UNITED STATES of America, Plaintiff-Appellee, v. Richard OLIVE, Defendant-Appellant.
No. 13-6174.
United States Court of Appeals, Sixth Circuit.
Argued: Nov. 18, 2014. Decided and Filed: Sept. 22, 2015.
Rehearing En Banc Denied Nov. 17, 2015.*
803 F.3d 747
ALAN E. NORRIS, Circuit Judge.
* Judge Moore adheres to her concurrence in the judgment and would grant rehearing.
For the foregoing reasons, I respectfully dissent.
Before: NORRIS, MOORE, and GIBBONS, Circuit Judges.
NORRIS, J., delivered the opinion of the court in which GIBBONS, J., joined, and MOORE, J., joined in the result. MOORE, J. (pp. 759-67), delivered a separate opinion concurring in the judgment.
OPINION
ALAN E. NORRIS, Circuit Judge.
Defendant Richard Olive appeals his nine-count conviction for financial crimes
On appeal, he challenges the sufficiency of the indictment, two evidentiary decisions made by the trial court, and three aspects of the sentencing calculation. He also argues that one of the money laundering counts should have been merged with the fraud counts.
I.
Because defendant challenges the sufficiency of the indictment, we begin by summarizing its allegations.
The Indictment
A grand jury returned a nine-count indictment on March 1, 2012. It alleged that defendant used NFOA in a scheme to defraud:
Beginning in or about January 26, 2006 and continuing until in or about May 2007 ... Richard Olive, and others known and unknown to the Grand Jury, devised and intended to devise a scheme and artifice to defraud annuitants and others, and to obtain money or property by means of materially false pretenses, representations, and promises, and by acts of concealment of the scheme, and in furtherance thereof, used the United States mail and interstate wires....
....
It was ... part of the scheme that Richard Olive, through highly compensated insurance agents across the country, offered and sold investment contracts labeled as NFOA‘s “Installment Plan Agreement.” Although Olive and the brokers did not generally refer to these as charitable gift annuities, the NFOA installment plans were marketed as offering similar features and benefits. Potential customers could purchase an installment plan with either cash or by transferring existing annuities, real estate, or securities to NFOA. The vast majority of NFOA‘s customers were persons who owned an existing annuity.
The indictment further charged that defendant made other misrepresentations: in February 2006, he stated that NFOA had been recognized as a non-profit charitable foundation pursuant to Section 501(c)(3) of the tax code when, in fact, defendant had merely applied for tax-exempt status, an application that was ultimately denied in February 2008; and, finally, he and the brokers with whom he worked failed to inform customers that NFOA was operating despite cease-and-desist orders issued by several states.
Once customers transferred their annuities to NFOA, defendant would typically surrender them, thereby triggering financial penalties and reducing the value of the annuity. Although defendant guaranteed his customers fixed payments under an NFOA installment plan, the reality was different:
Olive knew that NFOA paid its brokers commissions well above the industry rate, lost a significant portion of the obtained annuities’ value due to their early surrender, and diverted a portion of funds to Olive‘s and others’ personal benefit. Because of those costs and the lost value of the annuities, Olive knew that NFOA had far too few assets under its control to guarantee the income in the amounts promised.
Trial Testimony
Defendant founded NFOA in January 2006 and applied to the IRS for recognition of its Section 501(c)(3) status the same month. He learned the “business model” from his tenure as a development advisor and executive at National Community Foundation, which offered products similar to those later marketed by NFOA. The company purported to be a charitable organization that supported humanitarian services. As mentioned in the indictment, NFOA encouraged financial advisors1 to sell its products by offering a 9% commission, which exceeded the industry average.
