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204 F.3d 177 (5th Cir. 02/09/2000)
U.S. Court of Appeals, Fifth Circuit
February 09, 2000
UNITED STATES OF AMERICA,
AL RICHARDS, ROGER BRAUGH, AND KURT LATRASSE,
King, Chief Judge, Stewart, Circuit Judge, and Rosenthal, District
The opinion of the court was delivered by: Rosenthal, District Judge.
REVISED MARCH 8, 2000
Appeal from the United States District Court for the Southern District of
Defendants appeal their convictions for their involvement in a purported
investment scheme that took large sums of money from the investors and returned
them little or nothing. The investors believed that their money went to purchase
letters of credit, which defendants were to "roll," or repeatedly
sell and repurchase, to European banks. The indictment alleged that the defendants
took the money from the investors, but purchased no letters of credit and
instead kept the money for themselves.
Al Richards appeals his convictions for conspiracy to commit wire and mail
fraud, in violation of 18 U.S.C. § 371; interstate transportation of
stolen property, in violation of 18 U.S.C. § 2314; and wire fraud, in
violation of 18 U.S.C. § 1343. Richards also appeals the district court's
order that he pay restitution in the amount of $487,000. Roger Braugh and
Kurt Latrasse appeal their convictions for conspiracy to commit wire fraud
and mail fraud; interstate transportation of stolen property; wire fraud;
and mail fraud, in violation of 18 U.S.C. § 1341. Braugh also appeals
the district court's order that he pay $504,500 in restitution. Finding ample
evidence in the record to support the convictions and no basis for reversal,
BACKGROUND AND PROCEDURAL HISTORY
The superseding indictment charged all three defendants with conspiracy
to commit mail and wire fraud (count 1), interstate transportation of stolen
property (count 2); and wire fraud (count 3). The indictment charged Braugh
and Latrasse with two additional counts of wire fraud (counts 4 and 5) and
one count of mail fraud (count 6). The jury convicted Richards on all three
counts and convicted Braugh and Latrasse on all six counts.
At trial, the government presented evidence as to how defendants induced
participants to "invest" in the so-called roll program. Potential
investors were told that their money would be pooled with that of other investors
and used to buy letters of credit. The letters of credit would be "rolled" --
sold, repurchased, and resold -- to European banks frequently and repeatedly.
Each "roll" would generate a large profit to be distributed among
the investors, in proportion to their investment. The investors were told
that their funds would be safe at all times, held either in an account at
a nationally-known brokerage firm or invested with a "prime" or "top
50" international bank. Investors were also told that they would receive
at least the return of their initial investment, with interest, and would
likely make substantial profit. In fact, the defendants took the invested
funds for their own use, bought no letters of credit, and, except for a small
payment to one participant, returned no money to the investors.
Three investors testified. Bert Hayes, an Arkansas businessman, was introduced
to the program by Al Richards in a telephone call. Richards outlined an investment
opportunity, but refused to discuss the details until Hayes signed a noncircumvention,
nondisclosure agreement. After Hayes signed the agreement, Richards suggested
they meet in Dallas to discuss the potential investment. Hayes agreed.
At the Dallas meeting, Richards told Hayes that in the "roll program," the
investors' funds would be pooled to buy a $10 million letter of credit from
a "top 50 prime bank." The letter of credit would be "rolled" to
different European banks. The investors would earn interest with each "roll." Richards
told Hayes that the interest on the "rolls" would generate ten
weekly payments of $50,000 each on a $250,000 investment. Richards told Hayes
that his money would be kept in an interest-bearing account at the Shearson
Lehman Brothers brokerage firm until used to buy the letter of credit. Richards
assured Hayes that he would control the money until all the other funds necessary
for the roll program were raised. If the roll program could not purchase
a letter of credit, Richards would return Hayes's original investment, with
ten percent interest.
Richards explained that he would not personally be involved in purchasing
and selling the letters of credit. His "contacts," identified as
Roger Braugh and Al Sellars, would handle the roll program transactions.
Hayes signed a written contract in August 1991. The contract identified
Hayes and Gold Cloud Development Corporation as the parties to a "joint
business proposition." The contract was signed by Hayes and by "Roger
S. Braugh by Al Richards" as the chairperson of Gold Cloud Development.
The contract provided that Hayes would deposit his investment funds in a
designated brokerage firm account on September 5, 1991. On the Monday following
that date, Gold Cloud Development would purchase a "One Year Zero Interest
Coupon Standby Letter of Credit with a $10,000,000.00 USD face value." Gold
Cloud Development would "orchestrate the sale of the Standby Letter
of Credit in the European or Japanese secondary markets based on an already
existing contractual arrangement . . . ." Gold Cloud Development would
wire Hayes his share of the profits from that sale, expected to be $50,000,
to a bank Hayes would designate. "The original $10 Million USD principal
would be reinvested on Monday each week for the purchase of a new Standby
Letter of Credit to repeat the same weekly chain of events, for a period
of no less than ten (10) transactions."
On September 6, 1991, Hayes sent a $250,000 check to a designated Shearson
Lehman Brothers account for investment in the Gold Cloud Development roll
program. On the same day, Richards signed and sent Hayes a "Business
Proposal on Funding Commitment." This document set out Al Richards'
plan to use GEI Associates, a company Richards owned and ran, to raise $10
million to buy the first letter of credit. The business proposal provided
that if GEI Associates could not raise the money necessary to buy the first
letter of credit, Hayes would receive his money back, with interest.
When Hayes sent in his $250,000 check, he told Richards he wanted to meet
the individuals who would be handling the roll transactions. Richards arranged
a meeting with Hayes and Roger Braugh and Al Sellars a few weeks later. At
that meeting, Hayes asked Al Sellars if the investment was safe. Sellars,
noting that Hayes was wearing a Mason pin, told Hayes that he was also a
Mason and that the investment was "as safe as the Rock of Gibraltar." Sellars
asked Braugh to "roll" the investment at least twice in the next
week so that Hayes could see how the program worked.
After that meeting, Hayes understood Braugh to be in control of the roll
program transactions. Hayes expected to be paid within a few weeks for the
first roll transaction, set to occur the following week. Several weeks passed
with no payments. Hayes began to question both Richards and Braugh about
the program and about his money. In December 1991, Richard told Hayes that
the initial arrangement was not working and proposed a different arrangement.
Richards proposed to change the payment plan from ten weekly payments of
$50,000 each to 42 weekly payments of $20,000 each. Hayes agreed and signed
a revised contract. "Roger S. Braugh by Al Richards" signed as
the chairperson of Gold Cloud Development.
Early in 1992, Braugh introduced Hayes to Kurt Latrasse. Braugh identified
Latrasse as an expert in the roll program. Latrasse told Hayes that his money
was invested in England and "doing very well." In June 1992, Latrasse
advised Hayes to cancel his contract with Richards and GEI Associates so
that Hayes could deal directly with Braugh and Latrasse and avoid paying
commissions to Richards. Hayes followed Latrasse's advice and, by letter
to Richards dated June 12, 1992, canceled the contract with Richards and
In August 1992, Hayes complained to Braugh that he still had not received
any payments from his investment. Braugh expressed surprise and explained
that he had sent Richards several checks intended for distribution to Hayes.
Braugh sent Hayes photocopies of seven canceled checks, totaling $50,000,
signed by Braugh and made out to Richards. The notation "Bert Hayes
payment" appeared on the memorandum line of each check. Hayes telephoned
Richards to ask why he had not sent Hayes the $50,000. Richards expressed
surprise; he insisted that the checks were his own commissions, not Hayes's
investment returns. Richards accused Braugh of lying to Hayes. During this
time, Braugh sent Hayes a $15,000 check so that Hayes could pay the interest
due on the loan he had taken out to fund his $250,000 investment in the roll
In September 1992, Hayes sent a fax message to Latrasse asking for an accounting
and a status report on the investment. Hayes received no response. A few
weeks later, Hayes sent Latrasse a second fax, again asking for an accounting.
On October 5, 1992, Latrasse sent a fax, announcing that Gold Cloud Development
had been able to purchase "the commitments" for the roll program
in late November 1991. Latrasse continued:
Now, as to the future, we believe we will be able to return the original
investment plus a reasonable return to you within this month. We would propose
at that time to invest the net proceeds (after principal and interest on
your loan has been satisfied) in a master collateral commitment. . . . [I]nasmuch
as you have been patient as Job with us, we would like to include you as
an equal participant in whatever profits are generated.
The month passed; Hayes received no money.
Hayes sent several more fax messages to Latrasse over the next few months,
to no avail. By May 1993, neither Latrasse nor Braugh was returning Hayes's
telephone calls or faxed messages. Hayes heard nothing further about the
program until 1996, when the FBI contacted him. Hayes lost $235,000.
Gail Schwinger, another investor, also testified at trial. Schwinger met
Richards in November 1991 through her partners in an investment company.
After Schwinger and her partners signed a noncircumvention, nondisclosure
agreement, Richards revealed the mechanics of the roll program. Richards
gave Schwinger much the same explanation he had given Hayes, with one variation.
Richards told Schwinger that an investment of $250,000 could earn up to $40,000
per week for 42 weeks, not the $50,000 per week for ten weeks he initially
described to Hayes.
In December 1991, Schwinger and her partners met with Richards, Braugh,
and Sellars in Houston. When Schwinger questioned whether her money would
be safe, Braugh assured her that her money would never leave the banks and
would be very safe. Schwinger agreed to invest $250,000 and, on December
11, 1991, signed a contract with Gold Cloud Development. "Roger Braugh
by Al Richards" signed the contract as the chairperson of Gold Cloud
Development. The contract stated that the letters of credit would be rolled
42 times; Schwinger would receive $40,000 for each roll. The contract provided
that if Gold Cloud Development could not buy a letter of credit, Schwinger
would receive her full investment back with interest. Schwinger sent a $250,000
check for deposit in the designated Shearson Lehman Brothers account on the
same day she signed the contract.
After the expected date for the first payment passed, one of Schwinger's
partners began asking Richards questions about the investment. In January
1992, Schwinger asked Braugh for a status report. Braugh told her that the
program had been delayed. In February 1992, Braugh told Schwinger that Kurt
Latrasse had taken over the roll program. In later conversations, Braugh
gave Schwinger different excuses for the lack of payments. In separate conversations,
he told her that Latrasse was in the hospital with gallstones; that Latrasse's
wife was in the hospital for dental surgery; and that Latrasse might have
cancer. According to Braugh, these problems prevented Latrasse from traveling
to Europe to correct problems with the roll program.
Schwinger also spoke to Richards and Braugh several times in February and
March of 1992. Each time, Schwinger received excuses or promises that quickly
proved false. In March 1992, Braugh tried to persuade Schwinger to invest
in another roll program. Schwinger agreed to attend a meeting in April 1992
to discuss the proposed investment with Braugh, Al Sellars, and a man named
Harold Sellers, identified as Al Sellars' attorney. Schwinger had no intention
of participating in another program, but agreed to the meeting so she could
ask questions about her original $250,000 investment. Schwinger received
no answers at the meeting.
After the March 1992 meeting, Schwinger hired an attorney, who sent a letter
to Richards, Braugh, and Latrasse demanding an accounting. On May 28, 1992,
Latrasse called Schwinger and told her that he was upset that she had hired
a lawyer. The next day, Schwinger sent a fax to Latrasse, again asking for
an accounting. Latrasse agreed. On June 11, 1992, Schwinger sent Latrasse
another fax asking when she would receive the promised accounting. On June
19, Latrasse responded by offering another excuse for the delays and promising
prompt payment: "The commitments for collateral and funding have now
been conformed and are working properly. We anticipate distribution of accumulated
earnings to commence by or on - by or before June 30th."
June 30, 1992 came without either payment or an accounting. On that date,
one of Schwinger's partners wrote to Latrasse, Braugh, and Sellars, stating
that he planned to contact federal and state authorities about the investment
program. Latrasse left two messages on Schwinger's answering machine on July
1, 1992. In the first message, Latrasse told Schwinger that there had been
movement on the account and proposed a meeting to discuss the investment.
