’s money laundering conviction under § 1956(a)(l)(A)(i), and need not consider whether it could be alternatively upheld under § 1966(a)(l)(B)(i).
Ill
We conclude that there was sufficient evidence to support Grasso’s Convictions for conspiracy, loan fraud, bank fraud, and money laundering, and that the district
AFFIRMED.
Notes
. One version of the purchase agreement showed an inflated $990,000 sales price, but Menendez testified at trial that his initials on this agreement were fabricated.
. 18 U.S.C. § 371, as relevant here, provides that "[i]f two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy,” each shall be subject to criminal penalties.
. These include the Claridge Drive, Alta Drive, Mandeville Canyon Road, Claircrest Drive, Yoakum Drive, and Benedict Canyon Drive transactions, as discussed in detail above, as well as three additional transactions involving properties at Anacapa View Drive in Malibu, Stradella Road in Los Angeles, and Roscomare Road, also in Los Angeles.
. 18 U.S.C. § 2 provides that "(a) [wjhoever commits an offense against the United States or aids, abets, counsels, commands, induces, or procures its commission, is punishable as a principal [, and] (b) [w]hoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.”
. 18 U.S.C. § 1344(1), as relevant here, provides criminal penalties for “knowingly executing], or attempting] to execute, a scheme
. 18 U.S.C. § 1014, as relevant here, provides criminal penalties for "knowingly mak[ing] any false statement or report ... for the purpose of influencing in any way the action of ... any institution the accounts of which are insured by the Federal Deposit Insurance Corporation.”'
. 18 U.S.C. § 1956(a)(1), as relevant here, provides criminal penalties for “[w]hoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity — ... (A)(i) with the intent to promote the carrying on of specified unlawful activity ... [or] (B) knowing that the transaction is designed in whole or part — (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity.”
. The loan fraud charges arose from five separate transactions: Claridge Drive, Alta Drive, Mandeville Canyon Road, and Clair-crest Drive, as discussed above, as well as a fifth property that Abrams and Fitzgerald purchased on Roscomare Road in Los Angeles. Grasso was acquitted on the loan fraud counts relating to the Roscomare Road transaction, which are therefore not part of this . appeal.
. Grasso also argues that the district court violated his Sixth Amendment right to confrontation by admitting a statement from Tim Holland, a co-conspirator who controlled one of Abrams’s in-house escrow companies. Although the Sixth Amendment limits the admissibility of testimonial evidence, see Crawford v. Washington,
. Congress amended § 1014 in 2009 to cover "mortgage lending businesses,” but this expanded definition applies only prospectively and therefore does not cover the events in this case. Fraud Enforcement and Recovery Act of 2009 (FERA), Pub.L. No. 111-21, §§ 2(c)(2), 4(f).
. Grasso also argues that the government failed to demonstrate a nexus between Green-Point Mortgage and GreenPoint Bank that was sufficient to satisfy § 1014’s federal jurisdictional element for the Claridge Drive transaction. Because we have already concluded that Grasso knew his false statements would ultimately influence a bank under Bellucci, we reject this argument. Bellucci,
.Although Grasso addresses this argument to all four of his loan fraud convictions (for the Claridge Drive, Alta Drive, Mandeville Canyon Road, and Claircrest Drive transactions), it is inapplicable to Grasso’s Claridge Drive loan fraud conviction, because Grasso personally made false statements in his loan application and related documents for Ciar
. In 2009, Congress amended 18 U.S.C. § 20(1), which supplies the definition of "financial institution” for § 1344, to cover "mortgage lending businesses” such as GreenPoint Mortgage and Aurora. See United States v. Bennett,
. As he argued with respect to his loan fraud convictions, Grasso also contends here that there was an insufficiently close connection between GreenPoint Mortgage and Green-Point Bank to satisfy § 1344’s federal jurisdictional element. Because we have already concluded that the government adduced sufficient evidence to establish that Grasso knew that the scheme was aimed at federally insured banks, we again reject this argument. Cf. United States v. Edelkind,
. Although the dissent questions our reliance on Bush and Phillips because they followed the Sixth Circuit’s approach, see dis. op. at 1100-01, we see no irreconcilable conflict between these cases and Van Alstyne, which did not consider this issue in conducting its merger analysis. Therefore, we are bound by our precedent.
