Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-87-01582/USCOURTS-ca10-87-01582-0/pdf.json

Parties Involved:
Richard Taylor Cardall
Appellant
United States of America
Appellee

Document Text:

PUBLISH 

FI LED 

Uoiu:<l S_rates Co~rt of Appeals 

f emh C1rmit 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

SEP 6 - 1989 

ROBERT L. HOECKER C, 

Clerk 

UNITED STATES OF AMERICA, 

Plaintiff-Appellee, 

v. 

RICHARD TAYLOR CARDALL, 

Defendant-Appellant. 

UNITED STATES OF AMERICA, 

Plaintiff-Appellee, 

v. 

BARRY CROWTHER, 

Defendant-Appellant. 

UNITED STATES OF AMERICA, 

Plaintiff-Appellee, 

v. 

JOSEPH A. HOLMAN, 

Defendant-Appellant. 

UNITED STATES OF AMERICA, 

Plaintiff-Appellee, 

v. 

STANLEY L. WILLMITT, 

Defendant-Appellant. 

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No. 87-1582 

No. 87-1587 

No. 87-1589 

No. 87-1592 

Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 1 
UNITED STATES OF AMERICA, 

·Plaintiff--Appellee, 

v. 

GERALD L. TURNER, 

Defendant-Appellant. 

UNITED STATES OF AMERICA_, 

Plaintiff-Appellee, 

v. 

FARRELL ANDERSON, 

Defendant-Appellant. 

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No. 87-1594 

No. 87-1625 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF UTAH 

·,D.c~ No. CR-83-65A) 

Craig s. Cook, Salt Lake City, Utah (Edward T. Wells, Salt Lake 

City, Utah, with him on appellant's brief in chief), for 

Defendant-Appellant Richard Taylor Cardall. 

William W. Downes, Jr., Houpt, Eckersley & Downes, Salt Lake City, 

Utah, for Defendant-Appellant Barry Crowther . 

. ,.Randa,11 Gaither,·.Salt Lake: City; .Utah, ·for Defendant-Appellant 

Joseph A. Holman. 

James N. Barber, Salt Lake City, Utah, for Defendant-Appellant 

Stanley L. Willmitt. 

(Sumner J. Hatch, Salt Lake City, Utah, submitted on the briefs 

for Defendant-Appellant Gerald L. Turner.) 

Edwin F. Guyon, Salt Lake City, Utah, for Defendant-Appellant 

Farrell Anderson. 

Mervyn Hamburg, Attorney, Department of Justice, Washington, D.C. 

(Brent D. Ward, United States Attorney for the District of Utah, 

with him on the brief), for Plaintiff-Appellee. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 2 
Before MCKAY, SETH, and SEYMOUR, Circuit Judges. 

MCKAY, Circuit Judge. 

Defendants Richard Taylor Cardall, Barry Crowther, Joseph A. 

Holman, Stanley L. Willmitt, Gerald L. Turner, and Farrell 

Anderson appeal their convictions for mail fraud, wire fraud, the 

interstate transportation of money taken by fraud (ITSP), bankruptcy fraud, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). 

I. 

In order to facilitate our analysis, we first outline the· 

scheme to defraud and the interrelated entities and individuals 

involved. 

A. Entities. 

1. FSI: Fiscal Services, Inc. (FSI) operated between 1979-

80 as a payables "factoring" company1 located in Salt Lak.e City, 

1 A payables "factoring'' company earns its income by soliciting 

client companies ("payable companies") to surrender their accounts 

payable and sufficient funds to pay them to the factoring company. 

The factoring company negotiates discounts with the creditors for 

early payment, then pays the bills early. The company's profit is 

the difference between the full billing amount and the discounted 

payout. The factoring company splits th~ profit with the client 

payable company. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 3 
Utah. Although FSI was not the t~rget of this indictment and 

trial, it was a predecessor company to the "clearing house opera-

-tion,~~wh~ch is the subject of this trial.i During trial, the 

prosecution offered extensive evidence of the fraudulent operation 

of FSI under Fed. R. Evid. 404(b) in order to show pattern or plan 

in this fraudulent scheme. 3 

2. The Clearinghouse Operation: The clearinghouse operation 

consisted of an interrelated collection of payables factoring and 

consulting companies--International Clearing House, Universal 

Clearing House, Business Consultants, Inc., Payable Accounting 

Corporation, and Accounting Services Company. 

3. FAS/BCI: Fiscal Advisory Services (FAS), which also 

operated between 1979-80, was the predecessor company to Business 

Consultants, Inc. (BCI). In 1980, BCI was organized to act as a 

consultant to and handle accounting and related services for the 

2 The parties spent considerable time arguing whether the 

evidence concerning FSI and the clearinghouse operation indicated 

the existence of one or two schemes operating between 1979-81. 

Although resolution of this issue is not necessary to our 

disposition, we believe that despite the organizational and 

personnel changes which took place over the three-year period, all 

of the entities were part of one continuing scheme. 

3 The prosecution offered FSI evidence over a period of 

approximately seven days in the course of a five-month trial. 

Thirty-four witnesses testified about FSI, and the prosecution 

admitted 100 exhibits. In all, FSI evidence covers over 900 pages 

of a 15,000-page trial transcript. · 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 4 
clearinghouse operation. In exchange, BCI received two percent of 

the funds channeled through the clearinghouses. 

4. Clearinghouses: General Clearing House and National 

Clearing House, two California-based "clearinghouses," formed an 

integral part of the fraudulent scheme. In 1980, they were served 

with a cease and desist order which was later made enforceable in 

Utah. As a result, the operations were renamed, respectively, 

Universal Clearing House (UCH) and International Clearing House 

(ICH), and Salt Lake City became the new base of operation. 

B. The Scheme. 

After its organization, FSI solicited payable company clients 

with promises that they would receive substantial revenues from a 

ccimbination of ~reditor discounts and investments from tax-free 

revenue bonds. 4 FSI also solicited prospective clients by leading 

them to believe that a number of well-known businesses "factored'' 

their accounts payables through the company entities. 5 By mid1980, FSI was phasing out. It was not soliciting new clients, and 

4 According to FSI client contracts, FSI promised to purchase 

tax-free bonds with the money forwarded by the client companies 

for payment of their creditor's accounts. In reality, no bonds 

were ever purchased, accounts frequently went unpaid (or payment 

checks were returned due to insufficient funds), and the money 

received from client companies was diverted into high-risk 

projects which were not disclosed to investors. 

5 For example, FSI told clients that Gerber Baby Food, Mountain 

Bell, Sears, and large utility companies were FSI clients. In 

reality, however, only a handful of primarily local businesses 

ever signed on with FSI. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 5 
old clients began making demands for reimbursement. FSI occasionally satisfied demands for payment with investor funds from the 

.. ·successo~ clearinghouse operation. 

About the time that FSI was phasing out, FAS underwent a name 

change and shift in emphasis, emerging as BCI. Although the payables factoring program ostensibly remained the cornerstone of the 

operation, FAS introduced the concept of "undertakers" to the 

scheme. Undertakers were individual investors who were told that 

their investments would be used to fund the payments of the payables side of the operation. In exchange, the undertakers were 

promised an extraordinarily high rate of return (the equivalent of 

a ninety-six percent annual rate) on their investments. Through 

the use of an expanded sales program, 6 over 5,300 undertakers in a 

number of states eventually invested in excess of $30 million in 

the clearinghouse operation. 

6 The operation developed an undertaker sales presentation, and 

all sales personnel were required to learn and use it without 

deviation in-presenting the program to piospective undertakers. 