In the second message, Latrasse said he had received the "threatening" letter
from Schwinger's partner and proposed a meeting before attorneys became involved.
One of Schwinger's partners did arrange a meeting with Latrasse and Schwinger.
Latrasse did not appear. Schwinger never recovered any of her investment.
Brandon Blackwelder was the third investor to testify at trial. Blackwelder
met Roger Braugh in 1993. Braugh described his career field as "international
finance" and asked if Blackwelder would be interested in investing in
a "deal" in Europe. Braugh told Blackwelder that the investment
was secret and available only to "blue-bloods" and "high-ranking
officials." Braugh described the investment as a "roll-over program" consisting
of purchases and sales of prime bank instruments in Europe. Blackwelder agreed
to invest $12,500.
On May 12, 1993, Braugh went to Blackwelder's office to collect the money.
While there, Braugh telephoned Kurt Latrasse. Using a speaker phone, Braugh
asked Latrasse to allow Blackwelder to invest only $12,500 instead of what
Braugh described as the minimum amount of $25,000. Latrasse responded that
Blackwelder could invest the lower amount if Blackwelder would agree to recruit
other investors for the program.
Blackwelder and Braugh signed a contract titled the "SAI Opportunity
Account Agreement" that same day. Braugh signed the contract on behalf
of "SAI & Associates." The contract provided that SAI & Associates
would "guarantee that the capital account shall be returned at the end
of ninety (90) days from the date of execution of this Agreement." The
initial term of 90 days would be deemed renewed absent a written notice of
non-renewal by either party. Braugh also signed a instrument styled an "Unsecured
Note," in which he promised to pay Blackwelder, within the 90-day initial
term, the principal amount with interest at a twenty percent annual rate.
Blackwelder spoke to Braugh or Latrasse several times after he made the
investment. On June 26, 1993, Blackwelder hand-delivered Braugh a letter
stating that Blackwelder did not wish to renew the contract after the initial
90-day term. Blackwelder explained that he needed the money for a down payment
on a new house. After this meeting, Blackwelder was unable to reach Braugh
for weeks. When Blackwelder finally talked to Braugh, Braugh provided excuses,
but no money.
In July 1993, Braugh called Blackwelder. Braugh explained that if he could
travel to Europe, he could expedite the roll program transactions, but he
needed $5,000 to $10,000 to make the trip. Braugh asked Blackwelder to lend
him the money. Blackwelder agreed to lend Braugh $5,000, but asked Braugh
to give him a post-dated repayment check as security. On July 8, 1993, Blackwelder
gave Braugh two checks for $2,500 each. In return, Braugh gave Blackwelder
a check in the amount of $5,000, post-dated July 16, 1993. Braugh cashed
the checks from Blackwelder, but did not use the money to pay for a trip
On July 16, 1993, Blackwelder told Braugh that he planned to cash the repayment
check. Braugh told Blackwelder that he had not yet deposited money in the
account on which the check was drawn. Blackwelder nonetheless presented the
check for payment, which, predictably, bounced. Blackwelder tried unsuccessfully
to recover his money from Braugh. On November 22, 1993, Braugh wrote Blackwelder
a letter stating that he would repay Blackwelder's $5,000 loan with cash
or a cashier's check. Blackwelder received no repayment.
Blackwelder also spoke with Latrasse several times about his investment.
Latrasse repeatedly told Blackwelder that there would be action on his investment "any
day." In February 1994, Latrasse sent Blackwelder a fax stating that
Latrasse had designated a disinterested third party to deliver Blackwelder
a check returning his investment. Blackwelder never received the check. He
lost his $12,500 investment and the $5,000 loan.
Kathryn Brewer, a financial analyst with the FBI, examined numerous bank
and brokerage account records to trace the funds Hayes, Schwinger, and Blackwelder
invested. She testified that most of the money was distributed among bank
accounts of the three defendants. The remaining funds were disbursed to various
entities unrelated to any investment program.
Hayes's $250,000 check was initially deposited into a Shearson Lehman Brothers
account in Braugh's name on September 6, 1991. All but approximately $1,000
of this money was transferred out of that account within one month of the
deposit. From September 11, 1991 to October 4, 1991, $182,500 was wire-transferred
from Braugh's Shearson Lehman Brothers account to an account in Braugh's
name at the Bank of Corpus Christi. A $100,000 check to Al Sellars was drawn
on Braugh's Bank of Corpus Christi account on September 11, 1991. From September
11, 1991 to September 27, 1991, a total of $24,000 was wire-transferred from
Braugh's Bank of Corpus Christi account to an account at the same bank in
the name of Lone Star Exploration.*fn2 On October 3, 1991, $25,000 was transferred
directly from Braugh's Shearson Lehman Brothers account to the Lone Star
Exploration bank account. Nearly all the $49,000 deposited in the Lone Star
Exploration account was disbursed to various entities unrelated to any roll
Brewer testified that a $32,000 cashier's check made payable to Al Sellars
was purchased on September 20, 1991 with money from Braugh's Bank of Corpus
Christi account. The check was ultimately redeposited into Braugh's Shearson
Lehman Brothers account. Brewer testified that two wire transfers -- a September
17, 1991 transfer in the amount of $7,500 and a September 25, 1991 transfer
in the amount of $5,000 -- were made from Braugh's Bank of Corpus Christi
account to an account in the name of Kurt Latrasse in California.
Schwinger deposited her $250,000 check into the Shearson Lehman Brothers
account in the name of Gold Cloud Development on December 12, 1991. Brewer
testified that, on December 13, 1991, two checks made payable to Roger Braugh,
totaling $50,000, were drawn on the Gold Cloud Development account. By January
3, 1992, $198,500 was transferred from the Gold Cloud Development account
to Roger Braugh's Shearson Lehman Brothers account. Seven checks made payable
to either Al Richards or GEI Associates, totaling $50,000, were later drawn
on Braugh's Shearson Lehman Brothers account; two checks made payable to
Kurt Latrasse, totaling $59,500, were drawn on this same account in late
December 1991. Three wire transfers totaling $46,000 were made to Roger Braugh's
account at the Bank of Corpus Christi in December 1991. The records from
Braugh's Bank of Corpus Christi account also showed transfers totaling $22,000
to the Lone Star Exploration account at that bank in December 1991; the remaining
money was disbursed to entities unrelated to any roll program.
Blackwelder wrote a $12,500 check payable to SAI & Associates on May
12, 1993. The check was deposited into the account of SAI & Associates
at the Bank of America on the same day. On that same date, a $5,000 check
made payable to Kurt Latrasse was drawn on the SAI & Associates account
and $2,500 was transferred from the SAI & Associates account to an account
in the name of Roger Braugh at the Bank of America. Another $1,400 was transferred
from the SAI & Associates account to Braugh's account on May 24, 1993.
The money transferred to Braugh's personal account was in turn disbursed
to various entities unrelated to any investment program. Brewer's analysis
showed that Braugh paid various expenses with the $5,000 Blackwelder loaned
him, writing checks to, among other entities, General Motors Acceptance Corporation
and Wal-Mart. Braugh did not use the money to pay for a trip to Europe, as
he had promised Blackwelder.
On January 20, 1998, a jury convicted Richards, Braugh, and Latrasse on
all counts. On May 14, 1998, the district court sentenced each defendant
to thirty-three months of imprisonment followed by three years of supervised
release. The district court ordered Richards to pay $487,000 in restitution
and ordered Braugh and Latrasse each $504,500 in restitution. The district
court entered judgment on May 19, 1998. Defendants timely appealed.
THE CHALLENGE TO THE INDICTMENT
Braugh argues for the first time on appeal that the superseding indictment
did not meet constitutional standards. He relies on the recent decision of
United States v. Neder, 527 U.S. 1, 119 S. Ct. 1827 (1999), holding that
the "materiality of falsehood is an element of the federal mail fraud
[and] wire fraud . . . statutes." Id. at 1841. Braugh contends that
because the indictment did not specifically allege that the misrepresentations
he made were material, it failed to allege an essential element of wire fraud
and mail fraud.
"To be sufficient, an indictment must allege every element of the crime
charged." United States v. Fitzgerald, 89 F.3d 218, 221 (5th Cir. 1996).
A challenge to the sufficiency of the indictment is reviewed de novo. See
United States v. Cabrera-Teran, 168 F.3d 141, 143 (5th Cir. 1999). "An
indictment's failure to charge an offense is a jurisdictional defect." Id.
Because the sufficiency of an indictment is a prerequisite to jurisdiction,
a "defendant at any time may raise an objection based on failure to
charge an offense." Id. However, when a challenge to the sufficiency
of the indictment is made for the first time on appeal, "a court should
read the indictment with 'maximum liberality' and find it sufficient 'unless
it is so defective that by any reasonable construction, it fails to charge
the offense for which the defendant is convicted.'" United States v.
Lankford, 196 F.3d 563, 569 (5th Cir. 1999)(quoting Fitzgerald, 89 F.3d 218,
221 (5th Cir. 1996)). "Maximum liberality" is the appropriate standard
of review when, as here, "the appellant does not assert prejudice, that
is, [when the appellant] had notice of the crime of which he stood accused." Fitzgerald,
89 F.3d at 221; see also Lankford, 196 F.3d at 569.
In determining the sufficiency of the indictment, "[t]he law does not
compel a ritual of words." United States v. Wilson, 884 F.2d 174, 179
(5th Cir. 1989)(quoting United States v. Purvis, 580 F.2d 853, 857-858 (5th
Cir. 1978). "The test of the validity of an indictment is 'not whether
the indictment could have been framed in a more satisfactory manner, but
whether it conforms to minimal constitutional standards.'" Wilson, 884
F.2d at 179(quoting United States v. Webb, 747 F.2d 278, 284 (5th Cir. 1984)).
In Neder, the Court defined "materiality of falsehood" in a footnote:
The Restatement instructs 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." Neder,
119 S. Ct. at 1840 n. 5(quoting Restatement (Second) of Torts § 538
This court applies this definition to determine whether, by any reasonable
construction, the superseding indictment charged Braugh with making materially
In United States v. McCough, 510 F.2d 598 (5th Cir. 1975), this court considered
a similar challenge to an indictment. In that case, the indictment charged
a violation of 18 U.S.C. § 1001, which prohibits the making of false
statements to a department or agency of the United States. The indictment
in McCough alleged that a utility cooperative had submitted false financial
statements to a federal agency in a loan application. The defendants argued
that the indictment insufficiently alleged the materiality of the falsehoods
under section 1001. The court stated that "[i]f the facts alleged in
the indictment warrant an inference that the false statement is material,
the indictment is not fatally insufficient for its failure to allege materiality
in haec verba." Id. at 602; see also United States v. Fern, 155 F.3d
1318, 1324 (11th Cir. 1998); United States v. Pommerening, 500 F.2d 92, 98
(10th Cir. 1974); United States v. Olin Corp., 465 F. Supp. 1120, 1131-32
The McCough indictment alleged that the financial statements substantially
misstated the value of the cooperative's assets and described specific entries
in the financial statements that contained misrepresentations. The court
held that the indictment sufficiently alleged the materiality of the false
financial statements because it alleged specific misstatements that were
significant and "could conceivably have the capacity to influence the
[agency's] function in overseeing the status of the security of a large public
investment." Id. at 603.
The superseding indictment in this case alleged false representations of
specific facts that also "warrant an inference that the false statement[s]
[were] material." Id. at 602. The indictment detailed the specific false
representations and promises defendants allegedly made to "induce the
Investors to deliver to the Defendants cashier's check and checks." Paragraph
Six of Count One of the indictment alleged:
ROGER S. BRAUGH, AL RICHARDS, and KURT LATRASSE would and did represent
falsely to certain individuals, including but not limited to Bert Hayes,
Gail Schwinger, and Brandon Blackwelder (the "Investors"), that
they had contacts with European banks and lenders and that the Investors
would receive a substantial return on an investment involving transactions
between banks within a matter of weeks or months.