. To establish the sort of concealment money laundering involved in "Wilkes, the government was required to prove that the defendant: [1] knew that money being used in a financial transaction was the “proceeds of some form of unlawful activity,” and [2] then conducted a financial transaction with such proceeds; [3] "to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds.” 18 U.S.C. § 195 6(a)( 1 )(B)(i) (emphasis added). Because both promotional and concealment money laundering require the government to prove that the defendant knowingly used the "proceeds” of an unlawful activity, Wilkes's analysis of Santos is applicable here. Cf. Dis, op. at 1100.
. The dissent’s reliance on the Fourth Circuit's opinion in United States v. Cloud,
. As noted above, the Santos plurality and Justice Stevens focused on how a money laundering charge could affect the statutory maximum chosen by Congress for the underlying offense. This question of Congressional intent is distinct from a district court's exercise of discretion in fashioning an appropriate sentence, which is inherently limited by the Sentencing Guidelines and the parsimony principle of 18 U.S.C. § 3553(a). Here, for instance, Grasso’s guidelines range was 97 to 121 months, but he- received just twelve months and one day of imprisonment for his crimes. See Phillips,
Concurrence Opinion
concurring in part and dissenting in part:
I concur in Parts I and II.A-C of the panel’s opinion but write separately with regard to Part II.A and respectfully dissent from Part II.D.
I.
The Reed case relied on in Part II.A of the panel’s opinion says the following: “Once a conspiracy is established, only a slight connection to the conspiracy is necessary to support a conviction. The term ‘slight connection’ means that a defendant need not have known all the conspirators, participated in the conspiracy from its beginning, participated in all its enterprises, or known all its details. A connection to the conspiracy may be inferred from circumstantial evidence. Innocent association, even if it is knowing, does not amount to a ‘slight connection.’ ” United States v. Reed,
I nonetheless write separately, to express my concern that some of the quotations in Part II.A could be read, in isolation, to suggest that a defendant may be convicted without in any way participating in a conspiracy, if he simply has knowledge of the conspiracy and a “connection” to its participants. See Maj. Op. at 1086. That, of course, is not the law. See, e.g., United States v. Tran,
More than thirty-five years ago, a panel of this court endeavored to provide greater clarity regarding one aspect of the law of conspiracy, and in so doing, emphasized the risk of “proliferat[ing]” “statement[s]” of law that are “highly misleading if taken out of the context of the particular cases in which ... made.” See United States v. Dunn,
Despite the doubts expressed by the Dunn court, in the intervening years, we have “repeatedly proliferated ... th[e] statement” that a defendant may be convicted of “knowing participation in [a] conspiracy” based on evidence of a “slight” “connection” with the conspiracy. See id. at 356-57. As other judges have noted, this is a misleading, or at least ambiguous, standard. It could be read to “mean that once A and B conspire, ... [a] ‘slight connection’ is enough to convict C of the same crime, an intolerable proposition.” See United States v. de Ortiz,
As Judge Easterbrook has observed, the phrase “slight connection” is ultimately best understood to mean that “if someone joins the conspiracy, ‘slight’ activity to accomplish its objectives is enough, that peripheral conspirators commit the crime no less than the mastermind.” See de Ortiz,
Here, there is no doubt that Grasso committed overt acts in furtherance of the conspiracy. As the panel opinion explains, Grasso “assisted his co-conspirators in convincing lenders that various properties were sold for more than their actual sales prices.” Maj. Op. at 1087. He also “personally inflated the MLS listings in the Claridge Drive and Alta Drive transactions.” Maj. Op. at 1087. We therefore have no occasion to consider whether our case law repeating the “slight connection” standard is a useful statement of the law “when the issue for review concerns whether the defendant was connected with the conspiracy at all,” see Dunn,
II.
I respectfully dissent from Part II.D. Under our case law, Grasso’s convictions for money laundering cannot stand.
A.