The record indicates that the sales preseritation was essentially 

the same as that previously used by FSI, with minor modifications 

directed at increasing undertaker investment. After the 

presentationu the salesman asked the prospective undertaker to 

sign two documents: a sales contract and a "Commitment to Assume 

Debt." The language contained in the document was not always consistent with the oral representations of the sales personnel. 

Specifically, while undertakers were told that their money would 

be used strictly for payment of the debt of companies in the payables program, the documents contained a paragraph that conferred 

discretion to use the undertakers' funds f6r other purposes. However, the documents also assured the undertakers that their 

investments would be secured. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 6 
Representations by sales personnel notwithstanding, the payables portion of the program was virtually nonexistent. 7 No one 

-- ;::,i.was. assigned to ·develop :such a -program, and when ,sales staff aske-d 

the principals to identify the payable companies, they refused to 

do so. 8 Moreover, when sales personnel indicated that they had 

prospective clients for the payables program, they were rebuffed. 9 

Because there was no viable payables program, the payables side of 

the operation could not generate any income from payables discounts. Absent another source of income to service earnings payments, the operation made payments from funds received from subsequent undertaker investors. 

In addition, the principals diverted undertaker funds to a 

number of high-risk ventures including land, mining, gold, silver 

and oil. There was also an abortive attempt to enter the reinsurance business through offshore enterprises. Additionally, 

7 In mid-1981, a certified public accountant who had been hired 

to update accounting records determined that only two companies 

participated in the clearinghouse program. Neither of them 

regularly furnished funds or monthly invoices for payment. 

8 Sales personnel were told to refer to the payable companies 

as "ABC companies" in their sales-presentation. Supposedly, 

participating companies desired anonymity so they would not be 

barraged with requests for information. 

9 Various reasons were given for refusing new clients; for 

exampli, the prospect's accounts payable was under $100,000 per 

month, or that a sufficient number of companies were already on 

the plan and a waiting list existed. One salesperson offered to 

place his own business in the payables program but was told that 

no new ABC companies would be added until a new computer program 

was in place. The operation also refused out-of-state inquiries 

in the payables program. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 7 
clearinghouse funds were diverted for the private use of 

clearinghouse principals and their families. 10 

By August 1981 the financial house of cards was beginning to 

collapse and undertakers failed to receive their monthly "earnings" checks. Sales personnel were told that the lack of immediate funds was due to a combination of regulatory agency harassment, two unsuccessful short-term investments, and the failure to 

receive a wire transfer of funds from abroad. The operation prepared and distributed a letter to clearinghouse undertakers representing that there were ample assets to cover the principal and 

earnings due to all investors. The letter assured investors that 

contract provisions which guaranteed the protection of undertaker 

investments would be met. Despite missed payments, sales of 

undertaker contracts continued, although demands for early repay-· 

ment of undertaker investments were rejected. 

In the meantime, the principals discussed the prospect of 

filing a Chapter 11 petition under the Bankruptcy Code in order to 

·protect the-clearinghouses from civi~ lawsuits to "buy time" for 

liquidating assets to pay undertakers. Disagreement over this 

proposed solution eventually led to the disassociation of one of 

10 For example, Mr. Cardall used clearinghouse funds to make a 

down payment on a house for his daughter, to purchase an 

automobile for his son and a Salt Lake condominium for his father. 

Other real estate purchases were made with clearinghouse funds for 

the benefit of Mr. Willmitt and his daughter. Finally, a number 

of luxury vehicles were also purchased with clearinghouse funds 

for Messrs. Holman, Cardall and Crowther. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 8 
the appellants from the ent~rprise. The bankruptcy petitions were 

filed· on September 16, 1981. That same·evening, FBI agents armed 

• 0 with warrants conducted a search-of the BCI/clearinghouse 

offices. 11 

C. Appellants. 

1. Richard Taylor Cardall 

- Appellant Cardall masterminded the creation of various interrelated entities involved in the scheme. Although Mr. Cardall was 

responsible for developing and implementing the scheme and creating the various entities, he was rarely identified as a principal 

in those ventures. 12 Nevertheless, it is clear that he retained 

control of the operations; evidenced by his hiring of an FSI 

s~lesman whom he latet installed as FSI's president. FSI and the 

clearinghouses identified Mr. Cardall as a "consultant" and paid 

him fees for his "services". 

At Mr_. Cardall's instigation, clearinghouse sales personnel 

were misinformed concerning the existence of ABC companies. He 

11 When they arrived, the agents saw Mr. Cardall and his 

secretary leaving the building with boxes. They placed them in 

Mr. Cardall's car and he drove off. The agents stopped the car 

and retrieved the boxes which contained numerous docu~ents related 

to the clearinghouse business operations. 

12 For example, when FSI was incorporated, three other individuals (including appellant Holman) were named as president, vice 

president, and secretary-treasurer. Later on, the operation 

abando~ed certain oil company investments because Mr. Cardall 

refused to be identified to the Securities and Exchange Commission 

as the ''promoter" of those ventures. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 9 
also fraudtilently represented the existence of clearinghouse 

assets13 and prospective purchasers for the Mexican land deal he 

< had organized . 14 

2. Joseph A. Holman 

Appellant Holman served as office manager for FAS and as vice 

president of FSI from its organization until August 1979. Thereafter, Mr. Holman became office manager to BCI, FAS's successor 

firm. As office manager, Mr. Holman transferred money out of the 

business accounts, received undertaker contracts, and handled payments from undertaker-investors. Although other individuals had 

signa~ure authority, Mr. Holman had access to, and control of, 

facsimile signature stamps which were used in issuing checks on 

the company's accounts. Mr. Holman also served as a conduit of 

information between other defendants and sales personnel, and was 

the person responsible for distributing the misleading August 1981 

13 In anticipation of filing the bankruptcy petition, lawyers 

and accotinting staff prepared schedules outlining the value of 

clearinghouse assets. These schedules were based primarily upon 

information furnished by Mr. Cardall; relying on this information, 

"values" in the millions of dollars were assigned to various 

assets. 

14 For example, during September 1981, Mr. Cardall conducted a 

m~eting in which he falsely represented that. there was a buyer for 

a land development project known as Bahia Kina, and that funds 

from the project's sale would take care of the clearinghouse 

operation debts. At that same meeting, Mr. Cardall ordered those 

present not to speak with representatives of federal agencies, and 

warned that anyone who did would be removed from the "inside" 

group. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 10 
letter to investors at the time of the clearinghouse default on 

earnings checks. 

3. Gerald L. Turner 

Appellant Turner became counsel for FSI in 1979 and met with 

prospective clients on FSI's behalf. As FSI's attorney, 

Mr. Turner made representations about the viability and success of 

the payables program. He also represented the successor companies 

in bankruptcy. After the bankruptcy judge ordered the freezing of 

clearinghouse accounts but before the bank holding the funds had 

received notice of the order, Mr. Turner arranged to have $70,000 

in checks drawn on clearinghouse accounts cashed and the funds 

transferred to his business account at another bank. 