Paragraph Ten of Count One of the indictment alleged:
ROGER S. BRAUGH, AL RICHARDS, and KURT LATRASSE would and did continue to
send and receive communications . . . to and from the Investors, even after
the Investors had delivered their money to the defendants, for the purpose
of lulling the Investors into a false sense of security by assurances that
the promised services would be, or were being, performed, and that the investment
was a worthwhile one, and that they would receive distributions, or return
of it, at some future date; for the purpose of postponing inquiries, complaints,
or legal action by the Investors, and lessening the suspect appearance of
the fraudulent transactions; and, for the purpose of giving excuses for non-performance,
thereby allowing additional investments or loans to be sought from the Investors.
Paragraph 13 of Count One of the indictment listed twenty-eight overt acts,
including specific communications with the investors describing the details
of the investment program and later assuring the investors that the program
was making money as promised. The allegations in Paragraphs Six, Ten, and
Thirteen of Count 1 are incorporated by reference in all other counts of
The indictment in this case does not test constitutional limits in light
of Neder. Read as a whole, the superseding indictment alleges specific facts
that easily support an inference that the defendants made material misrepresentations
and false promises. In particular, the allegations that the defendants misrepresented
that the investment program existed, was free from risk of loss, and would
generate large profits support an inference of materiality. A "reasonable
man would attach importance" to assurances that the investments would
take place as described and would return at least the invested funds, plus
interest, within a short time, in determining whether to invest. The allegations
in the indictment are sufficient to charge the offenses of mail fraud, wire
fraud, and conspiracy to commit mail fraud and wire fraud.
THE CHALLENGE TO THE DENIAL OF BRAUGH'S MOTION TO SEVER
Braugh argues that the district court improperly denied his motion to sever
because the evidence presented at trial was so complicated that the jury
had difficulty considering the evidence against each defendant separately.
Braugh also argues that the defendants presented antagonistic defenses.
The district court's denial of a motion to sever is reviewed for an abuse
of discretion. See United States v. Pena-Rodriguez, 110 F.3d. 1120, 1128
(5th Cir. 1997). Rule 8(b) of the Federal Rules of Criminal Procedure provides
in relevant part: "Two or more defendants may be charged in the same
indictment . . . if they are alleged to have participated . . . in the same
series of acts or transactions constituting an offense or offenses." Generally, "persons
indicted together should be tried together, especially in conspiracy cases
. . . ." United States v. Posada-Rios, 158 F.3d 832, 863 (1998), cert.
denied, ___ U.S. ___, 119 S. Ct 1280 (1999), cert. denied, ___ U.S. ___,
119 S. Ct 1487 (1999), and cert. denied, ___ U.S. ___, 119 S. Ct. 1792 (1999)
(quoting United States v. Pofahl, 990 F.2d 1456, 1483 (5th Cir. 1993)).
Rule 14 of the Federal Rules of Criminal Procedure authorizes the trial
court to grant a severance based on a showing of prejudice. To demonstrate
that a district court abused its discretion in denying a motion to sever,
the defendant must show that: "(1) the joint trial prejudiced him to
such an extent that the district court could not provide adequate protection;
and (2) the prejudice outweighed the government's interest in economy of
judicial administration." United States v. McCord, 33 F.3d 1434, 1452
(5th Cir. 1994)(quoting United States v. DeVarona, 872 F.2d 114, 120-21 (5th
This trial lasted two weeks and involved three defendants. This court has
upheld a district court's decision to deny severance in cases involving many
more defendants, more evidence, greater complexity, and longer trials. See,
e.g., Posada-Rios, 158 F.3d at 863-65(upholding district court's denial of
a motion to sever in a conspiracy case tried for six months against 12 defendants);
United States v. Ellender, 947 F.2d 748, 753-755 (5th Cir. 1991)(upholding
district court's denial of a motion to sever in a conspiracy case tried for
three months against 23 defendants, with 73 witnesses).
A general description of the complexity of a trial is not sufficient to
show the "specific and compelling prejudice" necessary for reversal
of a district court's denial of a motion to sever. United States v. McCord,
33 F.3d at 1452; cf. Posada-Rios, 158 F.3d at 863. Instead, an appellant
must "isolate events occurring in the course of the joint trial and
then . . . demonstrate that such events caused substantial prejudice." Posada-Rios,
158 F.3d at 863(quoting Ellender, 947 F.2d 748, 755 (5th Cir. 1991)). Braugh
has not identified specific events that caused prejudice and require reversal.
Braugh's argument that the jury's conviction of all defendants on all counts
shows that it did not separately consider the evidence as to each defendant
is unavailing. This court has stated that "acquittals as to some defendants
on some counts support an inference that the jury sorted through the evidence
and considered each defendant and each count separately." Posada-Rios,
158 F.3d at 864 (quoting Ellender, 947 F.2d at 755). It does not necessarily
follow, however, that conviction of all defendants on all counts shows that
the jury failed separately to weigh the evidence as to each defendant.
"Appropriate cautionary instructions can decrease the possibility that
the jury will improperly transfer proof of guilt from one defendant to another." Ellender,
947 F.2d at 755 (quoting United States v. Hogan, 763 F.2d 697, 705 (5th Cir.
1985)). "The pernicious effect of cumulation . . . is best avoided by
precise instructions to the jury on the admissibility and proper uses of
the evidence introduced by the Government." United States v. Morrow,
537 F.2d 120, 136 (5th Cir. 1976). In this case, the trial court gave careful
instructions during the trial about the limited purpose for which it admitted
some of the evidence. The court included the limiting instructions in the
final instructions to the jury. In the trial instructions, the court also
admonished the jury as follows:
A separate crime is charged against one or more of the defendants in each
count of the indictment. Each count, and the evidence pertaining to it, should
be considered separately. Also, the case of each defendant should be considered
separately and individually. The fact that you may find one or more of the
defendants guilty or not guilty of any of the crimes charged should not control
your verdict as to any other crime or any other defendant. You must give
separate consideration to the evidence as to each defendant.
Similar instructions have been held sufficient to eliminate the possibility
of undue prejudice. See Posada-Rios, 158 F.3d at 864; United States v. Faulkner,
17 F.3d 745, 759 (5th. Cir 1994). "The remedy of severance is justified
only if the prejudice flowing from a joint trial is clearly beyond the curative
powers of a cautionary instruction." Morrow, 537 F.2d at 136. Braugh
offers no specific basis for concluding that the district court's repeated
and meticulous instructions failed to avoid legally cognizable prejudice.
Braugh also argues that the district court should have severed his trial
because Richards presented an antagonistic defense. Braugh points to three
instances of purported antagonism. First, Richards' attorney stressed in
opening statements that Bert Hayes's money was deposited into an account
that Braugh, not Richards, controlled. Second, Richards' attorney argued
that the checks Braugh wrote to Richards with the notation "Bert Hayes
payment" on the memorandum line were to pay Richards' commissions, and
that Braugh lied when he told Hayes that the checks were for him. Richards'
attorney argued that Braugh wrote "Bert Hayes payment" on the cashed
and canceled checks after the fact. Braugh's attorney contended that Braugh
sent the money to Richards in order to pay Hayes. Third, during his cross-examination
of Schwinger, Richards' attorney asked questions about events that occurred
after Richards' involvement had ended, including actions Braugh took to make
Schwinger continue believing that the roll program was legitimate. Braugh
argues that these trial tactics were intended to blame Braugh and portray
Richards' involvement as innocent.
"[S]everance is not automatically required merely because co-defendants
present mutually antagonistic defenses." United States v. Castillo,
77 F.3d 1480, 1491 (5th Cir. 1996); see also United States v. Matthews, 178
F.3d 295, 298 (5th Cir.), cert. denied, ___ U.S. ___, 120 S. Ct. 359 (1999).
The decision is committed to the discretion of the trial court and will be
reversed only if the defendant shows "specific and compelling prejudice" the
joint trial caused his defense. This court has held that when defendants
present antagonistic defenses, "instructions to consider the evidence
as to each defendant separately and individually, and not to consider comments
made by counsel as substantive evidence sufficed 'to cure any prejudice caused
when co-defendants accuse each other of the crime.'" United States v.
Mann, 161 F.3d 840, 863 (5th Cir. 1998)(quoting United States v. Stouffer,
986 F.2d 916, 924 (5th Cir. 1993)), cert. denied, ___ U.S. ___, 119 S. Ct.
1766 (1999). The district court gave both these instructions in this case.
In addition to the curative instructions, a close examination of Richards'
and Braugh's defenses shows that they fall short of mutual antagonism. Defenses
are antagonistic if they are "mutually exclusive or irreconcilable,
that is, if the core of one defendant's defense is contradicted by that of
a co-defendant." United States v. Rojas-Martinez, 968 F.2d 415, 419
(5th Cir. 1992); see also United States v. Moser, 123 F.3d 813, 829 (5th
Cir. 1997). Richards presented his belief that the roll program was legitimate
as the core of his defense. The core of Braugh's defense was that Al Sellars
masterminded the "roll program" and Braugh believed it to be legitimate.
The two defenses are not mutually antagonistic; the jury could have believed
both. Specifically, the jury could have found that Braugh wrote "Bert
Hayes payment" on the canceled checks after Richards cashed them, as
Richards' attorney argued, and that Braugh believed the investment program
was legitimate, as Braugh's attorney argued. The evidence as to Braugh's
continued involvement with Schwinger's investment after Richards' participation
ended similarly did not conflict with Braugh's defense that he believed the
investment program to be legitimate.
Richards and Braugh did not present mutually antagonistic defenses, so as
to require severance. The district court carefully instructed the jury separately
to consider the evidence admitted against each defendant. Braugh has not
demonstrated the "specific and compelling prejudice" necessary
for reversal based on the district court's denial of his motion to sever.
THE CHALLENGES TO THE ADMISSION OF EVIDENCE
THE RULE 403 OBJECTION
Richards argues that the district court abused its discretion in admitting
Braugh's testimony that he brought a dispute he had with Richards to the
attention of the federal and state prosecutor's offices in Fort Worth and
Dallas, respectively. Richards contends that the district court should have
excluded the testimony under Rule 403 of the Federal Rules of Evidence, on
the ground that "its probative value [was] substantially outweighed
by the danger of unfair prejudice."
Braugh testified without objection that Richards asked him for $30,000 in
January 1992. Braugh sent Richards three $10,000 checks. Braugh testified
that Richards agreed not to cash those checks, but merely to show them to
anxious creditors to provide assurance. Instead, Richards cashed the checks,
against Braugh's instructions.
Richards did object to Braugh's testimony the following day, when Braugh
told the jury that he reported his dispute with Richards over the three $10,000
checks to the local offices of the district attorney and the United States
Attorney. The reports did not result in criminal charges against Richards.
Braugh testified that he knew that by making the complaint, he was bringing
his relationship with Richards to the attention of law enforcement agencies.
The district court carefully limited Braugh's testimony about his dispute
with Richards and carefully instructed the jury as to how they could consider
the limited testimony admitted. The court did not permit Braugh to present
the details of his disagreement with Richards over the checks. Instead, the
court limited Braugh's testimony to the fact that he had a dispute with Richards,
which he later reported. The court included Braugh's letters to the prosecutors
detailing the dispute as part of the record, but did not admit the letters
at the trial.*fn5 The district court found that the testimony had narrow,
but significant, probative value. The fact that Braugh reported the dispute
to law enforcement tended to support his contention that he did not believe
that he and Richards were parties to an unlawful conspiracy. The district
court reasoned that Braugh would be unlikely to take any action that could
lead to law enforcement investigating his relationship with Richards if he
believed that their relationship was criminal.