Two months after its founding, NFOA had three employees: defendant, his wife Susan, and Kenny Marks, who wrote promotional materials for the company, including video scripts. After its first year, it had five employees: Richard and Susan Olive, David Vincent, and defendant‘s two stepdaughters, Breanna Gallatte and Jenilee Vander Elst. Defendant‘s wife worked in the office and also did marketing. Vander Elst served as a receptionist. The company primarily drummed up business through mailings to financial advisors. Gallatte and Vincent fielded calls from them, explaining the ins and outs of their products. To do so, Vincent and Gallatte relied upon a software program and script developed by defendant and his wife. According to Gallatte‘s testimony, she and Vincent were told not to deviate from the script when talking to financial advisors. Among the things included in the script was an assertion that NFOA was a tax-exempt Section 501(c)(3) organization. If a financial advisor‘s questions went beyond the scope of the script, he or she was referred to defendant.
As discussed earlier, NFOA‘s primary business was exchanging a customer‘s existing annuity for one of the company‘s installment plans, which promised higher returns. Annuities typically have an accumulated value and a surrender value. If surrendered early, the owner receives a substantially lower cash payout. Defendant typically surrendered annuities that it received from customers early. Over the course of its existence, NFOA completed contracts that exchanged client annuities worth approximately $19.3 million and surrendered them for $16.5 million.
On January 17 and March 7, 2007, the IRS contacted NFOA asking for additional information related to its application for Section 501(c)(3) status. The company retained an attorney, David Kamer, who advised defendant that NFOA should not be represented as being a 501(c)(3) enterprise when its application was still pending. Rather, he recommended that the company inform its clients of the situation and note the adverse tax consequences that would attend a denial of 501(c)(3) status. Despite this advice, defendant told others, including financial advisors, that a determination letter was not required for clients to recognize a charitable deduction.
As time passed, NFOA purchased real property with a portion of its assets. These phone tower, an office condominium
At trial, the district court admitted into evidence cease-and-desist orders issued against NFOA by several states, as long as they were in effect during the time period covered by the indictment. Orders were admitted from the states of Washington, Texas, Iowa, Florida, Alabama, Kansas, California, and Michigan. The orders alleged that NFOA was operating illegally because it was not licensed to sell insurance and/or was unlawfully selling securities. They also charged that NFOA incorrectly claimed that it enjoyed tax-exempt status under Section 501(c)(3). Financial advisors testified that knowledge of the orders would have affected their willingness to market NFOA products.
II.
We now turn to the issues raised by defendant, beginning with the sufficiency of the indictment.
A. Sufficiency of the Indictment
As a general proposition, this court reviews the sufficiency of an indictment de novo. United States v. Gibson, 409 F.3d 325, 331 (6th Cir. 2005). Pursuant to
Prior to trial, defendant filed a motion styled, “Motion to Dismiss or Strike the False Statements Alleged in Paragraph 9(b), 9(c), and 10 of the Indictment.” The three passages under attack all averred that defendant had falsely represented to annuitants and potential customers, as well as to administrators of existing annuities, that NFOA was a tax-exempt foundation.
The district court noted that “both the introductory and concluding paragraphs [of his motion] indicate that Defendant is moving to dismiss or strike certain language in the Indictment, not the entire Indictment itself.” United States v. Olive, No. 3:12-00048, 2012 WL 4757865, at *1 (M.D. Tenn. Oct. 5, 2012). The court went on to conclude that “even without the challenged language, sufficient factual allegations exist to support the charges of mail fraud, wire fraud, and money laundering, and Defendant makes no argument supporting dismissal of the Indictment.” Id. With respect to the language challenged, the court summarized defendant‘s argument, which he renews on appeal, that it was unclear whether merely applying for tax-exempt status was enough to confer such status pending a contrary conclusion on the merits by the IRS. In denying the motion, the district court observed: “Defendant‘s premise—that NFOA was, in fact, a charitable organization—may prove to be wrong, and is something for the jury to determine.” Id. at *3.
He also directs us to the Tennessee statute governing charitable organizations, which provides in part as follows:
Any organization which has applied for but not received a determination of tax exempt status shall file a copy of the completed application which has been submitted to the internal revenue service, and any letters received from the internal revenue service acknowledging receipt of the application.