4. Barry Crowther 

Appellant Crowther joined Mr. Cardall's clearinghouse operations in 1980 and participated heavily in its day~to-day operation. Mr. Crowther signed the signature card to open a clearinghouse bank account in Colorado, later closing it and receiving the 

·,account.·,balance in the, form of ,cashier's checks. During his 

involvement with the clearinghouse operation, Mr. Crowther falsely 

~epresented to sales personnel that certain businesses were participants in the payables program. Mr. Crowther disassociated 

himself from the clearinghouse operations sometime in late August 

or early September 1981 because he disagreed with other principals 

on the advisability of bankruptcy. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 11 
5. Stanley L. Willmitt 

Appellant Willmitt, a California-based Cardall associate, 

assisted Mr~· Cardall -in a plan to-.0establ-ish f ive"""Offshore reinsurance companies, in the failed land development project in Mexico, 

Bahia Kino, and in certain oil ventures. Mr. Willmitt and 

Mr. Cardall diverted thousands of dollars in investor funds to 

these projects. Mr. Willmitt traveled with Mr. Cardall to 

Germany, Mexico and Great Britain, and participated in fraudulent 

efforts to "market" the Bahia Kine project even after he became 

aware that Mr. Cardall was contemplating placing the operations in 

bankruptcy. 

6. Farrell Anderson 

Appellant Anderson joined BCI in May 1981 to work on the proposed reinsurance enterprises being organized by Messrs. Cardall 

and Willmitt in the Cayman Islands. The project never reached 

fruition because the clearinghouses were nearly bankrupt and could 

not provide the minimum capitalization amount required by law. 

Mr. Anderson deposited clearinghouse funds in a money market 

-~account-that he,had opened-~n-his brother's name, ~later drawing on 

that account and depositing the drawn funds into an account which 

he controlled. 

D. Indictments and Trials 

A forty-nine count superseding indictment was filed on 

October 26, 1983, 15 charging twelve individuals, including the six 

15 A prior, 48-count indictment had been filed in May 1983. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 12 
_appellants; with mail fraud, wire fraud, interstate tr~nsportation 

of money taken by fraud (ITSP), concealment of funds belonging to 

a bankrupt-estate, racketeering activities and'RICO·conspiracy. 

This indictment covered the activities of the clearinghouse operation for the period beginning at "an unknown date prior to 

September 1, 1980, to and including the date of [the superseding] 

indictment." The forty-nine count indictment dealt only with the 

activities of the interconnected clearinghouse operation. Subsequently, on November 16, 1983, a three-count indictment was filed 

solely against Mr. Cardall, charging him with three counts of 

interstate transportation of money taken by fraud in connection 

with the defunct FSI operation. 16 

Various delays forced the postponement of trial on the fortynine count indictment. In the meantime, a jury trial on the 

three-count indictment proceeded in September 1984, resulting in 

Mr. Cardall's conviction on all three counts. Thereafter, a fivemonth jury trial was held from September 15, 1986, to February 17, 

1987, on the forty-nine count indictment. Two defendants entered 

guilty pleas in mid-trial.·· ·The court dismissed some counts 

against the remainlng defendants and sent the remainder to the 

jury. Mr. Cardall was convicted on 27 counts and acquitted on 3. 

Mr. Holman was convicted 6n 17 counts, Mr. Crowther on 18, 

16 A superseding indictment was filed in March 1984. 

Mr. Cardall's second indictment (dealing with the FSI operation) 

covered a period from March 22, 1979 through April 1980. · 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 13 
Mr. Willmitt on 13, and Mr. Turner on 1. Mr. Anderson was convicted on 10 counts and acquitted on 1. 

D. Issues on Appeal 

We address the following issues on appeal: (1) whether 

Mr. Cardall's second prosecution (on the forty-nine count indictment) violated the Double Jeopardy Clause; (2) whether appellants 

were entitled to a severance; (3) whether the district court's 

handling of the admissibility of co-conspirator statements against 

some of the defendants was proper; (4) whether evidence of the FSI 

scheme, allegedly at variance with the indictment, was appropriately admitted; (5) whether the evidence supported the convictions 

on those counts challenged by appellants; (6) whether the court 

correctly defined "taken by fraud" in its closing charge on the 

ITSP counts; (7) whether mailings required by law can serve as the 

basis for a mail fraud conviction; and (8) whether reversal of any 

predicate offense requires the reversal of the RICO substantive 

and RICO conspiracy convictions. 

II. 

A. Double Jeopardy Claim 

Mr. Cardall argues that the second prosecution on the fortynine count indictm~nt was barred, on double jeopardy grounds, by 

his prior conviction pursuant to the three-count indictment. 17 In 

17 At trial, Mr. Cardall moved to dismiss on double jeopardy 

grounds. The trial court denied the motion as frivolous in its 

Order filed August 28, 1986. Appellant then filed a Notice of 

Appeal on the double jeopardy question and a Motion to Stay. We 

denied the Motion to Stay on September 10, 1986. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 14 
. addition, he charges that the district court erred by applying the 

Blockburger test to determine the merits of his claim. See 

,Blockburger; v. · United States, 284-U.S. 299 (1932). 

The trial court's double jeopardy determination is a conclusion of law which we review de novo. Und~r Blockburger, whe~e the 

same act or transaction constitutes a violation of two distinct 

statutory provisions, "the test to be applied to determine whether 

[prosecution for both violates double jeopardy] is whether each 

provision requires proof of a fact which the other does not." 

Blockburger, 284 U.S. at 304. The Supreme Court has made clear 

that the Blockburger test is the "principal test for determining 

whether two offenses are the same for purposes of barring successive prosecutions." Illinois v. Vitale, 447 U.S. 410, 416 (1980) 

(citing Brown v. Ohio, 432 U.S. 161, 166 (1977)). 

The defendant bears the burden of proving a double jeopardy 

claim. United States v. Jones, 816 F.2d 1483, 1486 (10th Cir. 

1987). Mr~ Cardall relies on footnote 6 of Brown to argue that 

its ·l·aJ1.9uage.,acknowledges the existence of a second double jeopardy test in successive prosecution cases. The Brown footnote 

states in pertinent part: 

The Blockburger test is not the only standard for determining whether successive prosecutions impermissibly 

involve the same offense. Even if two offenses are sufficiently different to permit the imposition of consecutive sentences, successive prosecutions will be barred 

in some circumstances where the second prosecution 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 15 
requires the relitigation of factual issues already 

resolved by the first. 

432 U.S. 166 n.6. 

The footnote th~n discusses Ashe v. Swenson, 397 U.S. 436 

(1970), and In re Nielsen, 131 U.S. 176 (1889), as cases in which 

collateral estoppel prevented successive prosecutions, protecting 

the defendant from relitigating factual issues which were necessarily resolved in an earlier trial. In our view, all the Brown 

footnote does is acknowledge the circumstance where, even if the 

offenses "pass" the Blockburger test, collateral estoppel may rise 

to constitutional Double Jeopardy dimensions and block further 

prosecution. We do not look beyond the Blockburger test in this 

case because, in his second prosecution, Mr. Cardall did not 

relitigate factual issues necessarily·resolved in the first. 

Appellant also argues that current double jeopardy analysis 

properly includes the Blockburger test and, in addition, a "necessary element" test. According to Mr. Cardall, this second test, 

first articulated in I~ re Nielsen, 131 U.S. 176 (1889), and 

developed in Vitale, forbids a second trial if the prosecution 

must rely on conduct already used to prove another offense. 

According to appellant, the Vitale test focuses on conduct and not 

just statutory elements. 

The fundamental problem with Mr. Cardall's argument is that 

he equates the presentation of a similar block of evidence in his 

first and second ~rials with the necessary presentation of this 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 16 
evidence as the only way to establish the legal elements of the 

offenses charged. Admittedly, there was considerable FSI evidence 

~ presented in this case which•had-also be~n ·introduced in 

Mr. Cardall's first trial. However, it was appropriately used to 

show knowledge, pattern and plan under Fed. R. Evid. 404(b). It 

was not required to prove the elements of the crimes charged in 

the second prosecution. 