The district court gave the jury the following instructions about Braugh's
Let me explain to the jury what's happening. I'm going to let Mr. Braugh
testify about this matter, this dispute that he had with Mr. Richards. The
nature of the dispute is not really that relevant in this case, and you are
not going to be asked to decide whether Mr. Richards was right in this dispute
or Mr. Braugh was right in this dispute, I'm letting the fact that Mr. Braugh
brought the dispute to the attention of law enforcement agencies be admitted
into evidence because you may decide that it's relevant to Mr. Braugh's state
of mind, in that, if Mr. Braugh believed that his dealings with Mr. Richards
that we have been hearing in this case were illegal, he may not have wanted
law enforcement officials to learn of his dealings with Mr. Richards. So
that's the only reason I am letting this come into evidence. The exact dispute,
who's right and wrong in the dispute, is not relevant. Only the fact that
Mr. Braugh's state of mind was such that he was willing to bring the nature
of the dispute to law enforcement officials in 1992.
Richards argues that Braugh's testimony lacked probative value. Because "the
dispute was totally unrelated to the charged offenses," Braugh would
not have been concerned that his complaint would trigger an investigation
into his relationship with Richards, and the fact of the report did not tend
to show that Braugh viewed his relationship with Richards as lawful. Richards
also argues that the evidence of Braugh's reports of his dispute with Richards
was cumulative of other evidence showing that Braugh and Richards had a "falling
out." Richards asserts that the probative value was minimal and the
prejudicial effect significant, given the facial similarity between Braugh's
accusations and the conduct alleged in the indictment.
This court reviews the district court's ruling for an abuse of discretion.
See Old Chief v. United States, 519 U.S. 172, 174 n. 1 (1997); United States
v. Ismoila, 100 F.3d 380, 391 (5th Cir. 1996). "The exclusion of evidence
under Rule 403 should occur only sparingly." United States v. Pace,
10 F.3d 1106, 1115 (5th Cir. 1993). The "major function [of Rule 403]
is limited to excluding matter of scant or cumulative probative force, dragged
in the by the heels for the sake of its prejudicial effect." Id. at
1116(quoting United States v, McRae, 593 F.2d 700, 707 (5th Cir. 1979)).
Contrary to Richards' argument, the evidence admitted did have the probative
value defined in the trial judge's limiting instructions. The district court
did not admit Braugh's testimony for the purpose of establishing that his
report about Richards to law enforcement agencies was true or to show that
he and Richards had a dispute. The court instead admitted the fact of Braugh's
reports of a dispute with Richards as evidence bearing only on Braugh's contention
that he did not believe that he and Richards were parties to a criminal conspiracy.
As the government notes, both Braugh's and Richards' attorneys discussed
the testimony in their closing arguments, demonstrating its probative value.
Nor was Braugh's testimony so prejudicial as to make its admission, with
the district court's limiting instructions, improper. When Braugh testified
that Richards attempted to cash the checks despite his agreement with Braugh
not to do so, Richards did not object.*fn6 Richards did not object until
the following day, when Braugh testified that he reported the disagreement
over the checks to law enforcement agencies. The district court's detailed
limiting instruction carefully defined the purpose for which the jury could
consider the testimony and mitigated the potential for undue prejudice. See
United States v. Bailey, 111 F.3d 1229, 1234 (5th Cir. 1997).
In light of the court's strict limits on Braugh's testimony and instructions
limiting the jury's consideration of the testimony, the district court did
not err in admitting this evidence.
THE RULE 404(B) AND HEARSAY CHALLENGES
In rebuttal, and over objections, the government called a witness named
Mark McMillan to testify about investments he made through Braugh and Latrasse
in 1987 and 1988. These objections are reasserted on appeal.
McMillan testified that he met Braugh in late 1987. Braugh was working from
an office in the church to which McMillan belonged, trying to help the financially
troubled church raise money. Braugh proposed an investment to McMillan to
help solve the church's financial problems. Braugh explained that he "had
some kind of bank letter of credit, foreign bank letter of credit deal going
where some bank was going to loan him $10 million imminently." Braugh
told McMillan that $15,000 would make "the deal" work. Braugh promised
that if McMillan invested the $15,000, Braugh would receive $10 million from
the European bank; would loan $800,000 to the church; would return $15,000
to McMillan within a few days; and would pay McMillan an additional $15,000.
McMillan gave Braugh the $15,000. Neither McMillan nor the church received
any money from Braugh.
McMillan next saw Braugh several months later, at the offices of Butler
Industries. McMillan was there to see the company president, a close personal
friend. Braugh was using an office at the company, working to raise money
for the financially-troubled business. Braugh proposed another investment
opportunity to McMillan. Braugh explained that he had succeeded in securing
a $10 million loan from a European bank. The money had been wired and placed
in a holding account, but Braugh needed $25,000 to release the funds. Braugh
promised that if McMillan invested the $25,000, Braugh would pay him $50,000
before the close of the same business day; would pay the $30,000 owed from
the first investment; would loan money to Butler Industries; and would loan
the church the money he had promised earlier.
Braugh told McMillan that the transactions would take place through a company
called Gold Cloud Development.*fn7 If the $10 million was not paid as expected,
Gold Cloud Development would invest McMillan's money in a movie through a
company called San Francisco Productions. Braugh told McMillan that Kurt
Latrasse was in charge of both the loan from the European bank and the movie
deal and that Braugh was acting at Latrasse's direction.
McMillan testified that, despite suspicions, he decided to give Braugh the
$25,000. On April 14, 1988, McMillan had his office manager draft a document
to record the promised transactions. In this document, Braugh and Latrasse,
referred to as "Borrower," promised to pay McMillan $50,000 from:
(1) "proceeds received on the Roger Braugh/Gold Cloud Development Project
(expected loan of $10,000,000.00)"; (2) "proceeds received on the
San Francisco Productions Project (expected loan of $10,000,000.00)";
or (3) "other sources as deemed necessary by Borrower." McMillan's
staff also drafted a personal guarantee for signature by Braugh and Latrasse
individually. McMillan told Braugh that he would pay the $25,000 only after
Braugh and Latrasse signed the documents.
McMillan testified that he spoke by telephone to a man identified as Kurt
Latrasse after the documents had been faxed to Latrasse:
A: . . . . [W]e got him on the telephone in his motel room.
Q: Who is the "we," who got him on the telephone?
A: Me and Roger Braugh and Robert Cohen, the president of Butler Industries.
Q: And who is the "him" that you got on the phone?
A: Kurt Latrasse.
Q: And what makes you think you had Kurt Latrasse on the telephone?
A: He said he was Kurt Latrasse. They dialed the hotel -- I mean, I was
told that they were calling Kurt Latrasse. The man got on the phone, said
he was Kurt Latrasse. He got the documents. He said he read the documents.
He said he was signing them. He said he could not get them notarize [sic]
because his secretary was gone to lunch or his notary was gone to lunch,
and he signed it, supposedly, they faxed it back to me. I looked at it, I
verified the signature, then I paid the money.
Later that day, Roger Braugh faxed McMillan the "loan document," signed "Kurt
Latrasse" and "Roger S. Braugh," and the personal guarantee,
signed "Roger S. Braugh." On the fax cover sheet, Braugh wrote: "Kurt's
personal guarantee will be here tomorrow because the notary left before we
sent the last document to him."
McMillan did not see Braugh again after that day. He received none of his
money back and neither the church nor Butler Industries received a loan.
McMillan filed no complaint and made no attempt to recover the money.
Braugh's Challenges to McMillan's Testimony
Braugh argues that the admission of McMillan's testimony violated Rule 404(b)
of the Federal Rules of Evidence because the transactions McMillan described
were remote in time from, and dissimilar to, the transactions charged in
the indictment. Braugh also argues that, even if the evidence was relevant,
its marginal probative value was substantially outweighed by the highly prejudicial
In response, the government argues that the McMillan transactions had substantial
similarities to the transactions charged in the indictment, making the evidence
highly probative of Braugh's intent. Braugh put his intent squarely in issue,
making McMillan's testimony important rebuttal evidence. The district court
instructed the jury that they were to consider the testimony only on the
issue of intent.
The district court's decision to admit Rule 404(b) evidence is reviewed
for abuse of discretion. See United States v. Chavez, 119 F.3d 342, 346 (5th
Cir. 1997). This review is "necessarily heightened" in criminal
cases. United States v. Gonzalez, 76 F.3d 1339, 1347 (5th Cir. 1996)(quoting
United States v. Anderson, 933 F.2d 1261, 1268 (5th Cir. 1991)). The probative
value of the evidence, the need for the evidence by the government on the
issue of intent, and the court's limiting instructions are all considered
in determining if the court properly admitted the testimony under Rule 404(b).*fn8
A trial court must apply the test set out in United States v. Beechum, 582
F.2d 898, 911 (5th Cir. 1978)(en banc), in determining whether to admit extrinsic
offense evidence under Rule 404(b). Careful application of the Beechum test
protects defendants from unfair prejudice in the admission of extrinsic act
evidence. See Anderson, 933 F.2d at 1268. The first step of the Beechum test
is to determine that the extrinsic offense evidence is relevant to an issue
other than the defendant's character. The second step is to determine whether
the evidence satisfies Rule 403. See Beechum, 582 F.2d at 911.
The relevance of extrinsic act evidence "is a function of its similarity
to the offense charged." Id. When the evidence is admitted to show the
defendant's intent to commit the offense charged, "the relevancy of
the extrinsic offense derives from the defendant's indulging himself in the
same state of mind in the perpetration of both the extrinsic and charged
offenses." Id. "The reasoning is that because the defendant had
unlawful intent in the extrinsic offense, it is less likely that he had lawful
intent in the present offense." Id. An extrinsic offense is relevant
to the issue of intent only if "an offense was in fact committed and
the defendant in fact committed it." Id. at 912. The proponent of the
evidence need not establish these facts by a preponderance of the evidence;
rather, "the evidence in the case must be sufficient to permit a jury,
acting reasonably, to find the preliminary facts by a preponderance of the
evidence." Anderson, 933 F.2d at 1269. "Once it is determined that
the extrinsic offense requires the same intent as the charged offense and
that the jury could find that the defendant committed the extrinsic offense,
the evidence satisfies the first step under rule 404(b)." Beechum, 582
F.2d at 913.
As to Braugh, McMillan's testimony satisfies the first part of the Beechum
test. McMillan's testimony, if believed, would permit a reasonable jury to
find by a preponderance of the evidence that Braugh committed fraud in both
of the McMillan transactions, involving the same intent as the offenses charged
in the indictment.
In performing the second part of the Beechum test,"the task for the
court . . . calls for a commonsense assessment of all the circumstances surrounding
the extrinsic offense." Id. Several factors affect the probative value
of the evidence, including "the extent to which the defendant's unlawful
intent is established by other evidence, the overall similarity of the extrinsic
and charged offenses, and the amount of time that separates the extrinsic
and charged offenses." Chavez, 119 F.3d at 346-47.
McMillan's testimony was highly probative as to Braugh's intent. "The
mere entry of a not guilty plea in a conspiracy case raises the issue of
intent sufficiently to justify the admissibility of extrinsic offense evidence." United
States v. Broussard, 80 F.3d 1025, 1039 (5th Cir. 1996). In this case, the
core of Braugh's defense was that he lacked the intent to defraud. Braugh
testified, and his attorney argued, that Braugh believed the "roll program" was
a legitimate investment. The government had no direct evidence of Braugh's
Braugh's arguments as to the dissimilarity between the McMillan transactions
and those described in the indictment are without merit. Braugh twice induced
McMillan to give him money by describing investments that would result in
a European bank paying $10 million to Braugh, yielding McMillan a substantial
return in a very short time with no risk of losing his money. The first of
the two transactions involved a letter of credit. The "roll program" transactions
involved promises that the investors' payments would enable Braugh and the
other defendants to obtain a $10 million letter of credit from a foreign
bank, which would return the investors' money, plus interest and large profits,
in a very short time. Braugh told McMillan that Latrasse was in charge of
the investments proposed in the second transaction, just as he would later
tell the "roll program" victims that Latrasse was the expert in
that investment plan. The three to five years between the McMillan transactions
and the later charged offenses does not so diminish the probative value of
the evidence as to make it inadmissible. Cf. United States v. Hernandez-Guevara,
162 F.3d 863, 872-73 (5th Cir. 1998)(affirming district court's admission
of an 18-year-old conviction under Rule 404(b) to show intent), cert. denied,
___ U.S. ___, 119 S. Ct. 1375 (1999); Chavez, 119 F.3d at 346-47(affirming
district court's admission of a 15-year-old prior conviction under Rule 404(b)
to show intent).