As the majority recognizes, under the statute here applicable, 18 U.S.C. § 1956 (2006), now superseded,
As is clear from the majority’s own explanation of the intricacies of the scheme in which Grasso was involved, the money laundering counts charged Grasso with conducting payment of “essential expenses of’ the bank fraud with which Grasso was also charged. See United States v. Santos,
The money laundering counts, in turn, charged Grasso with successfully demanding that his co-conspirators — Abrams and Fitzgerald — pay him commissions for their use of Cal Title in carrying out the Benedict Canyon and Yoakum Drive transactions. See 18 U.S.C. § 1956(a)(l)(A)(i). Without Cal Title, the scheme could not have generated the false title reports necessary to obtain inflated loans from the defrauded lenders. Grasso “forbade” his co-conspirators from using Cal Title unless they paid him a commission. See Maj. Op. at 1083. “The very nature of the scheme thus required” the co-conspirators to make regular commission payments to Grasso. See Van Alstyne,
Nor is it' of any moment that, as the government argues, the payments to Grasso for services provided also “promote[d] future fraud.” The Fourth Circuit recently rejected a similar argument in a case reversing a defendant’s money laundering convictions arising out of an “extensive mortgage fraud conspiracy.” See United States v. Cloud,
Indeed, any payment for services already rendered in the context of a fraud scheme also promotes future fraudulent activity by the person paid, by creating an expectation that the person will be paid again. In any case involving ongoing fraud, the government’s approach — which, I note, the majority does not endorse— would obliterate the limitations our cases have set forth regarding the merger problem.
Because the government introduced no evidence that the Benedict- and Yoakumrelated commission payments were made with profits, as opposed to gross revenues, of the overall bank fraud scheme, Grasso’s convictions for money laundering must be reversed. See Van Alstyne,
B.
To avoid the straightforward result compelled by our precedents, the majority points to four reasons why the transactions charged as money laundering, despite being necessary to the fraud scheme, supposedly pose no merger problem. None of the majority’s theories works.
1.
First, contrary to the majority’s assertion, the payments to Grasso for the Benedict and Yoakum transactions did not “hinder[ ] the scheme.” See Maj. Op. at 1095. For that dubious proposition, the majority relies on our decision in Van Alstyne, in which we construed a “Ponzi scheme [that] depended on attracting new investments and using some but not all of the amount collected to pay returns to earlier investors.” See Van Alstyne,
With regard to a separate transaction— on which the majority focuses — we held that there was no merger problem. See id. at 815-16. That transaction was a “full[ ] refundf ]” of “one investor’s [initial] outlay,” pursuant to that investor’s demand. See id. at 815. “Returning the entire amount of th[at] ... investment,” we explained, “undermined rather than advanced the core scheme, as the funds returned ... would not be available to lull other investors into maintaining their investment.” Id. at 815-16.
Unlike the full refund in Van Alstyne, Grasso’s commission payments for use of Cal Title were “essential expenses” of the underlying fraudulent scheme. See Santos,
2.
The majority fares no better by contending that the merger problem vanishes because Abrams paid Grasso commissions only for the Benedict and Yoakum transactions, and not for other fraudulent transactions carried out earlier. See Maj. Op. at 1094. Abrams’s commission payments to Grasso were in fact an integral part of each instance of bank fraud once title companies other than Cal Title refused to participate in the conspirators’ scheme.
In support of its pronouncement that the payments to Grasso for services rendered were “irrelevan[t] to the overarching fraudulent] scheme,” Maj. Op. at 1095, the majority relies on a case which, on plain error review, construed eighteen monetary transactions to the defendant’s personal bank account as not “central to carrying out the scheme’s objectively],” United States v. Bush,
In Bush, the transactions charged as money laundering were complete before some of the conduct separately charged as fraud was even carried out. See Bush,
Here, Grasso’s demands that his co-conspirators pay him commissions essential to the ongoing fraudulent scheme cannot fairly be analogized to the transactions in Bush. The commissions were not simply payments for participation in the conspiracy but for providing an essential service, once the service was not otherwise obtainable.
3.