As to Mr. Cardall's claim that the focus of the double jeopardy analysis is conduct, not the legal elements of the offense, 

we believe the Supreme Court answered that contention in Iannelli 

v. United States, 420 U.S. 770, 785 n.17 (1975), in which it 

stated: "[T]he Court's application of the [Blockburger] test 

focuses on the statutory elements of the offense. If each 

requires proof of a fact that the other does not, the Blockburger 

test is satisfied, notwithstanding a substantial overlap in the 

proof offered to establish the crimes." (Emphasis added). See 

also United States v. Davis~ 793 F.2d 246, 248 (10th Cir.), cert. 

denied, 479 U.S. 931 (1986) ("The double jeopardy test does not 

- .. -focus ·on-'the · acts -charged in the· indictment· or the evidence at 

trial, but rather on the elements of the crimes."). 

We agree with the trial court that the counts which were the 

subject of the first trial involved conduct which differed in 

time, place, and participants from that alleged in the second 

trial. In addition, the fact that FSI and the clearinghouse 

operatibn were arguably part of one continuintj scheme and does not 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 17 
alter the result. Moreover, the dual conspiracy charge cases 

which appellant cites are not controlling because this is not a 

duaL conspiracy charge case. 

Nothing in our precedent precludes trial on individual substantive counts followed by a second prosecution for conspiracy. 

Cf. United States v. Hines, 713 F.2d 584 (10th Cir. 1~83) (prior 

conviction for conspiracy did not bar prosecution for related substantive offense). Based on our review of the record and the 

applicable law, we conclude that the trial court properly applied 

the Blockburger test in ruling that Mr. Cardall's prosecution on 

the forty-nine count indictment was not barred by the earlier 

prosecution. 

We also decline Mr. Cardall's invitation to exercise our 

supervisory powers18 to vacate the second conviction on the basis 

of prosecutorial abuse. In effect Mr. Cardall argues that it was 

prosecutorial vindicfiveness to bring two indictments and two 

trials against him. We cannot agree that Mr. Cardall's second 

--prosecution amounts-to vindictiveness. ·Prose~utors have traditionally enjoyed discretion in deciding which of multiple possible 

charges against a defendant are to be pros~cuted or whether they 

are all to be prosecuted at the same time. United States v. 

18 "Judicial supervision of the administration of criminal justice in the federal courts implies the duty of establishing and 

maintaining civilized standards of procedure and evidence." 

McNabb v. United States, 318 U.S. 332, 340 (1943). In exercising 

their supervisory powers, the courts may fashion appropriate remedies. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 18 
Partyka, 561 F.2d 118, 124 (8th Cir. 1977), cert. denied, 434 U.S. 

1037 (1978). In our view, the prosecutor in this case separated 

.the indictments -and prosecutions ~in a: rational· 0manner. Although, 

as a matter of policy, "a single trial .•. may be a desirable 

prosecutorial aim, ••• it is not a constitutional imperative." 

United States v. Marshall, 513 F.2d 274, 276 (5th Cir. 1975), 

cert. denied, 423 U.S. 1048 (1976). We conclude that there is no 

evidence of prosecutorial abuse which would warrant the exercise 

of our supervisory powers. 

B. Severance 

Appellants Holman, Willmitt, Crowther and Anderson each claim 

that they were entitled to severances, either of counts or of codefendants •. Messrs. Holman and Willmitt argue that· the Los 

Angeles operation ("L.A.") conducted by Mr. Willmitt was a separate rather than an adjunct enterprise of the Salt Lake City-based 

clearinghouse operation. As such, appellants argue, the two 

schemes were misjoined in one indictment, and required severance 

of the L.A.-related counts/parties prior to trial. 

· These appellants, however, understandably differ in their 

view of the problem caused by the alleged misjoinder. Mr. Holman 

asserts that "the trial of the defendants primarily charged with. 

illegally obtaining the funds [should have been severed] from the 

trial of defendants charged with misusing or diverting. 

funds" because "[t]he evidence proved [that the L.A. operation]_ 

fraudulently caused a diversion or transfer of funds . ~ • even if 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 19 
the [clearinghouse] funds were legally obtained." Holman Brief, 

at 53,54. 19 By contrast, Mr. Willmitt argues that he and another 

· -- co-defendant were ·merely: ·investment ·managers "with--whom the 

Clearinghouse enterprise invested money in apparent attempts to 

earn profits for the Salt Lake operation." Willmitt Brief, at 49. 

Thus, he argues, he was prejudiced by evidence of the fraudulent 

means by which the clearinghouse principals obtained money from 

undertakers. Id. 

Messrs. Crowther and Anderson20 argue that they were entitled 

to a severance under Rule 14, Fed. R. Civ. P., because the government presented evidence of FSI activity in which they played no 

role. Mr. Crowther contends that the joint trial allowed the jury 

to hear evidence of co-conspirator misconduct which occurred after 

he had allegedly withdrawn from the conspiracy. Mr. Anderson also 

claims that severance was appropriate under Bruton v. United 

States, 21 391 U.SL 123 (1968). 

l9 in the alternative, Mr. Holman argues that even if the court 

--~concludes that joinder of defendants was proper, it was an abus~ 

of discretion for the court not to separate the fraud counts, 

which dealt with the manner in which money was acquired, from the 

transporting counts, which dealt with conduct occurring after the 

funds had been obtained. 

20 Mr. Anderson's contentions are presented in the trappings of 

constitutional Due Process and Confrontation Clauses arguments. 

Essentially, however, he argues that he was prejudiced by the 

introduction of the FSI evidence at trialo See Anderson Brief, at 

25-27. 

21 We find absolutely no support for Mr. Anderson's argument 

that this case is controlled by Bruton. In Bruton, the highly 

-20-

Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 20 
Rule 8(a), Fed. R. Crim. P., provides that two or more 

offenses may be charged in the same indictment "if the offenses 

·charged • • .• are of . the same· or· .;similar character· or are based on 

••• two or more acts or transactions connected together or constituting parts of a common scheme or plan." Fed. R. Crim. P. 

8(a). Rule 8(b) provides that "[t]wo 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 one or more offenses. F~d. R. Crim. P. 8(b). Rule 

8(b) further provides that not all defendants must be charged in 

each count. Id. Finally, Rule 14 confers discretion on the trial 

court to grant a severance. Fed. R. Crim. P. 14. 

Questions of misjoinder under Rule 8(b) are questions of law, 

United States v. Williams, 809 F.2d 1072, 1085-86 (5th Cir.), 

cert. denied, U.S. , 108 S. Ct. 228 (1987), and are subject 

to de novo review. In re Ruti-Sweetwater, Inc., 836 F.2d 1263, 

damaging out-of-court confession of a codefendant, who was not 

subject to cross-examination, was placed before a jury at a joint 

trial. The Supreme Court held that, under those circumstances, it 

would strain legal fiction to believe that the jury could 

disregard the inculpating statement in determining Mr. Bruton's 

guilt or innocence. Since the statement could not be tested by 

cross-examination, admission of the confession violated 

Mr. Bruton's rights under the Co~frontation Clause of the Sixth 

Amendment. 

The situation here is very different. The presentation of 

the FSI evidence did not involve inculpating confessions. 