The district court instructed the jury on the limited purpose for which
McMillan's testimony could be considered:
You are going to hear evidence that you may conclude is similar to the acts
of Defendants Braugh and Latrasse that are charged in the indictment but
that occurred on different occasions than those alleged in the indictment.
You must not consider any of the evidence that you are about to hear in deciding
if Mr. Braugh or Mr. Latrasse committed the acts charged in the indictment.
However, you may consider the evidence for other very limited purposes. If
you find beyond a reasonable doubt from the evidence you have heard up to
now that Mr. Braugh or Mr. Latrasse committed the acts charged against them
in the indictment, then you may consider the evidence that you are about
to hear to determine whether Mr. Braugh or Mr. Latrasse had the state of
mind or intent necessary to commit the crimes charged against them in the
indictment. That is the only purpose for which you may consider the evidence
that you are about to hear.
The district court repeated this admonition in his final instructions to
the jury. "[T]he danger of unfair prejudice was minimized by the district
court's careful instructions to the jury." Gonzalez, 76 F.3d at 1348.
The high degree of probative value of McMillan's testimony, balanced against
the danger of unfair prejudice the testimony raised, in light of the limiting
instructions, leads to the conclusion that the district court acted well
within its discretion in admitting the testimony over Braugh's Rule 404(b)
Braugh's argument that McMillan's testimony was improper "guilt-by-association" evidence
is similarly without merit.*fn9 "It is well established . . . that the
government may not attempt to prove a defendant's guilt by showing that [the
defendant] associates with 'unsavory characters.'" United States v.
Polasek, 162 F.3d 878, 884 (5th Cir. 1998). McMillan's testimony did not
suffer from this defect. McMillan testified about Braugh's acts and statements
in inducing McMillan to make the two "investments." The testimony
focused on Braugh's own conduct. It did not merely show that Braugh associated
with Latrasse. See id. at 885(distinguishing between evidence showing extrinsic
wrongdoing on defendant's part, which might be admissible to show knowledge
or intent under Rule 404(b), and evidence showing the defendant associated
with people who were later convicted of an offense similar to the charged
offense, which would be inadmissible guilt-by-association evidence). The
district court did not err on this basis in admitting McMillan's testimony.
Latrasse's Challenges to McMillan's Testimony
Latrasse challenges McMillan's testimony as inadmissible, both because it
failed the Rule 404(b) criteria and because parts of McMillan's testimony
were hearsay as to Latrasse.
Latrasse challenges the sufficiency of the evidence showing that "an
offense was in fact committed and the defendant in fact committed it." Beechum,
582 F.2d at 913. Specifically, Latrasse argues that McMillan's testimony
was insufficient to show that Latrasse was involved with Braugh in the second
McMillan transaction. To determine whether there was sufficient evidence
to satisfy the first part of the Beechum test, Latrasse's hearsay objection
must first be addressed. The statements Latrasse objects to would, if admissible,
form part of the evidence showing Latrasse's involvement.
Latrasse objected under Rule 802 to McMillan's testimony that Braugh described
Latrasse as the person in charge of the investment, who was giving Braugh
direction. The district court admitted McMillan's testimony against Latrasse
under Rule 801(d)(2)(D), which defines statements of an agent or employee
of the defendant as non-hearsay. Latrasse challenges the district court's
An out-of-court statement of a declarant is not hearsay if "[t]he statement
is offered against a party and is . . . a statement by the party's agent
or employee, made during the existence of the relationship." Fed. R.
Evid. 801(d)(2)(D). The proponent of the evidence must prove the preliminary
facts that bring the statement within Rule 801(d)(2)(D), by a preponderance
of the evidence. See United States v. Bourjaily, 483 U.S. 171, 174 (1987).
The statement itself may be considered in making this determination. See
id. However, "[t]he contents of the statement . . . are not alone sufficient
to establish . . . the agency or employment relationship and scope thereof
under subdivision (D) . . . ." Fed. R. Evid. 801(d)(2).
McMillan testified that Braugh told him "over and over and over that
Kurt Latrasse was the man in charge" of the Gold Cloud Development and
San Francisco Productions investments. McMillan also testified that Braugh
said "he was basically acting as an agent for Kurt Latrasse." These
statements provided the only evidence of Latrasse's role as principal and
Braugh's as agent in the second transaction Braugh proposed to McMillan.
Neither the loan document bearing Latrasse's signature nor the circumstances
under which Latrasse signed it provide proof that Braugh was acting as Latrasse's
agent. In light of the lack of evidence to corroborate Braugh's out-of-court
statements that he was acting as an agent for Latrasse, Rule 801(d)(2)(D)
cannot serve as the basis for the admission of these statements against Latrasse.
However, even if McMillan's testimony should not have been admitted against
Latrasse under Rule 801(d)(2)(D), other grounds for admission remove any
harmful error. See United States v. Lopez, 979 F.2d 1024, 1033 (5th Cir.
1992). The government urges that the testimony was admissible under Rule
801(d)(2)(E), which takes an out-of-court statement outside the hearsay rule
if the statement "is offered against a party and is . . . a statement
by a coconspirator of a party during the course and in furtherance of the
conspiracy." Fed. R. Evid. 801(d)(2)(E). Although the indictment did
not allege an earlier conspiracy in connection with the McMillan transactions, "the
conspiracy that forms the basis for admitting coconspirators' statements
need not be the same conspiracy for which the defendant is indicted." United
States v. Arce, 997 F.2d 1123, 1128 (5th Cir. 1993).
Before admitting evidence under Rule 801(d)(2)(E), the proponent must "establish
by a preponderance of the evidence that the declarant and the defendant were
involved in a conspiracy and that the statements were made during and in
furtherance of the conspiracy." United States v. Broussard, 80 F.3d
1025, 1038 (5th Cir. 1996); see also Bourjaily, 483 U.S. at 175-76. Under
Rule 104(a) of the Federal Rules of Evidence, a court "is not bound
by the rules of evidence except those with respect to privileges" in
determining the existence of preliminary facts to support the admission of
evidence. See also Bourjaily, 483 U.S. at 178. The out-of-court statement
itself may be considered in determining the existence of the conspiracy and
other preliminary facts. See id. at 177-81; Fed. R. Evid. 801(d)(2). However,
the out-of-court statement alone is not sufficient to support its own admission.
See Fed. R. Evid. 801(d)(2).
Braugh made the statements as part of his efforts to induce McMillan to
give him money a second time. There is sufficient evidence to show that Braugh
and Latrasse conspired in this effort to defraud McMillan. The trial record
included the following evidence that Braugh and Latrasse were parties to
such a conspiracy:
McMillan testified that Braugh told him "over and over again that
Latrasse was in charge" of the Gold Cloud Development transaction
and the San Francisco Production movie deal.
- McMillan testified that Braugh said that "he was basically acting
as an agent for Kurt Latrasse."
After McMillan refused to give Braugh any money unless Latrasse signed
a loan document and personal guarantee drafted by McMillan's staff, those
were faxed to Latrasse.
- Braugh and McMillan telephoned the hotel where Latrasse
was staying. They were connected to a man who identified himself as Kurt
stated that he had received the documents that McMillan's staff
drafted and was signing them.
Braugh faxed McMillan the loan document bearing a signature purporting
to be that of Kurt Latrasse.
The signature of Kurt Latrasse was very similar to Latrasse's
signature on other documents previously admitted as evidence
in the trial.
This evidence shows the predicate facts making Braugh's statements about
Latrasse admissible under Rule 801(d)(2)(e). The record discloses sufficient
evidence to show by a preponderance of the evidence that Latrasse and Braugh
conspired to defraud McMillan. Braugh's out-of-court statements in furtherance
of the conspiracy were admissible under Rule 801(d)(2)(E) of the Federal
Rules of Evidence.
In light of this determination, we return to the first part of the Beechum
test to consider whether McMillan's testimony was admissible against Latrasse
under Rule 404(b). Under the circumstances presented in this case, there
was sufficient evidence to permit a rational jury to find that Latrasse committed
an offense involving fraud for the purpose of the Beechum analysis.
McMillan's testimony also satisfies Rule 403, the second part of the Beechum
test. Latrasse placed his intent at issue by testifying that he believed
the "roll program" was legitimate. The evidence of the second McMillan
transaction was probative rebuttal evidence, particularly given the similarity
between Latrasse's role in the extrinsic offense and his role in the charged
Braugh described Latrasse to McMillan as the person in charge of the proposed
investments; later, Latrasse was presented to the roll program investors
as the expert in such transactions. In both schemes, when an investor expressed
concern or doubt, Latrasse was called in to provide reassurance. McMillan's
testimony was probative on the issue of Latrasse's intent. The district court
gave a careful limiting instruction to the jury, minimizing the prejudicial
impact of McMillan's testimony. See Gonzalez, 76 F. 3d at 1348. Balancing
the probative value against the danger of unfair prejudice in light of the
limiting instruction, the district court did not abuse its discretion in
admitting McMillan's testimony against Latrasse over his Rule 404(b) objection.
Moreover, even if McMillan's testimony was inadmissible, the error was,
on this record, harmless. See United States v. Cornett, 195 F.3d 776, 784
(5th Cir. 1999). The erroneous admission of McMillan's testimony would require
reversal of Latrasse's conviction only if the evidence had a "substantial
impact" on the verdict. See United States v. Dickey, 102 F. 3d 157,
163 (5th Cir. 1996); United States v. El-Zoubi, 993 F.2d 442, 446 (5th Cir.
1993). The trial record discloses ample evidence of Latrasse's guilt. The
evidence shows that Latrasse repeatedly provided Hayes, Schwinger, and Blackwelder
assurances as to the legitimacy and profitability of the roll program long
after he knew that the money had not been invested as promised and was not
producing the promised returns. The record shows that Latrasse gave the investors
detailed and varying explanations, promises, and excuses long after the investors'
money had already been disbursed to the defendants, including Latrasse. In
the context of the ample evidence of Latrasse's criminal intent in the record,
McMillan's testimony did not have a "substantial impact" on the
jury verdict so as to require reversal.
THE CHALLENGE TO THE JURY INSTRUCTIONS
All three defendants argue that the district court erred in rejecting the
defendants' proposed jury instruction as to the relationship between breach
of fiduciary duty and criminal liability.
John Shockey testified as the government's expert witness on international
banking practices and financial fraud. During cross-examination, Braugh's
attorney asked Shockey whether "people in the phony money world" ever
used "people in the legitimate money world" to promote fraudulent
investment schemes. In response, Shockey testified:
Well, while that could happen, we would hope that proper due diligence would
be done. And if the parties involved hold themselves out as knowledgeable
and experienced financial advisors, they have a fiduciary responsibility
to their clients to conduct due diligence to protect the interests of their
Latrasse's attorney later asked Shockey several questions to clarify that "due
diligence" and "fiduciary responsibility" were terms from
civil, not criminal, law.
Latrasse timely requested the trial court to include the following language
in the court's jury instructions: "Neither a failure to exercise due
diligence nor a breach of fiduciary duty in and of themselves rise to the
level of specific intent to defraud. Before you may find a Defendant guilty
of fraud, you must find beyond a reasonable doubt that the Defendant had
the specific intent to defraud." The other defendants joined in the
request. The district court did not give the instruction.