An indictment is sufficient if it contains the elements of the offense charged and thereby informs the defendant of the charges against him. It must also be specific enough to allow him to plead an acquittal or conviction as a bar to future prosecutions for the same offense. United States v. Anderson, 605 F.3d 404, 411 (6th Cir. 2010) (citing Hamling v. United States, 418 U.S. 87, 117 (1974)). In this case, wire fraud requires the proof of three elements beyond a reasonable doubt: 1) defendant devised or willfully participated in a scheme to defraud; 2) he used an interstate wire communication to further the scheme; and 3) he intended to deprive someone of money or property. United States v. Cunningham, 679 F.3d 355, 370 (6th Cir. 2012). Mail fraud has essentially the same elements except that the use of the mails rather than a wire is required. United States v. Kennedy, 714 F.3d 951, 958 (6th Cir. 2013).
With that in mind, we note that the indictment alleged that defendant made many misrepresentations in addition to his claim that NFOA enjoyed Section 501(c)(3) tax-exempt status. These included the following: he misrepresented to an insurance agent that NFOA had been in business for several years; he provided fraudulent financial statements from 2003 and 2004 despite the fact that NFOA was formed in 2006; he failed to inform clients and financial advisors that NFOA was subject to cease-and-desist orders in several states; and he falsely represented to annuitants that they would receive “a series of guaranteed fixed payments” despite knowing that NFOA “had far too few assets under its control to guarantee the income in the amounts promised.” These allegations led the district court to observe, “[I]nsofar as Defendant‘s motion could be construed as a request for dismissal, the same will be denied because, even without the challenged language, sufficient factual allegations exist to support the charges of mail fraud, wire fraud, and money laundering, and Defendant makes no argument supporting dismissal of the Indictment.” Olive, 2012 WL 4757865, at *1.
We agree with the district court that the indictment was sufficient. First, defendant did not move to dismiss the indictment for lack of sufficiency at trial and we therefore construe it liberally. Second, it
B. Evidentiary Issues
As mentioned at the outset, pursuant to
We review a district court‘s evidentiary rulings for an abuse of discretion. United States v. Bell, 516 F.3d 432, 440 (6th Cir. 2008). Rule 404(b) permits a district court to admit evidence of other “crimes, wrongs, or other acts” as long as the evidence is offered for a purpose, “such as proving motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident,” and not for the mere purpose of proving the defendant‘s bad character. See
[W]e employ a three-part test, reviewing (1) for clear error the district court‘s determination that the “other act” took place; (2) de novo the district court‘s legal determination that the evidence was admissible for a proper purpose; and (3) for abuse of discretion the district court‘s determination that the probative value of the other acts evidence is not substantially outweighed by its unfairly prejudicial effect.
Bell, 516 F.3d at 440 (quoting United States v. Ayoub, 498 F.3d 532, 547 (6th Cir. 2007)).
The district court began its discussion by characterizing the orders at issue:
Each Cease and Desist Order contained allegations that NFOA was operating illegally within the state of issuance because it was not licensed to sell insurance and/or was unlawfully selling securities. The Orders also contained allegations that NFOA wrongfully claimed it had charitable exempt status under Section 501(c) of the Internal Revenue Code.
United States v. Olive, No. 3:12-00048, 2012 WL 5866138, at *5 (M.D. Tenn. Nov. 19, 2012). The district court reasoned that the failure by defendant to disclose the existence of such orders “suggests knowledge and intent” on his part. However, the court recognized that the admission of Rule 404(b) material must be balanced with possible prejudice. For that reason, the court limited the admission of the cease-and-desist orders to the following:
The Court will ... allow the Government to present evidence that NFOA and Defendant were issued Cease and Desist Orders that they did not disclose, and which alleged that NFOA was wrongfully claiming that it had received Section 501(c) exempt status. Such evidence will be limited to the Cease and Desist Orders that were issued while Defendant was still operating NFOA, and does not include the Cease and Desist Orders that were issued by Kansas, California and Michigan, after Tennessee took over operation of NFOA.