Nor is the merger problem mitigated by the fact that the money laundering count exposed Grasso “only” to “an additional 20 years of imprisonment,” beyond the 30-year “statutory maximum for the underlying bank fraud charge.” See Bush,
As an initial matter, it is far from clear that under our case law, the extent of the increase in the statutory maximum sentence is a relevant consideration in determining whether the merger problem exists. In Van Alstyne, we noted that the Sixth Circuit held that proceeds “ ‘means profits only when the § 1956 predicate offense creates a merger problem that leads to a radical increase in the statutory maximum sentence and only when nothing in the legislative history suggests that Congress intended such an increase.’ ” Van Alstyne,
In any event, the extent of the “additional” sentencing exposure that Grasso “face[dj” as a result of the money laundering charge, see Santos,
4.
The majority’s final rationale for resisting the merger problem here is that there is ostensibly no such problem when a “money laundering conviction is based on ... transfers to co-conspirators.” See Maj. Op. at 1095. To be sure, some transfers of funds among co-conspirators raise no merger problem. But while some such transfers merely' involve co-conspirators “reaping the fruits of their crimes,” others represent payments of essential expenses of a fraud scheme. See Cloud,
Again, the Fourth Circuit’s cogent analysis is instructive. In Cloud, several of the money laundering, convictions reversed on appeal involved payments to co-conspirators; “it was only through the promise of these payments that Cloud was able to persuade his co-conspirators to do business with him.” Abdulwahab,
The majority misconstrues our own case law in concluding that we have foreclosed all Santos-based challenges to money laundering convictions simply because predicated on payments to co-conspirators. In Van Alstyne, for instance, we noted that a “ ‘merger’ problem may ... be triggered when multiple participants share profits.”
Webster involved a conspiracy to distribute methamphetamine. See Webster,
Turning to Wilkes, the defendant was charged with honest services wire fraud, bribery, and money laundering, in connection with a scheme to bribe a member of Congress, Randall “Duke” Cunningham. See
Wilkes could have sent the $525,000 from WBR Equities to Cunningham or Coastal Capital directly. Again, he did not. Instead, he wired $525,000 from WBR Equities to Parkview Financial, Inc. In the meantime, Parkview Financial and Coastal had engaged in a series of transactions of their own, which provided additional buffers between the corrupt contract and the payoff of Cunningham’s mortgage. Concealing this connection appears to be the dominant, if not the only, purpose of these multilayered transactions.
Id. Because of the extensive steps Wilkes took to conceal the source of the funds, Wilkes’s conduct was separately chargeable as concealment money laundering, rather than just as a transaction “that involve[d] nothing but the initial crime,” namely bribery. See id. at 547, 549. No merger problem therefore existed.
Wilkes also noted that as in “Webster, Wilkes’s money laundering count was based on a transfer to a co-conspirator of money” from a scheme “such that ‘proceeds’ would include all ‘receipts’ from” that scheme. See id. at 549. But the opinion contained no analysis in support of that conclusion. See id. Unlike the majority, I do not read Wilkes for the expansive proposition that whenever a “transfer to a co-conspirator” occurred, there could, ipso facto, be no merger problem.
First, as a three judge panel, absent intervening controlling authority — of which there has been none — Wilkes could not have overruled Van Alstyne, in which we noted that a “ ‘merger’ problem may ... be triggered when multiple participants share profits.”
In short, neither Webster nor Wilkes— individually or collectively — can sustain the weight that the majority places on them. Neither case dealt with a payment to a co-conspirator involving essential expenses of the underlying scheme. Webster was, in the Fourth Circuit’s useful parlance, a case in which the defendant merely “reap[ed] the fruits of [his] crimes.” See Cloud,
C.
Only by reading a series of heretofore nonexistent rules into our case law does the majority avoid the conclusion that
. In Dunn, the government argued that " '[o]nce the existence of a conspiracy is clearly established, slight evidence may be sufficient to connect a defendant with it,’ quoting from United States v. Knight,
. See 18 U.S.C. § 1956(c)(9) (2009).
. United States v. Phillips,
. My review of Webster’s briefs on appeal, and his letter pursuant to Rule 28(j) in which he initially raised the merger argument, confirms that Webster never argued that the transactions were for expenses necessary to consummate the charged drug crimes.
. Notably, the government has not defended Grasso’s money laundering convictions on the ground that they were "additional acts” separately chargeable as concealment money laundering.