A district court's refusal to provide a requested jury instruction is reviewed
for abuse of discretion. United States v. Jobe, 101 F.3d 1046, 1059 (5th
Cir. 1996). Such a refusal requires reversal only if the requested instruction
(1) was a substantially correct statement of the law, (2) was not substantially
covered in the charge as a whole, and (3) concerned an important point in
the trial such that the failure to instruct the jury on the issue seriously
impaired the defendant's ability to present a given defense. See United States
v. Webster, 162 F.3d 308, 322 (5th Cir. 1998), cert. denied, ___ U.S. ___,
120 S. Ct. 83 (1999); Jobe, 101 F.3d at 1059.
The district court instructed the jury, in relevant part, as follows:
The word "knowingly," as that term has been used from time to
time in these instructions, means that the act was done voluntarily and intentionally,
not because of mistake or accident.
Good faith is a complete defense to the charges in the indictment, since
good faith on the part of the defendant is inconsistent with intent to defraud,
which is an essential part of the charges. The burden of proof is not on
a defendant to prove his good faith, since a defendant has no burden to prove
anything. The government must establish beyond a reasonable doubt that the
defendants acted with specific intent to defraud as charged in the indictment.
One who expresses an opinion honestly held by him, or a belief honestly
entertained by him, is not chargeable with fraudulent intent even though
his opinion is erroneous or his belief is mistaken; and, similarly, evidence
which establishes only that a person made a mistake in judgment or an error
in management, or was careless, does not establish fraudulent intent.
On the other hand, an honest belief on the part of the defendant that a
particular business venture was sound and would ultimately succeed would
not, in and of itself, constitute "good faith" as used in these
instructions if, in carrying out that venture, the defendants knowingly made
false or fraudulent representations to other with the intent to deceive them.
The district court also instructed the jury on the level of intent required
for conviction on each of the offenses charged in the indictment. As to the
conspiracy charge, the district court instructed the jury as follows:
For you to find a defendant guilty of conspiracy, you must be convinced
that the government has proved . . . beyond a reasonable doubt . . . [t]hat
the defendant knew the unlawful purpose of the agreement and joined in it
willfully, that is, with the intent to further the unlawful purpose . . .
One may become a member of a conspiracy without knowing all the details
of the unlawful scheme or the identities of all the other alleged conspirators.
If a defendant understands the unlawful nature of the plan or scheme and
knowingly and intentionally joins in that plan or scheme on one occasion,
that is sufficient to convict him of conspiracy . . . .
The district court also instructed the jury on the Pinkerton doctrine of
As to the interstate transportation of stolen property charge, the district
court instructed the jury that "to find the defendant guilty of this
crime, you must be convinced that the government has proved . . . beyond
a reasonable doubt [that] the defendant devised a scheme to defraud one or
more persons of at least $5,000." The district court instructed the
jury on the elements of mail fraud and wire fraud, in relevant part, as follows:
For you to find the defendant guilty of this crime, you must be convinced
that the government has proved each of the following beyond a reasonable
First: That the defendant knowingly created a scheme to defraud, that is
a scheme to obtain money, funds, or credits from another by means of false
pretenses, representations and promises substantially as alleged in this
Second: That the defendant acted with the specific intent to commit fraud
. . . .
The district court's instructions to the jury, considered as a whole, substantially
covered the defendants' requested instruction. Defendants fully presented
their theory of defense, their belief that the roll program was a legitimate
investment. In his closing argument, Latrasse's attorney argued that a breach
of fiduciary duty does not necessarily give rise to criminal liability. "[C]counsel
was not circumscribed in his argument to the jury" on the theory of
defense. United States v. Storm, 36 F.3d 1289, 1295 (5th Cir. 1994). The
district court's charge adequately instructed the jury that they could not
convict any defendant unless the government proved, beyond a reasonable doubt,
that the defendant had the specific intent to defraud. See United States
v. Giraldi, 86 F.3d. 1368, 1376 (5th Cir. 1996) (affirming district court's
denial of a requested instruction on good faith because the charge detailed
specific intent and defined "willfully" and "knowingly").
The defendants were not entitled to more specific instructions on the distinctions
between the civil terms "due diligence" and "fiduciary responsibility" on
the one hand, and criminal liability on the other.
The district court's refusal to give the defendants' requested instruction
was not error.
THE CHALLENGES TO THE SUFFICIENCY OF THE EVIDENCE
All defendants challenge the sufficiency of the evidence supporting some
or all of their convictions. In assessing these challenges, "[t]his
court must view the evidence in the light most favorable to the jury verdict
and affirm if a rational trier of fact could find that the government proved
all essential elements beyond a reasonable doubt." Giraldi, 86 F.3d
1368, 1372 (5th Cir. 1996). We consider "the countervailing evidence
as well as the evidence that supports the verdict." United States v.
Brown, 186 F.3d 661, 664 (5th Cir. 1999)(quoting Giraldi, 86 F.3d at 1272).
"It is not necessary that the evidence exclude every reasonable hypothesis
of innocence or be wholly inconsistent with every conclusion except that
of guilt provided a reasonable trier of fact could find that the evidence
establishes guilt beyond a reasonable doubt." United States v. Bell,
678 F.2d 547, 549 (5th Cir. Unit B 1982); see United States v. Soape, 169
F.3d 257, 264 (5th Cir.), cert. denied, ___ U.S. ___, 119 S. Ct. 2353 (1999).
The jury is free to choose among reasonable constructions of the evidence.
See United States v. Ortega Reyna, 148 F.3d 540, 543 (5th Cir. 1998). If,
however, "the evidence, viewed in the light most favorable to the government,
gives equal or nearly equal circumstantial support to a theory of guilt and
a theory of innocence, the conviction should be reversed. United States v.
Pennington, 20 F.3d 593, 597 (5th Cir. 1994); see Ortega Reyna, 148 F.3d
at 543. "When the evidence is essentially in balance, a reasonable jury
must necessarily entertain a reasonable doubt." Ortega Reyna, 148 F.3d
Richards argues that the evidence was insufficient to support his conviction
for inducing a person to travel in interstate commerce in furtherance of
a scheme to defraud and his conviction for wire fraud. He does not challenge
the sufficiency of the evidence supporting his conspiracy conviction.
18 U.S.C. § 2314 "requires proof of two elements to support a
conviction: (1) that the defendant devised a scheme intending to defraud
victim of money or property of a minimum value of $5,000,and (2) that as
a result of this scheme, a victim was induced to travel in interstate commerce." United
States v. Myerson, 18 F.3d 153, 164 (2d Cir. 1994); see also United States
v. Biggs, 761 F.2d 184, 187 (4th Cir. 1985).*fn12
Richards does not challenge the proof that he induced Bert Hayes to travel
from Arkansas to Texas to meet with Richards and deliver a $250,000 check.
Richards' argument is narrow. He asserts that the evidence was insufficient
to permit a reasonable jury to find that he induced Hayes to cross state
lines with the specific intent to defraud Hayes. See United States v. Snelling,
862 F.2d 150 (8th Cir. 1988) (holding that it is an essential element of
the interstate transportation offense under section 2314 that the defendant
had the intent to defraud at the time the victim crossed state lines as a
result of the defendant's inducement).
The record, viewed in the light most favorable to the verdict, contains
evidence sufficient to support Richards' conviction on count 2. Richards
promoted the roll program to Hayes, promising that the money invested would
be safe and would generate substantial returns. The roll program described
to Hayes did not exist. John Shockey, the government's expert on international
banking practices and financial fraud, testified that no such investment
existed in the legitimate financial world.
A reasonable jury could conclude that Richards knew the roll program was
not legitimate when he induced Hayes to travel to Texas with his $250,000
check. Richards pitched an investment program that did not exist in the legitimate
financial world. He continued his participation in the scheme, soliciting
additional investors and later lulling them into continuing to believe that
the program existed and was working long after he knew that at least some
of the money had gone to the promoters rather than to the investors and that
they investors had not received any of the money promised them. The evidence
that Richards continued to solicit and reassure investors after he knew that
the program had failed to perform as he had promised supports the inference
that Richards knew the program was a fraud from the outset, when he induced
Hayes to invest in the program and to cross state lines to deliver his check.
"In order to establish wire fraud [under 18 U.S.C. § 1343], the
Government must prove that a defendant knowingly participated in a scheme
to defraud, that interstate wire communications were used to further the
scheme, and that the defendants intended that some harm result from the fraud." United
States v. Powers, 168 F.3d 741, 746 (5th Cir.), cert. denied, ___ U.S. ___,
120 S. Ct. 360 (1999); see also United States v. St. Gelais, 952 F.2d 90,
95 (5th Cir. 1992). "An intent to defraud for the purpose of personal
gain satisfies the 'harm' requirement of the wire fraud statute." Powers,
168 F.3d at 746; St. Gelais, 952 F.2d at 95. A use of the interstate wire
facilities is in furtherance of a scheme to defraud if it is "incident
to an essential part of the scheme." Schmuck v. United States, 489 U.S.
705, 710-11 (1989) (citations omitted); see also Powers, 168 F.3d 741, 747
(5th Cir. 1999). A defendant need not personally have made the communication
on which the wire fraud count is based, nor have directed that it be made. "The
test to determine whether a defendant caused [interstate wire facilities]
to be used is whether the use was reasonably foreseeable." United States
v. Massey, 827 F.2d 995, 1002 (5th Cir. 1987)(interpreting the mail fraud
statute).*fn13 For a defendant to be convicted of wire fraud, it is sufficient
that the defendant could reasonably have foreseen the use of the wires; the
interstate nature of the wire communication need not have been reasonably
foreseeable. See United States v. Lindemann, 85 F.3d 1232, 1241 (7th Cir.
1996); United States v. Blackmon, 839 F.2d 900 (2d Cir. 1988); cf. United
States v. Kelly, 569 F.2d 928, 934 (5th Cir. 1978)(holding that the interstate
transportation offense, 18 U.S.C. § 2314, included no level of mens
rea as to the interstate nexus because the interstate nexus requirement was
merely "the linchpin for federal jurisdiction"); United States
v. Darby, 37 F.3d 1059, 1067 (4th Cir. 1994)(holding the same under 18 U.S.C. § 875,
which prohibits the transmission of a threatening communication in interstate
Richards asserts that the use of the wires charged in count 3 of the indictment
was not reasonably foreseeable. This count charges the September 17, 1991
wire transfer of $7,500 from Texas to Kurt Latrasse in California. The record
evidence supports the conclusion that the wire transfer to Latrasse was a
distribution of proceeds from the roll program scheme. Richards reasonably
could have foreseen that a distribution of the investors' funds to the defendant
promoters might be made by use of wire transfers. The evidence was sufficient
to support Richards' conviction on count 3.
Braugh challenges the sufficiency of the evidence supporting his conspiracy,
interstate transportation, wire fraud, and mail fraud convictions. We uphold
the convictions on all six counts.
Braugh was convicted of conspiracy to commit mail and wire fraud under 18
U.S.C. § 371. "To establish a violation of [section 371], the government
must prove beyond a reasonable doubt (1) that two or more people agreed to
pursue an unlawful objective, (2) that the defendant voluntarily agreed to
join in the conspiracy, and (3) that one or more members of the conspiracy
committed an overt act to further the objectives of the conspiracy." United
States v. Soape, 169 F.3d 257, 264 (5th Cir.), cert. denied, ___ U.S. ___,
119 S. Ct. 2353 (1999).
"To be guilty of conspiracy to commit mail [and wire] fraud, [the defendant]
must have had the requisite intent to commit mail [and wire] fraud." United
States v. Sneed, 63 F.3d 381, 385 (5th Cir. 1995). Neither "[m]ail fraud
[nor wire fraud], however, has [a] specific intent requirement regarding
use of the mails [or wire facilities]." Id. (quoting United States v.
Massey, 827 F.2d 995, 1002 (5th Cir. 1987)). "The test to determine
whether a defendant caused the mails [or interstate wire facilities] to be
used is whether the use was reasonably foreseeable. The defendant need not
intend to cause the mails [or wire facilities] to be used." Sneed, 63
F.3d at 385 (quoting Massey, 827 F.2d at 1002). "The government's burden,
therefore, is to demonstrate beyond a reasonable doubt that [the alleged
conspirators] agreed to engage in a scheme to defraud in which they contemplated
that the [wire facilities] would likely be used." Sneed, 63 F.3d at
385 (quoting Massey, 827 F.2d at 1002).