Id. at *6. However, it precluded the government from using the orders to prove that defendant had violated state securities and insurance laws. Id.
For its part, the government directs us to a prior case, United States v. Gold Unlimited, Inc., 177 F.3d 472, 487 (6th Cir. 1999), in which we allowed the introduction of cease-and-desist orders a judicial opinion, and a complaint from six states, in total as probative of knowledge, plan, and intent. In that case, defendants had been charged with mail fraud and money laundering in connection with a pyramid scheme. Second, the government observes that the indictment in the present case charged defendant with failure to inform its potential clients and brokers of these orders. At least three brokers testified that they would not have sold NFOA products had they known of these orders, making them relevant and admissible for a proper purpose. Even if they were not admissible on that basis, they were pursuant to Rule 404(b) because they showed knowledge, intent, and lack of mistake by demonstrating that defendant was on notice that he was misrepresenting NFOA‘s tax-exempt status. Third, with respect to defendant‘s argument that the orders were misleading because the states issuing them did not have the authority to make a Section 501(c)(3) determination, the government responds that the cease-and-desist orders are probative not because the states had the ability to make the determination whether NFOA received such status, but because they put Olive on notice that he was making this misrepresentation.
In our view, admission of the cease-and-desist orders did not constitute an abuse of discretion. While it is true that the states issuing them lacked the authority to grant Section 501(c)(3) status, they were not admitted for the purpose of proving that NFOA was not tax-exempt. Rather, they were introduced to show that defendant was aware of the fact that tax-exempt status was, at the very least, in doubt. His decision not to divulge them to his prospective clients and financial advisors is probative of his knowledge and intent. As the testimony of three financial advisors during trial indicated, they would have made different business decisions with respect to NFOA had they known about the orders.
A second evidentiary issue raised by defendant involved a charitable donation he and his wife claimed when they filed their joint 2006 tax return. That return included a $25,000 charitable deduction based upon contributions to NFOA. On July 16, 2008, long after NFOA had been taken over by the State of Tennessee, the IRS sent them a letter asking for further information about the gift. They complied by sending, among other things, copies of two checks for $20,000 and $5,000 payable to NFOA as donations. In a letter dated October 6, 2008, the IRS informed the couple that “[w]e are pleased to tell you that we did not make any changes to the tax reported on your return.”
At trial, defense counsel informed the court that he wished to introduce this “no change” letter as evidence that defendant properly thought that donors could take a
In response, the district court asked: “[W]hat do we care what the IRS did in 2008?” Defense counsel continued to urge the court to realize that the IRS, by allowing the deduction, was confirming defendant‘s belief and thereby undermining any proof of intent to defraud based upon a misrepresentation of NFOA‘s Section 501(c) status. The district court elected not to allow this evidence to be introduced.
Our determination of this issue is governed by our standard of review. While defendant asserts that he honestly believed that he was entitled to a charitable deduction in 2006 and that his instinct was confirmed by the IRS no change letter, it is apparent that the letter did not address the validity of NFOA‘s Section 501(c) application and is therefore is of limited evidentiary value. The district court‘s decision to exclude it based upon lack of relevance does not amount to an abuse of discretion.
C. Whether One of the Money Laundering Counts Should have Merged
As mentioned at the outset, defendant was convicted of two counts of money laundering in violation of
If “proceeds” meant “receipts,” nearly every violation of the illegal-lottery statute would also be a violation of the money-laundering statute, because paying a winning bettor is a transaction involving receipts that the defendant intends to promote the carrying on of the lottery. Since few lotteries, if any, will not pay their winners, the statute criminalizing illegal lotteries,
18 U.S.C. § 1955 , would “merge” with the money-laundering statute....The merger problem is not limited to lottery operators. For a host of predicate crimes, merger would depend on the manner and timing of payment for the expenses associated with the commission of the crime.... Generally speaking, any specified unlawful activity, an episode of which includes transactions which are not elements of the offense and in which a participant passes receipts on to someone else, would merge with money laundering....