Moreover, from the beginning it was made clear to the jury that 

none of the FSI evidence involved Mr. Anderson in any way. There 

is no basis for equating the introduction of the FSI 

evidence--against carefully identified defendants~ and for proper 

limited purposes--with a violation of the Confrontation Clause. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 21 
1266 (10th Cir. 1988). In our circuit, defendants charged jointly 

under Rule 8 "are not entitled to separate trials as a matter of 

·right~11 ···Bai-ley-v.·United States, 410 F~2a1·209,·:---1213 (10th Cir.), 

cert. denied, 396 U.S. 933 (1969). Even if joinder is permissible 

under Rule 8, the trial court may nevertheless grant severance 

under Fed. R. Crim. P. 14 if joinder would prejudice one of the 

parties. Fed. R. Crim. P. 14 .. 

The decision whether to grant or deny severance is within the 

sound discretion of the trial court, and· will not be disturbed on 

appeal unless there is an affirmative showing of an abuse of discretion. United States v. Hack, 782 F.2d 862, 870 (10th Cir.), 

cert. denied, 476 U.S. 1184 (1986). To establish an abuse of discretion, a defendant must show that actual prejudice resulted from 

the denial. Id. Moreover, 

[i]n deciding on a motion for severance, the district 

court has a duty to weigh the p~ejudice resulting from a 

joint trial of co-defendants against the expense and 

inconvenience of separate trials •••• Neither a mere 

allegation that defendant would have a better chance of 

acquittal in a separate trial, nor a complaint of the 

'spillover effect' from the evidence that was overwhelming or more damaging against the co-defendant than that 

-against the moving party·is sufficient to warrant severance. 

Id. (citations omitted). 

Applying these principles to the facts.before us, we find 

none of defendants' arguments persuasive. With respect to the 

misjoinder argument, we believe that the indictment clearly 

alleged an ongoing series of interconnected illegal transactions 

amounting to the operation of a criminal enterprise. The fact 

-22-

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that some defendants were not involved in each aspect of the overall enterprise did not require severing them or the charges 

against· them. ,,-Furthermore, si.rice .the· transportation counts 

required proof that the money was acquired by fraud, FSI evidence 

would have been admissible in any event at a separate trial limited to the transportation counts. Thus we conclude that there 

was no misjoinder under Fed. R. Crim. P. 8. 

Mr. Holman's claim under Fed. R. Crim. P. 14 likewise fails. 

We agree with the government's view that Mr. Holman's contention 

amounts, at most, to a claim that Mr. Willmitt's fraudulent acts 

"spilled over", impairing Mr. Holman's chances for acquittal. 

Under our precedent, severance is clearly not warranted on this 

basis. 

With respect to Me~srs. Crowther and Anderson's claims for 

severance, we are of the opinion that the government's use of FSI 

evidence against Messrs. Cardall, Holman, and Turner did not prejudice Messrs. Crowther or Anderson. The court outlined its limit-

···i-ng-0instructions, see record-, Trial Transcript, vol. 18, at 2126, 

2169-70; vol. 19, at 2326, and expressly indicated in its closing 

instruction that the jury must consider individually the charges 

against each defendant and the evidence pertaining thereto, "leaving out of consideration entirely any evidence admitted solely 

against some other defendant or defendants." Record, Trial 

Transcript, vol. 73, at 14865-66. The assumption that juries can 

and will follow the instructions they are given is fundamental to 

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our system of justice. See Parker v. Randolph, 442 U.S. 62, 73 

(1979) (plurality opinion). We believe that the trial court properly·::admonished:.bhe jury and, ,likewise, .. 0that the jury properly 

fulfilled its task. 

Mr. Crowther's second argument for severance at most raises a 

claim that his defense would be directly antagonistic to that of 

his co-defendants. In other words, Mr. Crowther claims he 

effectively withdrew from the conspiracy, and only severance would 

prevent prejudice to him based on the court's admission of conspiratorial statements made after his withdrawai. 22 Because the 

court's determination of the effectiveness of Mr. Crowther's withdrawal is a preliminary question of fact for purposes of admissibility under Fed. R. Evid. 104(a), Bourjaily v. United States, 

483 U.S. 171, 175 (1987), we review it under a clearly.erroneous 

standard. On this record we cannot say that the court clearly 

erred in its determination that Mr. Crowther had not effectively 

withdrawn from the conspiracy. Moreover, we find no actual prejudice mandating severance on the basis of "irreconcilable" 

defenses. 

22 A defendant bears the burden of establishing his withdrawal 

from the conspiracy .• See United States v. Parnell, 581 F.2d 1374, 

1384 (10th Cir. 1978),""cert. denied, 439 U.S. 1076 (1979). Had 

Mr. Crowther effectively withdrawn, statements made thereafter by 

his co-conspirators would not have been admissible against him. 

United States v. Mardian, 546 F.2d 973, 978 n.5 (D.C. Cir. 1976); 

see also Lutwak v. United States, 344 U.S. 604,·617-18 (1953). 

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C. Preferred Order of Proof 

Appellants Anderson and Willmitt challenge the trial court's 

,.,-decision to 0 permit-deviation· from- the ·preferred order of proof 

supporting the admissibility of co-conspirators' statements. 

Prior to trial, the government petitioned the court for permission to deviate from the preferred order of proof. After a 

hearing on the matter, the court granted the government's request. 

Mr. Anderson argues that by granting the government's request, the 

court "denied itself the opportunity to recognize that the evidence offered to establish [Mr.] Anderson's complicity in the conspiracy was insufficient." Anderson Briet at 17. Mr. Willmitt's 

objection is somewhat different, although no less general. 

Mr. Willmitt acknowledges that he did not initially oppose the 

government's request. However, he now asserts that the government's pretrial proffer mislead counsel and resulted in counsel 

misdirecting "[his] energy toward rebutting the evidentiary statements contained in the proffer ••• at the expense ••• of other 

aspects of the case." Willmitt Brief at 71. 

This court a~opted a preferred order of proof in United 

States v. Petersen, 611 F.2d 1313, 1330-31 (10th Cir. 1979), cert. 

denied, 447 U.S. 905 (.1980); see also United States v. Austin, 786 

F.2d 986, 990 (10th Cir. 1986) (reaffirming preferred order of 

proof). In Petersen, we recognized "that in certain instances 

where it is not 'rea•onably practicable to require the showing to 

be made before admitting the evidence, the court may admit the 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 25 
statements subject to being connected up.'" Petersen, 611 F.2d at 

1330 (quoting United States v. James, 590 F.2d 575, 582 (5th Cir.) 

... , ~-(en qanc), cert. denied,. 4-42 U.S •. 917, (19,79)) •. :.Since that time ... 

this court has deferred on seveial occasions to the trial court's 

discretionary judgment to permit deviation from the preferred procedure. See,~, United States v. Hernandez, 829 F.2d 988, 993-

94. (10th Cir. 1987), cert. denied, u.; s. , 108 S. Ct. 1486 

(1988); United States v. Troutman, 814 F.2d 1428, 1448 (10th Cir. 

1987); United States v. Rivera, 778 F.2d 591, 595-96 (10th Cir. 

1985), cert. denied, 475 U.S. 1068 (1986); United States v. 

Harenberg, 732 F.2d 1507, 1512-13 (10th Cir. 1984). 

Here, the trial court correctly applied this exception when 

it made an initial determination at the pretrial hearing that the 

government's proffer presented substantial evidence that a conspiracy existed and that defendants were members thereof. Thereafter, at the close of the case, the court again made specific 

findings under a preponderance standard that the evidence was sufficient to establish each defendant's participation in the conspiracy.23 Mr~ Willmitt's second argument that the court 

improperly· considered hearsay declarations made by Mr. Cardall to 

find that Mr. Willmitt was a member of the conspiracy is meritless 

in light of Bourjaily. 24 

23 The standard of proof on preliminary facts is preponderance 

of the evidence. Lego v. Twomey, 404 U.S. 477 (1972). 