Braugh contends that the evidence was not sufficient to permit a reasonable
jury to conclude that he was a party to a conspiracy to commit wire fraud
and mail fraud. At most, he claims, the evidence shows that the defendants
participated in a failed business together, not that they agreed to commit
a crime. Braugh points out that he was not present when either Schwinger
or Hayes signed contracts to invest in the roll program.
The lack of direct evidence of agreement to commit a crime does not require
reversal. Each element of a section 371 conspiracy may be inferred from circumstantial
evidence. See United States v. Faulkner, 17 F.3d 745, 768 (5th Cir. 1994).
Concert of action can indicate an agreement. See United States v. Lopez,
979 F.2d 1024, 1029 (5th Cir. 1992). The record contains ample circumstantial
evidence to support Braugh's conspiracy conviction. Braugh and others induced
Hayes, Schwinger, and Blackwelder to part with their money and in lulling
them into continued belief that their money was safely invested. The bank
records showed that nearly all Hayes's money was moved from Braugh's Shearson
Lehman account within one month of deposit and transferred to accounts in
the defendants' names at different banks, including Braugh's accounts. Most
of the money Schwinger invested was also transferred from a Shearson Lehman
account to accounts held by Richards, Braugh, and Latrasse, within a short
The evidence showed the defendants' coordinated acts to implement their
fraudulent scheme, including the use of the mails and wire facilities to
distribute the proceeds of the fraud and to lull the investors as they grew
anxious about their money. In light of the other evidence in the record,
the jury was free to disbelieve Braugh's self-serving testimony that he thought
the "roll program" was a legitimate investment. See United States
v. Brown, 186 F.3d 661, 667 (5th Cir. 1999); United States v. Ruiz, 860 F.2d
615, 619 (5th Cir. 1988). The evidence was sufficient to permit a reasonable
jury to find that Braugh conspired to commit wire and mail fraud.
Braugh argues that there is no evidence that he, rather than Richards, induced
Hayes to travel from Arkansas to Texas with the $250,000 check. The interstate
transportation element "is merely the linchpin for federal jurisdiction
and bears no relationship, in terms of culpability, to the underlying criminal
acts which are the objects of [section] 2314." United States v. Kelly,
569 F.2d 928, 934 (5th Cir. 1978) (quoting United States v. Ludwig, 523 F.2d
705, 707 (8th Cir. 1975)). The government need not prove that Braugh knew
that Hayes would travel in interstate commerce. See Kelly, 569 F.2d at 934.
Indeed, the government need not show that Braugh directly caused Hayes to
travel across state lines. See id. at 934-35. It is enough if Braugh "was
a motivating force in the transportation." Id. at 935 (quoting Thogmartin
v. United States, 313 F.2d 589 (8th Cir. 1963)).
In Kelly, this court upheld a section 2314 interstate transportation conviction
over a sufficiency of the evidence challenge. The defendant had devised a
scheme to sell shares in a nonexistent mutual fund. He sold shares in the
fund to an individual, who in turn transferred them to a third party. As
part of the transaction, the immediate and secondary purchasers met in the
Bahamas. This travel provided the interstate transportation element of the
original seller's section 2314 conviction. The court held that the original
seller was a "motivating force" in the ultimate buyer's interstate
travel, despite the fact that it was the original buyer who induced the ultimate
buyer to make the trip.
In this case, although Richards persuaded Hayes to cross state lines to
deliver his roll program check, Braugh's involvement in the roll program
made him a "motivating force" in Hayes's travel. The evidence sufficed
to permit a reasonable jury to find that Braugh violated section 2314.
Braugh was convicted of three counts of wire fraud under 18 U.S.C. § 1343.
His limited claim on appeal is that because there was insufficient evidence
to show that he knowingly participated in a scheme to defraud, there was
also insufficient evidence to support his wire fraud convictions. The same
record evidence that led to the rejection of Braugh's sufficiency of the
evidence challenge to his conspiracy conviction also leads this court to
reject Braugh's challenge to the wire fraud convictions.
Count 6 of the indictment charged Braugh with mail fraud under 18 U.S.C. § 1341,
based on Braugh's November 22, 1993 letter to Blackwelder, promising to send
a cashier's check to repay the $5,000 "loan." Braugh argues that
there was insufficient evidence to show that he participated in a scheme
to defraud. The argument is without merit.
Latrasse challenges his conviction on all counts on the basis of insufficiency
of the evidence. Latrasse argues that because he did not talk to any investors
until after they had made their investments, he did not induce anyone to
part with their money. Latrasse also asserts that he believed the roll program
to be legitimate.
The record presented sufficient evidence to permit a rational jury to find
Latrasse guilty of conspiracy to commit wire and mail fraud. The fact that
Latrasse did not speak to the investors until after they had parted with
their funds does not preclude his membership in the conspiracy. Ample evidence
showed that Latrasse worked to induce the participants to continue believing
that the roll program existed and that their money was safe. Latrasse lulled
the investors when they protested the lack of the promised payments. Latrasse's
lulling efforts furthered the fraudulent scheme. Cf. United States v. Allen,
76 F.3d 1348, 1363 (5th Cir. 1996)(holding that actions designed to avoid
detection after the defendants had control over the money produced by the
fraud were in furtherance of the fraud under the mail fraud statute); cf.
also United States v. Perry, 152 F.3d 900, 904 (8th Cir. 1998)(holding that
mailings designed to lull the victims into a false sense of security and
hide a fraudulent scheme are considered an overt act in furtherance of a
conspiracy to commit mail fraud and wire fraud), cert. denied, ___ U.S. ___,
119 S. Ct. 1088 (1999).
The evidence was also sufficient for the jury to disbelieve Latrasse's self-serving
testimony and conclude that Latrasse knew the investment program was not
legitimate. Latrasse knew the investors were not receiving the payments as
promised when he repeatedly assured them that their money was safely invested
and earning returns. He knew that money received from two investors had been
quickly transferred from the initial deposits in the Shearson Lehman investment
accounts to the defendants, including Latrasse. There was ample circumstantial
evidence showing that Latrasse knew the roll program was fraudulent when
he assured the investors of its legitimacy. There was also clear evidence
showing that the use of the mails and wire facilities in furtherance of the
fraud was reasonably foreseeable. Latrasse's challenge to his conviction
on count 1 fails.
A party to a conspiracy may be held criminally responsible for a substantive
offense committed by a coconspirator in furtherance of the conspiracy if
the offense was reasonably foreseeable and was committed during that party's
membership in the conspiracy. See United States v. Castillo, 179 F.3d 321,
324 n. 4 (5th Cir. 1999)(describing the Pinkerton doctrine), cert. granted,
___ U.S. ___, 2000 WL 21143 (2000); United States v. Dean, 59 F.3d 1479,
1490 n. 20 (5th Cir. 1995)(holding that the offense must have been reasonably
foreseeable for the defendant to face accomplice liability under the Pinkerton
doctrine); United States v. Basey, 816 F.2d 980, 998-99 (5th Cir. 1987).
We have already found the evidence sufficient to show that Latrasse conspired
to commit mail and wire fraud and that Richards and Braugh induced Hayes
to travel in interstate commerce with the intent to defraud.
The question as to Latrasse's conviction on count 2 is the sufficiency of
the evidence to show that Latrasse was a member of the conspiracy when Richards
induced Hayes to cross state lines on September 5, 1991 to participate in
the roll program. Latrasse points out that he did not begin communicating
with the roll program investors until early 1992. However, the record also
shows that Latrasse received a $7,500 wire transfer from Braugh's Bank of
Corpus Christi account on September 11, 1991 and a $5,000 transfer on September
17, 1991. Brewer testified that Latrasse received money from Hayes's deposit,
only days after Hayes wrote his check. A reasonable jury could conclude that
Latrasse was a member of the conspiracy when Hayes crossed state lines to
deliver the check. There is no basis to reverse Latrasse's conviction on
Latrasse challenges his convictions on the three counts of wire fraud. The
first of these counts involved the $7,500 September 11, 1991 wire transfer
from Braugh's Bank of Corpus Christi account in Texas to Latrasse in California.
The evidence was sufficient to permit a rational jury to conclude that this
transfer was a distribution of proceeds from the fraudulent scheme, in furtherance
of that scheme and reasonably foreseeable to Latrasse.
The second count, Count 4, involved a fax from Latrasse in California to
Schwinger in Texas on June 19, 1992. In the fax, Latrasse promised a distribution
of funds to Schwinger and her partners on or before June 30, 1992. The evidence
was clearly sufficient for a reasonable jury to find that Latrasse sent this
fax to further the fraudulent scheme by lulling Schwinger into continuing
to believe that her money was safely invested, as promised. See United States
v. Allen, 76 F.3d 1348, 1363 (5th Cir. 1996)(holding that "actions taken
to avoid detection, or to lull the fraud victim into complacency" are
in furtherance of the fraud for the purpose of the wire fraud statute); see
also United States v. Maze, 414 U.S. 395, 402-03 (1974). The evidence was
sufficient to support Latrasse's conviction on count 4.
The third wire fraud offense, alleged in count 5 of the superseding indictment,
involved a February 2, 1994 fax that Latrasse sent from California to Blackwelder
in Texas. In the fax, Latrasse promised to send Blackwelder a check returning
his investment. Again, the evidence was sufficient to support a finding that
Latrasse sent this fax to lull Blackwelder into continuing to believe the
investment was legitimate. There was sufficient evidence to permit a rational
jury to convict Latrasse on count 5 of the indictment.
The mail fraud offense alleged in count 6 of the superseding indictment
arose from a November 22, 1993 letter Braugh sent to Blackwelder by mail.
In the letter, Braugh promised to send Blackwelder a cashier's check repaying
the July 8, 1993 $5,000 "loan."
The evidence show that in the weeks leading up to the loan, Blackwelder had
asked Braugh several times when he would receive the promised payments
from the roll program. Braugh repeatedly assured Blackwelder that he would
receive the money soon, giving such excuses as "it's going to happen
in a day, it's going to happen in two days, it's going to happen in a week,
there's a problem, a little problem, it's going to be good in a day." Blackwelder
continued to press. As part of Braugh's efforts to lull Blackwelder into
believing the roll program was legitimate, Braugh explained that there
were problems in Europe that needed attention and asked for a $5,000 loan
so that Braugh could travel to Europe and "help expedite the transaction."
Blackwelder tried to recover his money from Braugh. In a telephone conversation
on November 19, 1993, Braugh told Blackwelder that the unpaid loan "was
the only mistake he made in executing his little ordeal here." Three
days later, Braugh sent Blackwelder the letter that forms the basis for count
6. In the letter, Braugh promised to give Blackwelder a cashier's check to
repay the loan within one week.
After the November 22, 1993 letter, Blackwelder did not see or speak to
Braugh for approximately six months. However, Latrasse continued to call
Blackwelder to assure him that payment on his roll program investment was
imminent. On February 2, 1994, Latrasse sent Blackwelder a fax, telling Blackwelder
that Latrasse had designated a "disinterested third party to deliver
the check for the pay-out" on Blackwelder's investment. The fax continued:
It is regrettable that this project took longer than programmed and that
this led to the hard feelings between you and Roger. Hope that we can quickly
resolve the remaining business between yourself and SAI [Associates] and
Roger's personal obligation to you.