... Interpreting “proceeds” to mean “profits” eliminates the merger problem.
This circuit has addressed the holding of Santos on several occasions. See, e.g., United States v. Kratt, 579 F.3d 558, 560-63 (6th Cir. 2009); United States v. Crosgrove, 637 F.3d 646, 654-55 (6th Cir. 2011); Jamieson v. United States, 692 F.3d 435, 439-40 (6th Cir. 2012). As Justice Scalia recognized, his plurality opinion is limited by the narrower reasoning of Justice Stevens’ concurrence, which supplied the critical fifth vote. Santos, 553 U.S. at 523. While this court has struggled to parse the precise holding of Santos, see Kratt, 579 F.3d at 562, we have construed it to implicate three considerations:
(1) is there a merger problem; (2) does this problem lead to a radical increase in the statutory maximum sentence; and (3) does the legislative history fail to show that Congress intended the increase? If the answer to all three questions is yes, “proceeds” means “profits.” If the answer to any question is no, then “proceeds” means “gross receipts.”
See United States v. Crosgrove, 637 F.3d 646, 654-56 (6th Cir. 2011) (explaining and applying the “Santos-Kratt framework“). Jamieson, 692 F.3d at 440 (emphasis original). With these steps in mind, we turn to each of them.
Is there a merger problem? We conclude that there was. The mail fraud counts of the indictment charge that defendant “through highly compensated insurance agents across the country, offered and sold investment contracts labeled as NFOA‘s ‘Installment Plan Agreement.‘” The money laundering count at issue charges defendant with “the transfer and withdrawal of funds by the means set forth below, such property having been derived from a specified unlawful activity, namely, mail fraud.” While the government argues that money laundering occurred after the completion of the mail fraud offense, the criminal acts charged in the indictment lead us to an opposite conclusion: the mail fraud included compensating “insurance agents across the country.” NFOA made (or lost) money by inducing insurance agents to purchase installment plans. And, “[a]n individual cannot be convicted of money laundering for paying the ‘essential expenses of operating’ the underlying crime.” United States v. Halstead, 634 F.3d 270, 279 (4th Cir. 2011) (quoting Santos, 553 U.S. at 528 (Stevens, J., concurring)). We therefore conclude that there is a “merger problem” in this case.
However, even though we conclude that a merger problem exists, defendant must also be exposed “to a markedly increased statutory maximum.” Kratt, 579 F.3d at 563. In this case, the statutory maximum sentence for mail fraud,
Finally, because we deny defendant relief on the second factor, “there is no reason to consider whether the legislative history shows that Congress contemplated, and intended, any such outcome.” Kratt, 579 F.3d at 563.
D. Sentencing Issues
Defendant objects to three sentencing decisions: the amount of loss calculation; his role in the offense; and the “vulnerable victim” enhancement. The 2012 version of the Sentencing Guidelines was used in this case.
1. Amount of Loss Calculation
Pursuant to
Based on the evidence, I think that it‘s J that applies. It‘s greater than 2.5 million. I think the evidence was more than sufficient for the application of that loss amount. And so there is an 18 point enhancement.
Counsel failed to object or ask for clarification and hence our review is for plain error. United States v. Vonner, 516 F.3d 382, 385-86 (6th Cir. 2008) (en banc).
The district court “need only make a reasonable estimate of the loss.”
2. Role in the Offense
The district court enhanced defendant‘s offense level by four because it concluded that he “was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive.”
An application note to the guideline at issue provides as follows:
In assessing whether an organization is “otherwise extensive,” all persons involved during the course of the entire offense are to be considered. Thus, a fraud that involved only three participants but used the unknowing services of many outsiders could be considered extensive.
In this case, the scheme was quite extensive inasmuch as it involved the “unknowing services of many outsiders“: the many financial advisors who supplied “clients” for defendant to defraud. We affirm on this basis.