24 In Bourjaily, the defendant claimed that the trial court had 

improperly considered hearsay statements by his coconspirators in 

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D. Admission of FSI Evidence 25 

Appellants Willmitt, Anderson and Holman appeal the trial 

·,, ''."Court·'·s·decision- .to·permitthe -introduction of extensive evidence 

concerning the predecessor FSI operation. Messrs. Willmitt and 

Anderson claim that the FSI evidence constituted a material variance from the indictment under which they were tried, thus requiring the reversal of their convictions. Specifically, Mr. Anderson 

claims that admission of the evidence as to the "separate" FSI 

conspiracy resulted in "surprise and inadequate opport~nity to 

prepare a defense." Anderson Brief, at 35. Mr. Willmitt argues 

that (1) the indictment gave insufficient notice that FSI would be 

an issue in the case; (2) introduction of "irrelevant" FSI evidence improperly broadened the indictment; and (3) because of the 

determining that a drug conspiracy existed and that the statements 

were in furtherance of the conspiracy. The trial court had admitted the statements against the defendant under Fed. R. Evid. 

80l(d)(2)(E), the rule which provides that coconspirator's statements are not hearsay. See text infra, n. 29. Relying on Fed. R. 

Evid. 104(a), the Supreme Court affirmed the conviction, holding 

that "a court, in making. a preliminary factual determination under 

Rule 80l(d)(2)(E), may examine the hearsay statements sought to be 

admitted." 107 s. Ct. at 2782. 

25 The FSI evidence was received under Fed. R. Evid. 404(b), 

which provides: 

(b) Other crimes, wrongs, or acts. 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. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 27 
joint trial, a transference of guilt resulted from the presenta- · 

tion of eviden6e incriminating his co-defehdants (Messrs. Cardall, 

... ,,Holman,, and Turner). 

Mr. Holman also joins the variance argument. In addition, he 

claims that (1) the FSI evidence dealt with Mr. Cardall's prior 

bad acts, and that the court's decision to receive that evidence 

in a joint trial unduly prejudiced him, and (b) the court erred in 

not requiring the prosecution to show that Mr. H6lman was a coconspirator in the "separate" FSI conspiracy before receiving that 

evidence against him. 

The variance issue is· a question of law which we review de 

novo. See 2 S. Childress & M. Davis, Standards of· Review§. 11.32, 

at 144 (1986). A variance occurs "when the evidence presented at 

trial establishes facts different from those alleged in the 

indictment." United States v. Pinto, 838 F.2d 426, 433 (10th Cir. 

1988). In evaluating a variance claim, the key inquiry for the 

court is whether the variance of proof affected the substantial 

· ··· -rights -of the-- accused. ··Id.·- ·CourtS·0have .found prejudicial var iances in cases in which the indictment fails to give the defendant 

adequate notice of the evidence to be presented against him, see 

United States v. Rinke, 778 F.2d 581, 590 (10th Cir. 1985); where 

conviction based upon the indictment will not bar subsequent prosecution, id.; and where there is a strong likelihood of "transferred" guilt as a result of the presentation of incriminating 

evidence relating to conduct of a co-defendant- in which the 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 28 
accused did not participate. See Kotteakos v. United States, 328 

U.S. 750, 766-67 (1946). 

We reject appellants Anderson and Willmitt's contention that 

the FSI evidence constituted a prejudicial variance requiring 

reversal of their convictions. We believe the language of the 

indictment should have put defendants on notice that FSI evidence 

would likely be introduced preliminarily to, and in conjunction 

with, the proof necessary to show that the clearinghouse operation 

perpetrated fraud on investors. 26 Moreover, the admissibility of 

FSI evidence was the subject of extensive pretrial motions and 

hearings, giving counsel notice that it would arise at trial and 

the opportunity to anticipate and prepare a defense. 

26 Paragraphs 16-18 of the indictment state: 

16. It was a part of the scheme and artifice to 

defraud that RICHARD TAYLOR CARDALL, in conjunction 

with other defendants herein, including JOSEPH A. 

HOLMAN and GERALD L. TURNER, began marketing, 

through a company known as Fiscal Services, Inc. 

[FSI], doing business at 355 South Ninth East, Salt 

Lake City, Utah, a program known as a "factoring 

accounts payable" program. 

17. It was a further part of the scheme and artifice to defraud that this "factoring accounts payable" program, as operated through Fiscal Services, 

Inc., was operated fraudulently and failed. 

18. It was further a part of the scheme and artifice to defraud that the defendants herein under 

the direction of RICHARD TAYLOR CARDALL organized 

and executed the clearinghouse operation. The 

clearinghouse operation ran what was represented to 

be a "factoring accounts payable" program. 

Addendum.to Appellant Cardall's Brief, at 5. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 29 
More significantly, however, it is abundantly clear from the 

record that FSI evidence was only received against appellants 

Cardall·,· Holman, arid ·Turner. '''The· government so conceded and the 

court repeatedly cautioned the jury of that fact. Finally, the 

court, in its closing instructions to the jury, carefully noted 

that some evidence had been admitted for limited purposes and 

against certain specific defendants, and could only be considered 

as to those individuals. We assume the jury heeded the trial 

court's cautionary instructions and. properly fulfilled its task. 

See Parker, 442 U.S. at 73. Therefore, the admission of FSI evidence against defendants did not constitute a prejudicial 

variance. 

As to appellant Willmitt's contention that he was prejudiced 

by "transferred guilt" as a result of evidence which incriminated 

Messrs. Cardall, Holman, and Turner, we have carefully reviewed 

the record and find no support for this claim. We believe that 

the court's repetition of the limiting instructions adequately 

protected Mr. Willmitt's interests. 

We believe, however, that there is merit to Mr. Holman's 

claim of error. The recent Supreme Court decision in Huddleston 

v. United States, U.S. , 108 S. Ct. 1496 (1988), guides us 

in this area. The Huddleston Court held that trial courts need 

not make a preliminary finding under Rule 104(a) that the 

government has proved the "other act" by a preponderance of 

evidence before it admits "similar acts" evidence under Rule 

404(b). Id. at 1501. According to the Court, "such evidence 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 30 
should be admitted if there is sufficient evidence to support a 

finding by the jury that the defendant committed the similar act.'' 

,,Id. at -1499. · -The Court• then···-identif ied four.• saf-eguards which 

protect the defendant from unduly prejudicial evidence which might_ 

be introduced under Rule 404(b): (1) the evidence must be offered 

for a proper purpose, (2) the evidence must be relevant under 402 

as enforced through Rule 104(b): (3) the trial court must 

determine whether the probative value of the similar acts evidence 

is not substantially outweighed by its potential for unfair 

prejudice under Rule 403: and (4) the trial court must, upon 

request under Rule 105, instruct the jury that the similar acts 

evidence must be considered only for the limited purpose for which 

it w~s admitted. Id. at 1502. 

Our circuit has outlined stringent requirements to ensure 

that the evidence is offered for a "proper purpose.'' Specifically, the government must show how the proffered evidence is relevant to an issue in the case by "articulat[ing] precisely the 

evidentiary hypothesis by which a fact of consequence may be 

-·inferred~from·the evidence of·-0ther acts."· United States v. 