A reasonable jury could conclude that Braugh's November 22, 1993 letter
to Blackwelder was in furtherance of the scheme to defraud. Braugh solicited
the loan from Blackwelder in the context of reassuring Blackwelder about
the roll program. Braugh told Blackwelder that the $5,000 loan would help
him make a trip to Europe to fix problems with the roll program and "expedite
the transaction." Three days before he sent Blackwelder the November
22, 1993 letter promising to repay the $5,000, Braugh told Blackwelder that
failing to repay the $5,000 was "the only mistake he made" in connection
with the roll program. The November 22, 1993 letter was another instance
of lulling, another assurance that money promised would be paid soon. In
his February 2, 1994 fax to Blackwelder, Latrasse, seeking to reassure Blackwelder
about the roll program generally, stated: "I hope that we can quickly
resolve the remaining business between yourself and SAI and Roger's personal
obligation to you." Braugh obtained the $5,000 "loan" through
his involvement in the roll program. Latrasse was clearly aware that Braugh
had done so. Braugh's and Latrasse's statements and written communications
evidence their recognition that assurances about the $5,000 transaction were
part of keeping Blackwelder satisfied about the status of the roll program.
Braugh's lulling letter was "incident to an essential part" of
the roll program scheme, which Latrasse could reasonably have foreseen.
The evidence was sufficient to support Latrasse's conviction on count 6.
THE RESTITUTION ORDER
Richards and Braugh argue that the district court erred in applying the
Mandatory Victims Restitution Act (MVRA) in setting the amount of restitution.
They contend that the Ex Post Facto Clause of the United States Constitution
precludes the application of the MVRA to conduct occurring before April 24,
1996, the effective date of the Act. The conduct underlying their convictions
occurred well before then. Defendants did not object to the orders of restitution
at trial. Plain error applies. United States v. Cihak, 137 F.3d. 252, 264
n. 7 (5th Cir.), cert. denied, ___ U.S. ___, 119 S. Ct. 118 (1998), and cert.
denied, ___ U.S. ___, 119 S. Ct. 203 (1998).
The MVRA amended the Victim Witness Protection Act ("VWPA"), 18
U.S.C. §§ 3663-3664. Before the amendments to the VWPA, the statute
required a court to consider a defendant's ability to pay in setting the
amount of a restitution order. As amended, the statute provides that "the
court shall order restitution to each victim in the full amount of each victim's
losses as determined by the court and without consideration of the economic
circumstances of the defendant." 18 U.S.C. § 3664(f)(1)(A). Richards
and Braugh contend that the MVRA, by forbidding the trial court to consider
a defendant's ability to pay in setting the amount of restitution, causes
an increase in the punishment a defendant faces for a given offense. They
argue that "retroactive" application of the Act to conduct occurring
before its effective date violates the Ex Post Facto Clause.
The MVRA provides that it "shall, to the extent constitutionally permissible,
be effective for sentencing proceedings in cases in which the defendant is
convicted on or after the date of enactment of this Act." See 18 U.S.C. § 2248
(statutory notes). If application of the MVRA to a given defendant would
violate the Ex Post Facto Clause, the district court must apply the pre-amendment
VWPA in determining restitution.
A law violates the Ex Post Facto Clause if (1) it "appl[ies] to events
occurring before its enactment," and (2) it "disadvantage[s] the
offender affected by it by altering the definition of criminal conduct or
increasing the punishment for his crime." Lynce v. Mathis, 519 U.S.
433, 441 (1997)(quoting Weaver v. Graham, 450 U.S. 24, 30 (1981)). Although
this court has not yet addressed the issue, several federal circuit courts
have considered whether application of the MVRA to conduct occurring before
its enactment would violate the Ex Post Facto Clause. The majority of these
courts have held that retroactive application of the MVRA would violate the
Ex Post Facto Clause. Compare United States v. Siegel, 153 F.3d 1256, 1260
(11th Cir. 1998)(holding that it would violate the Ex Post Facto Clause to
apply the MVRA to a person whose criminal conduct occurred prior to its passage);
United States v. Edwards, 162 F.3d 87, 89-90 (3d Cir. 1998)(same); United
States v. Baggett, 125 F.3d 1319, 1321-1322 (9th Cir. 1997)(same); United
States v. Thompson, 113 F.3d 13, 15 n. 1 (2d Cir. 1997)(same); United States
v. Rezaq, 134 F.3d 1121, 1141 n. 13 (D.C. Cir.), cert. denied, ___ U.S. ___,
119 S. Ct. 90 (1998); and United States v. Williams, 128 F.3d 1239, 1241
(8th Cir. 1997)(holding that an order of restitution under the MVRA is punishment
under the Ex Post Facto Clause and suggesting that retroactive application
of the Act would violate that clause); with United States v. Nichols, 169
F.3d 1255, 1278-80 (10th Cir.)(holding that retroactive application of the
MVRA did not violate the Ex Post Facto Clause), cert. denied, ___ U.S. ___,
120 S. Ct. 336 (1999); United States v. Newman, 144 F.3d 531, 537 (7th Cir.
The circuits approving retroactive application of the MVRA, the minority
approach, have reasoned that restitution orders under the Act are not punishment
for the purpose of Ex Post Facto Clause analysis. This circuit's precedent
does not provide a basis to adopt this reasoning. This circuit has held that
restitution imposed under the VWPA is punishment for the purpose of the Ex
Post Facto Clause. See United States v. Rose, 153 F.3d 208, 211 n. 1 (5th
Cir. 1998); United States v. Corn, 836 F.2d 889, 895-96 (5th Cir. 1988).
By requiring the court to order restitution in the full amount of loss, without
considering the defendant's ability to pay, the MVRA increases the severity
of the punishment a defendant faces as compared to the pre-amendment VWRA.
See Siegel, 153 F.3d at 1260; see also Lindsey v. Washington, 301 U.S. 397
(1937). Retroactive application of the MVRA to Richards and Braugh would
violate the Ex Post Facto Clause.
However, Braugh and Richards have not shown that the challenged orders of
restitution resulted from retroactive application of the MVRA. Nothing in
the record suggests that the district court applied the MVRA in this case.
During each defendant's sentencing, the district court adopted the presentence
report, which included specific findings about that defendant's ability to
pay. Under the plain error standard of review, we have held such adoption
to be sufficient evidence that the district court did consider a defendant's
financial resources in ordering restitution under the pre-amendment VWPA.
See United States v. Greer, 137 F.3d 247, 252 (5th Cir.), cert. denied, ___
U.S. ___, 118 S. Ct. 2305 (1998). We find no plain error in the district
court's orders of restitution.
For the reasons assigned, the convictions and sentences of defendants Richards,
Braugh, and Latrasse are AFFIRMED.
*fn1 . District Judge for the Southern District of Texas, sitting by designation.
*fn2 . The signature card for the Lone Star Exploration account disclosed
that the account was opened on September 11, 1991, five days after Hayes
delivered his check. Braugh and a man named Jerry Fritzler were the only
authorized signatories. The signature card identified Braugh as the chairman
of Lone Star Exploration and Fritzler as the president.
*fn3 . The bank records showed that checks made payable to Watson Pipe,
Inc.; Clark Oil Tools; Halliburton Services; Pride Petroleum; Cellular One;
and Southwestern Bell were drawn on the Lone Star Exploration account.
*fn4 . The definition of materiality quoted above refers to the statements
themselves, not whether the recipients of the statements actually relied
on them. Although allegations of actual reliance appear to allege materiality,
the standards are different. A recipient might actually rely on a false
representation, but the representation might not be one to which "a reasonable man would
attach importance . . . in determining his choice of action," or one
that "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." Neder,
119 S. Ct at 1840 n. 5.
*fn5 . In the letters, Braugh reported a dispute with Richards and another
man named Ron Cravens. According to Braugh, the dispute arose after Richards
endorsed the checks to Cravens so that Cravens could cash the checks.
However, the checks were postdated. Cravens contacted Braugh and threatened
for the amount of the checks. Braugh placed a stop payment order on the
checks. When Cravens attempted to cash the checks, the bank returned them
Cravens continued to threaten Braugh with suit on the checks. Braugh
ultimately wrote letters to law enforcement agencies to report the dispute,
that Richards and Cravens were "working together in an attempt to
extort th[e] money from me by threatening me with prosecution."
*fn6 . "Under the plain error standard, forfeited errors are subject
to review only where they are 'obvious,' 'clear,' or 'readily apparent,'
and they affect the defendants substantial rights." United States v.
Richardson, 168 F.3d 836, 839 n. 9 (5th Cir.)(quoting United States v. Calverley,
37 F.3d 160, 162 (5th Cir. 1994)(en banc), abrogated in part by Johnson v.
United States, 520 U.S. 461 (1997)), cert. denied, ___ U.S. ___, 119 S. Ct.
1589 (1999). "Even then, we will not exercise our discretion to correct
the forfeited errors unless they 'seriously affect the fairness, integrity,
or public reputation of the judicial proceeding.'" Richardson, 168 F.3d
at 839 n. 9 (quoting Calverley, 37 F.3d at 164). Braugh testified as follows
about Richards' cashing the checks: Q: . . . [W]hat did Al Richards say he
needed money for? A: That he had some expenses and some obligations that
were due and he needed that money, or, he needed a check from -a check or
a series of checks from me to hold as good faith against those debts. Q:
. . . [W]hat was your understanding Al Richards was going to do with the
money if you sent him the funds? A: Well, I understood at the time that he
was going to hold these checks. .... Q: ... [D]id you learn whether or not
ultimately or at some later date whether or not these checks had in fact
been cashed? A: I did learn later on they had been cashed. Even if we were
to assume that this testimony was "clearly" inadmissible under
Rule 403, as Richards urges on appeal, Richards has not shown plain error.
He has not shown that the error affected his substantial rights -- that is, "affect[ed]
the outcome of the proceeding" -- much less that the error "seriously
affect[ed] the fairness, integrity, or public reputation of [the] judicial
proceeding." Calverley, 37 F.3d at 164.
*fn7 . Roger Braugh testified that the Gold Cloud Development Corporation
referred to in connection with this transaction was not the same Gold Cloud
Development Corporation that was involved in the roll program, of which he
was the chairman.
*fn8 . Rule 404(b) of the Federal Rules of Evidence provides: Evidence of
other crimes, wrongs, or acts is not admissible to prove the character of
a person in order to show action in conformity therewith. It may, however,
be admissible for other purposes, such as proof of motive, opportunity, intent,
preparation, plan, knowledge, identity, or absence of mistake or accident.
*fn9 . Braugh concedes that he did not object to McMillan's testimony
specifically on the ground that it was "guilt-by-association" evidence. However,
he argues that, based on the record, his Rule 404(b) objection suffices to
preserve this argument on appeal. Of course, if Braugh did not timely object
to McMillan's testimony on this ground, the plain error standard would apply.
See Polasek, 162 F.3d at 883-84. We conclude that McMillan's testimony was
not inadmissible "guilt-by-association" evidence even under
the abuse of discretion standard.
*fn10 . Braugh's out-of-court statements about Latrasse were only arguably
offered for the truth of the matters asserted in them. However, because the
government did not make this argument at trial or on appeal, we do not rest
our resolution of the issue on this ground.
*fn11 . Under Pinkerton v. United States, 328 U.S. 640, 666 (1946), "[a]
party to a continuing conspiracy may be responsible for a substantive offense
committed by a coconspirator pursuant to and in furtherance of the conspiracy,
even if that party does not participate in the substantive offense or have
any knowledge of it." United States v. Castillo, 179 F.3d 321, 324
n. 4 (5th Cir. 1999)(quoting United States v. Elwood, 993 F.2d 1146,
Cir. 1993)) (alterations in original), cert. granted, ___ U.S. ___, 2000
WL 21143 (2000).
*fn12 . Section 2314 provides in relevant part: Whoever, having devised
or intending to devise any scheme or artifice to defraud, or for obtaining
money or property by means of false or fraudulent pretenses, representations,
or promises, . . . induces any person . . . to travel in, or be transported
in interstate . . . commerce in the execution or concealment of a scheme
or artifice to defraud that person . . . of money or property of $5,000 or
more . . . [s]hall be fined under this title or imprisoned not more than
ten years, or both.
*fn13 . Because the language of the mail fraud and wire fraud statutes are
so similar, cases construing one are applicable to the other. See United
States v. Herron, 825 F.2d 50, 54 n. 5 (5th Cir. 1987); United States v.
Bentz, 21 F. 3d 37, 40 (3d Cir. 1994).