3. Vulnerable Victims
The Guidelines call for a two-level enhancement if the “defendant knew or should have known that a victim of the offense was a vulnerable victim.”
Defense counsel argues that the financial advisors were the ones who selected the clients, not defendant, and that they were sophisticated people of means because they employed financial advisors in the first place. Given the age of the victims, the fact that no financial advisor was charged with malfeasance, and our standard of review, we affirm this enhancement.
III.
The judgment of the district court is affirmed.
KAREN NELSON MOORE
Circuit Judge, concurring in the judgment only.
I must concur with the majority‘s conclusion that Olive‘s money-laundering conviction (Count 9),
Olive contends that there is insufficient evidence in the record to uphold his conviction for money laundering in violation of
Olive concedes that he did not argue in the district court that his money-laundering conviction merged with the mail-fraud conviction, and therefore we must review his claim for plain error. Appellant Reply Br. at 15 (citing United States v. Crosgrove, 637 F.3d 646, 656 (6th Cir. 2011)). We may reverse Olive‘s money-laundering conviction if (1) the government was required to prove as a matter of law that Olive used the profits of his fraud scheme to pay commissions, which it did not do; (2) the error was plain; (3) the error affects Olive‘s substantial rights; and (4) the error “seriously affects the fairness, integrity or public reputation of the judicial proceedings.” Crosgrove, 637 F.3d at 656.
In Santos, the Supreme Court attempted to define the term “proceeds” within the meaning of
Justice Alito wrote the dissent signed by three additional Justices, arguing that the term “proceeds” must mean “gross receipts” for every predicate offense. See id. at 531-49. Justice Breyer joined the dissent, but wrote separately to emphasize that he, too, observed and was troubled by “the ‘merger’ problem” because he found it “difficult to understand why Congress would have intended the Government to possess this punishment-transforming power.” Id. at 529-31. Justice Breyer believed that there were other legal avenues to mitigate the unfairness of “the ‘merger’ problem,” which he believed “is essentially a problem of fairness in sentencing,” which the Sentencing Commission could solve by crafting appropriate Sentencing Guidelines. Id.
Justice Stevens concurred in the judgment, and thus no opinion garnered a majority of the Justices’ votes. “[T]he ‘position taken by those [Justices] who concurred in the judgment[] on the narrowest grounds’ represents its holding,” Kratt, 579 F.3d at 562 (quoting Marks v. United States, 430 U.S. 188, 193 (1977)), and therefore Justice Stevens‘s concurring opinion represents the holding of Santos, 553 U.S. at 523 (plurality). He believed that “proceeds” could mean “gross receipts” with respect to some, but not all predicate offenses. Id. at 526 (Stevens, J., concurring in the judgment). For example, Justice Stevens concluded that Congress had demonstrated its intent to criminalize the use of gross receipts generated by “the sale of contraband and the operation of organized crime syndicates involving such sales.” Id. at 526. He acknowledged, however, that the legislative history for those two predicate offenses “shed[] no light on how to identify
The Santos plurality, except Justice Thomas, offered their own interpretation of Justice Stevens‘s narrow holding: “‘[P]roceeds’ means ‘profits’ when there is no legislative history to the contrary.” Santos, 553 U.S. at 523 (plurality). Justice Stevens disagreed with the plurality‘s characterization of the holding and attempted to clarify his reasoning:
In what can only be characterized as the “purest of dicta,” the plurality speculates about the stare decisis effect of our judgment and interprets my conclusion as resting on the ground that “‘proceeds’ means ‘profits’ when there is no legislative history to the contrary.” ... That is not correct; my conclusion rests on my conviction that Congress could not have intended the perverse result that the dissent‘s rule would produce if its definition of “proceeds” were applied to the operation of an unlicensed gambling business. In other applications of the statute not involving such a perverse result, I would presume that the legislative history summarized by JUSTICE ALITO reflects the intent of the enacting Congress.