Kendall, 766 F.2d 1426, 1436 (10th Cir. 1985), cert. denied, 474 

U.S. 1081 (1986). Moreover, the trial court must "specifically 

identify the purpose for which such evidence is offered and a 

broad statement merely invoking or restating Rule 404(b) will not 

suffice." Id. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 31 
We are not fully convinced that -the government "articulated 

precisely" the basis on which the FSI evidence was being offered 

.~~-' against Mr. , Holman. - However-, - because we -consider- the issue of 

relevance dispositive, we need not address how precisely the prosecution and the court must articulate the bases on which the evidence is admitted. 

According to the Huddleston Court, "[i]n the Rule 404(b) context, similar act evidence is relevant only if the jury can reasonably conclude that the act occurred and that the defendant was 

the actor." Id. at 1501 (emphasis added). We understand this to 

mean that before similar "bad acts" may be admitted against an 

individual, there must be reasonable indication in the record that 

the defendant was in fact a party to the bad acts sought to be 

brought in against him. We do not believe that the relevance 

requirement under Rules 404(b), 402 and 104(b) can be met with 

respect to one defendant by introducing evidence of the bad acts 

of the defendant's other associates. 

,,In .. this case there -was ample evidence to support a finding 

that Messrs. Cardall, Turner, and a non-defendant, Mr·. Davidson, 27 

were involved in improper, if not outright, criminal activities in 

27 Mr. Davidson was a key government witness during the FSI 

portion of the trial. He initially joined FSI as a salesman but 

became "president" of FSI in August of 1979. He was indicted on 

FSI-related fraud charges and entered into a plea bargain wherein 

he pled guilty to two counts of mail fraud and agreed to testify 

against the other FSI principals. In exchange, the government 

agreed to drop the remaining charges against Mr. Davidson. 

-32-

= 

Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 32 
conjuhction with FSI. However, our painstaking review of all the 

FSI evidence cannot support a similar finding with regard to 

Mr. Holman. 28 . · In-,our view,·. the- offered,·evJdence. could ·not have 

survived a careful Rule 104(b) conditional relevance 

determination--that Mr. Holman was actually involved in the bad 

acts which the government sought to use against him. We conclude 

that the court erred in admitting the FSI evidence against 

Mr. Holman under Fed. R. Evid. 404(b) because the government 

failed adequately to connect Mr. Holman to the fraudulent actions 

of other FSI principals. 

We find no merit to the government's alternative contention 

that FSI evidence was nevertheless admissible under the coconspirator exception of Fed. R. Evid. 80l(d)(2)(E). 29 We have 

28 Mr. William L. Allen gave the only testimony which would support an inference that ~r. Holman may have had knowledge of the 

improprieties in the FSI operation. Mr. Allen served as secretary 

to FSI when it was first organized. He testified that in early 

spring, 1979, he traveled with Mr. Holman on two occasions in conjunction with FSI business. During the second trip, and directly 

as a result of the information he had gleaned from the two trips, 

Mr. Allen submitted his resignation to Mr. Holman. Nothing in the 

record indicates with greater specificity the basis for 

Mr. Allen '.s. resignation. 

To the extent that this evidence ·was probative of 

Mr. Holman's knowledge of bad acts by FSI principals, we believe 

Mr. Allen's testimony was properly admitted, but not under Rule 

404(b). We view Mr. Allen's testimony simply as competent evidence, properly admitted under Rules 401, 402, and 403 of 

Mr. Holman's possible knowledge of improper FSI activity. 

Clearly, this evidence falls far short of linking Mr. Holman to 

any bad acts by other FSI principals. 

29 Fed. R. Evid. 80l(d)(2)(E) provides that "[a] statement is 

not hearsay if ••• [it] is offered against a party and is .•• 

a statement by a coconspirator of a party during the course and in 

furtherance of the conspiracy." The government asserts that 

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checked every reference by the court concerning the admissibility 

of FSI evidence and have found that the court always grounded its 

... -- -admiss-ibili ty rulings ,in Rule, 404 ( b) .. .JO 

We conclude that Mr. Holman was significantly prejudiced by 

the improper admission of FSI evidence against him. Consequently, 

we reverse his conviction on this ground and remand for a new 

trial on the charges in the indictment without the prejudicial 

impact of the FSI evidence. 

E. The "Taken by Fraud" Instruction and the Proof Necessary to 

Establish the ITSP Counts 

Appellants Crowther and Carda1131 challenge their convictions 

for the interstate transportation of money taken by fraud on two 

grounds: (1) that the trial court erred in instructing the jury 

on the meaning of "taken by fraud"; and (2) that the government 

"[t]he court found that Holman was part of the FSI activities and 

admitted the statements and other evidence made by co~venturers 

against him." Appellee's brief at 54. This statement is made 

without any citation to the record indicating such a "finding" by 

·the court. See Tenth Circuit Rules 28.1 and 28.2; Without the 

citations to the record, our review cannot support this assertion. 

30 In addition, even if we accepted the government's contention 

that FSI evidence was admissible under Rule 80l(d)(2)(E), we 

believe that its admissibility under that rule would have constituted an improper variance in the indictment against Mr. Holman. 

31 Appellant Holman raises a similar argument challenging his 

ITSP convictionso However, because we disposed of Mr. Holman's 

appeal above, we need not address his ITSP claim in this discussion. See supra at 30-34. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 34 
failed to prove-that each dollar transported across state lines 

came from identifiable undertakers who had been defrauded. 

Appellants argue that the jury instruction failed to inform 

the jury that the investors must have reasonably relied on the 

misrepresentations in order to establish that the funds were 

"taken by fraud." 32 The government responds that the court's 

32 The court's instructions on this charge state in pertinent 

part: 

Instruction number 41. Interstate transportation of 

money taken by fraud. 

The indictment charges certain defendants with violating 2314, of Title 18 of the United States code. 

Those are the defendants in the counts I've read. ~hat 

section, in pertinent part, provides: 

Whoever transports in interstate or foreign commerce; any goods, wares, merchandise, securities or 

money of the value of $5,000 or more, knowing the same 

to have been stolen, converted or taken by fraud, shall 

commit a crime. 

42 •••• Definition of transportation of money 

taken by fraud. 

The phrase transports in interstate commerce, means 

transporting money from one state to another. 

As to the--$S,000- 0Orc.more_ that must be. involved, the 

essence of the crime is the movement in interstate commerce of money taken by fraud. That the money changed 

form to a check or other similar type of instrument for 

convenience in transferring it, is insignificant. What 

is significant is that when the transaction is completed, $5,000 or more of money taken by fraud, exists 

or may be obtained at the final destination. 

The phrase, taken by fraud, refers to money taken 

from its owner through misrepresentations or deceit, 

with the intent to deprive the owner of the use of the 

benefits~of ownership. 

43; . . . 

taken by fraud. 

Elements of transportation of money 

In order to meet its burden, the gov-

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language ~dequately conveyed the notion that the owner surrendered 

the money because of misrepresentation or deceit. 

When examining a challenge to jury instructions, "we review 

the record as a whole to determine whether the instructions 'state 

the law which governs and provided the jury with an ample understanding of the issues and the standards applicable.'" Big Horn 

Coal Co. v. Commonwealth Edison Co., 852 F.2d 1259, 1271 (10th 

Cir. 1988) (quoting Ramsey v. Culpepper, 738 F.2d 1092, 1098 (10th 

Cir. 1984)). Thus, we "consider all that the jury heard and, from 

standpoint of the jury, decide 'not whether the charge was faultless in every particular but whether the jury was misled in any 

way and whether it had understanding of the issues and its duty to 

determine these issues.'" Durflinger v. Artiles, 727 F.2d 888, 

ernment must establish beyond a reasonable doubt each 

one of the following four elements of the crime of 

transportation of money taken by fraud in each of the 

counts charged against the defendants involved therein: 

1. That the money charged in the account was 

taken by fraud. Found a little extra word there. 