Id. at 528 n. 7 (Stevens, J., concurring in the judgment) (citation omitted). The “perverse result” that troubled the plurality, Justice Stevens, and Justice Breyer was “[a]llowing the Government to treat the mere payment of the expense of operating [the] illegal business ... as a separate offense,” which “is in practical effect tantamount to double jeopardy.” Id. at 527 (Stevens, J., concurring in the judgment). In other words, Justice Stevens was concerned about “the merger problem.”
In Kratt, this court interpreted Justice Stevens‘s concurrence to mean that we should compare the maximum sentences of
I believe that the Kratt panel inaccurately described Justice Stevens‘s concurrence and announced an unwise method of statutory interpretation. First, Justice Stevens did not state that a difference between the statutory maximum sentences for money laundering and illegal
Second, Justice Stevens wrote that “there is no explanation for why Congress would have wanted a transaction that is a normal part of a crime it had duly considered and appropriately punished elsewhere in the Criminal Code to radically increase the sentence for that crime.” Santos, 553 U.S. at 528 (quoting plurality, id. at 517). The Kratt court interpreted this to mean the statutory maximum sentence, 579 F.3d at 562, but that reading is completely untethered from what Stevens actually wrote. A sentence may “radically increase” even if the statutory maximum does not; a defendant is doubly punished for the same conduct if “proceeds” means “gross receipts” when a district judge sentences the defendant to consecutive sentences on separate counts. For example, if a defendant is convicted of mail fraud, which carries a statutory maximum penalty of twenty years, see
Third, each of our sibling circuits has read, parsed, and interpreted Justice Stevens‘s concurrence, and only one other circuit has considered a “radical increase in the statutory maximum sentence” to be outcome-determinative. Most of our colleagues interpret the term “proceeds” to mean “profits” when interpreting “proceeds” as “gross receipts” results in a “merger problem,” i.e., punishing the defendant a second time for paying the essential expenses of his criminal enterprise. See, e.g., United States v. Foley, 783 F.3d 7, 15-16 (1st Cir. 2015) (“[W]e find no merger problem and thus no basis for limiting ‘proceeds’ to profits....“); United States v. Peters, 732 F.3d 93, 100 (2d Cir. 2013) (“[T]he criminal forfeiture statute presents no merger issue.... Because the concerns uniting Justice Stevens‘s concurrence and the plurality in Santos do not apply in the context of criminal forfeiture, Santos does not control the question of how to interpret ‘proceeds‘....“); United States v. Richardson, 658 F.3d 333, 340 (3d Cir.
The Fifth Circuit takes a slightly different approach; it first determines whether “defining ‘proceeds’ as ‘gross receipts’ would result in the ‘perverse result’ of the ‘merger problem.‘” Garland v. Roy, 615 F.3d 391, 402 (5th Cir. 2010) (quoting Santos, 553 U.S. at 528 n. 7 (Stevens, J., concurring)). If defining “proceeds” as “gross receipts” does not result in a merger problem, then the Fifth Circuit presumes that “‘proceeds’ should be defined as ‘gross receipts,’ unless the legislative history suggests otherwise.” 3 Id.
The Fourth, Tenth, and Eleventh Circuits have confined the holding of Santos to meaning that “‘proceeds’ means ‘profits’ for the purpose of the money laundering statute only where an illegal gambling operation is involved“—the two offenses with which Santos was charged. United States v. Thornburgh, 645 F.3d 1197, 1209 (10th Cir. 2011);4 see also United States v. Simmons, 737 F.3d 319, 324 (4th Cir. 2013) (“[W]e interpreted Santos narrowly to bind lower courts only in cases where illegal gambling constituted the predicate for the defendant‘s money-laundering conviction.“); United States v. Demarest, 570 F.3d 1232, 1242 (11th Cir. 2009) (“The narrow holding in Santos, at most, was that the gross receipts of an unlicensed gambling operation were not ‘proceeds’ under section 1956, but there is no evidence that the funds Demarest laundered were gross receipts of an illegal gambling operation. The evidence instead established that the laundered funds were the proceeds of an
Many of our sibling circuits have acknowledged that this circuit interprets “proceeds” to “mean[] profits only when the
Only the Ninth Circuit has “considered whether the inclusion of the money-laundering charge under
I believe that the Fifth Circuit has formulated the most accurate statement of Justice Stevens‘s Santos concurrence, and that we should have adopted a similar approach to apply to money-laundering offenses that occurred prior to May 20, 2009. See Rubashkin, 655 F.3d at 864 n. 3. Accordingly, “proceeds” should mean “profits” under
Under the proper application of Santos, we should vacate Olive‘s conviction for money laundering (Count 9) and remand his case for resentencing because his money-laundering conviction merges with his mail-and wire-fraud convictions. To determine whether there is a merger, we should examine “the concrete details of the particular ‘scheme to defraud,‘” Van Alstyne, 584 F.3d at 815, in order to determine whether the government has charged Olive for merely “paying the essential expenses of operating the underlying crime.” Simmons, 737 F.3d at 324 (internal quotation marks omitted).
This leads to the question: What are the “essential expenses” of a scheme to defraud? This court and our sibling circuits have consistently held that commissions or salary payments may be “essential expenses” of a scheme to defraud. In United States v. Cloud, 680 F.3d 396, 399, 406 (4th Cir. 2012), the Fourth Circuit found held that “essential expenses” of a mortgage-fraud scheme were commissions to recruiters who referred buyers with good credit to the defendant to purchase the properties involved in the fraud scheme. In United States v. Abdulwahab, 715 F.3d 521, 531 (4th Cir. 2013), the Fourth Circuit held that commission payments to sales agents “played a critical role in the underlying fraud scheme” because the defendant promised payments for the referrals, which enticed the sales agents to obtain investors in the defendant‘s business. And we have held that salary payments to employees of fake insurance companies constituted essential expenses of the insurance-fraud scheme. Crosgrove, 637 F.3d at 655-56.
Olive‘s scheme to defraud relied upon highly compensating financial advisors who referred their clients to NFOA. In the indictment, the government alleged that Olive used “highly compensated insurance agents across the country, [who] offered and sold investment contracts labeled as NFOA‘s ‘Installment Plan Agreement.‘” R. 1 at 2 (Indictment ¶ 8) (Page ID # 2). In addition, evidence at trial established that financial advisors recommended NFOA‘s Installment Plan Agreement to their clients, and Olive paid handsome commissions to those financial advisors who referred their clients to NFOA. Olive paid financial advisors approximately 9%
The majority and I therefore agree that Olive‘s money-laundering and fraud convictions present a merger problem. I would also conclude that the double charging was plain error because the government quite clearly indicted Olive in the money-laundering count for the payment of essential expenses of his fraud scheme and never presented evidence that Olive paid Heuermann commission with the profits of his fraud scheme. In addition, I believe that the double charging affected Olive‘s substantial rights because Olive was exposed to the possibility of an additional ten-year prison term as a result of the money-laundering conviction, and the district court actually used the money-laundering conviction to add sixty months to Olive‘s sentence. See Crosgrove, 637 F.3d at 657. Nevertheless, I am bound by Kratt and its progeny until the Supreme Court or this court sitting en banc overrules it. 6th Cir. R. 32.1(b). In sum, because there is not a “radical increase in the statutory maximum sentence” when we compare the statutory maximum sentences for money laundering and mail or wire fraud, under this Circuit‘s present law I must concur in the judgment.
James TRIMBLE, Petitioner-Appellee/Cross-Appellant, v. David BOBBY, Warden, Respondent-Appellant/Cross-Appellee.
Nos. 13-3381, 13-3455.
United States Court of Appeals, Sixth Circuit.
Argued: Dec. 3, 2014. Decided and Filed: Oct. 22, 2015.