2. That the defendant transported the money 

in interstate commerce, interstate or foreign 

Commerce, or caused it to be transported. 

3. That at the time of the transportation, 

defendant knew the money had been taken by fraud. 

4. That the amount of money taken by fraud 

and transported in interstate commerce was $5,000 

or more. 

Each and all of the foregoing elements must be 

established by the government by evidence that 

convinces beyond a reasonable doubt. 

Record, vol. 73, Trial Transcript, at 14893-95. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 36 
895 (10th Cir. 1984) (quoting Alloy Int'l Co. v. Hoover-NSK 

Bearing Co., 635 F.2d 1222, 1226-27 (7th Cir. 1980)). We reverse 

--only if~ in:light of the preceding ~6nside~ations, the error is 

prejudicial. Big Horn Coal, 852 F.2d at 1271 n.19. 

The indictment charged these defendants with participation in 

a scheme to defraud, and in particular, with interstate transportation of money secured through fraud in connection with the 

scheme. The court's instructions emphasized that fraud resulted 

when money was "taken from its owner through misrepresentations or 

deceit." To reach its conclusion that defendants were guilty on 

these counts, the jury must have first concluded that: (1) mi~-

representations were made, at least to some portion of the investors, and (2) that as a result of those misrepresentations, investors were induced to part with their money. 

Our review of the record convinces us that the court did not 

commit reversible error in i'ts instruction. We agree with the 

government that the instruction of fraud implicitly included the 

element of.~eliance. While a more specific instruction might have 

been preferable, on the whole the trial court's instruction appropriately stated the law. 

Appellants also raise what amounts to a sufficiency of the 

evidence challenge to the ITSP counts. When the sufficiency of 

the evidence supporting a criminal conviction is challenged, we . . 

must view all the.evidence, both direct and circumstantial, in the 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 37 
light most favorable to the government. United States v. 

Culpepper, 834 F.2d 879, 881 (10th Cir. 1987). In conducting our 

-review, we·"[do] not-·consider the credibility of witnesses or 

weigh conflicting eviderice." United States v. Hines, 696 F.2d 

722, 730 (10th Cir. 1982) (citation omitted). The evidence is 

considered sufficient if "any rational trier of fact could have 

found the essential elements of the crime beyond a reasonable 

doubt." Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis 

in original). 

The essential elements33 of ITSP are: (1) transporting, or 

causing the transportation, (2) in interstate commerce, 34 (3) of 

property valued at $5,000 or more, 35 (4) with knowledge that it 

has been stolen, converted, or fraudulently taken from its rightful owner. 18 u.s.c. § 2314 (1982). Appellants claim that the 

government did not prove its case because it failed to trace the 

money which crossed state lines through the commingled funds in 

the operation's multiple bank accounts to individually defrauded 

33 As we noted iri United States v. Wright, 791 F.2d 133,135 

(10th Cir. 1986), "§ 2314 contains five subsections, each of which 

constitutes a separate offense." The elements outlined above 

pertain to the second paragraph which forms the basis of the 

present indictment and trial. 

34 Appellants did not challenge the fact that these transfers 

were interstate transfers. 

35 -The amount of each transfer unquestionably exceeded $5,000. 

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investors. 36 

Albhough.,appel-lants' argument-·is not··clearly,developed, to 

the extent that it rests on the contention that the transported 

funds must be precisely the ones taken from the defrauded investors, that is clearly not the law. See,~' United States v. 

Morgan, 805 F.2d 1372, 1377-78 (9th Cir. 1986) ("[I]t is not necessary for the government to show that. the precise object stolen, 

converted, or taken by fraud be transported. It is sufficient if 

the item transported is directly derived from the property stolen, 

converted, or taken by fraud."), cert. denied, 480 U.S. 949 

(1987). See also United States v. Levy, 579 F.2d 1332, 1337 (5th 

Cir.) (although a literal reading of§ 2314 would require that the 

very object taken by fraud be transported in interstate commerce, 

such a n~rrow reading would clearly frustrate Congress' purposes 

in enacting the statute), cert. denied, 440 U.S. 920 (1978); 

United States v. Pomponio, 558 F.2d 1172, 1175 (4th Cir. 1977) 

("The plain language of the Act does not impose any requirement 

that the security transported in interstate commerce be taken 

directly~firom~the person.who.was defrauded. The imposition of 

such a requirement by judicial gloss would defeat the purpose of 

36 Appellants cite Dowling v. United States, ~73 U.S. 207 

(1985), as one authority in support of this contention. Their 

reliance on Dowling is misplaced. In that case the Supreme Court 

addressed a totally different issue--the applicability of section 

2314 to the shipment of bootlegged sound recordings and motion 

pictures whose unauthorized distribution infringed valid copyrights. The Court reversed the conviction holding that "Congress 

had no intention to reach copyright infringement when it enacted 

§ 2314." Dowling, 473 U.S. at 226. 

-39-

Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 39 
the Act."); United States v. Walker, 176 F.2d 564, 566 (2d Cir.) 

(holding that when funds are "taken feloniously by fraud" and 

stransported. across :state 1-ines ,=. t.hey fall· 2wi thin the purview· of 

the statute regardless of the form to which they are converted), 

cert. denied, 338 U.S. 891 (1949). 

In addition, appellants rely on United States v. Poole, 557 

F.2d 531 (5th Cir. 1977), to support their contention that the 

conviction must fall because funds involved in the interstate 

transfers must be presumed "innocent" funds. In our judgment, 

Poole is inapposite. In Poole, the defendant "sold" a nonexistent 

"heavy duty earth excavator" to a Louisiana corporation. 

Defendant deposited the purchaser's check, drawn on a Baton Rouge, 

Louisiana, bank, in his own account at a Lafayette, Louisiana, 

bank. He then wrote a check on his Lafayette account for the same 

amount as the purchase price and deposited it in his account in a 

Beaumont, Texas, bank. The Poole court reversed defendant's conviction under section 2314, holding that the transfer of money 

from the Louisiana bank to the Texas bank was not a transfer of 

..... .:.--.exact, men.hes .taken by fraud.from the -purchaser •.... The court reasoned that the purchaser's check had been deposited into an 

already-existing account and commingled with other "innocent" 

funds; and when the check was presented to the Louisiana bank for 

payment, there were surplus funds in the account to pay the checks 

without drawing on the fraudulently acquired funds. Consequently, 

there was no proof that the fraud-tainted funds had traveled in 

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interstate commerce. 

··unlike·,.the. situation, in· Poole;·. there is no,·".ba·sis to .. presume 

that the funds existing in the clearinghouse accounts at the time 

of the interstate transfers were ''innocent" funds. Here, circumstantial evidence overwhelmingly supports a finding that the significant majority of undertaker funds were obtained by fraud, 

undermining the presumption which, although unstated, forms the 

basis of Poole's holding. 

The following evidence convinces us. The government traced 

ninety-seven percent of the funds in the defendants' numerous 

accounts 37 to undertaker investments. The interstate transfers 

were made from these accounts. In order to prove that the funds 

were obtained by fraud, the government showed that the clearinghouse operation recruited investors through sales presentations in 

which sales personnel mastered and gave boilerplate presentations 

to prospective investors. The presentations misrepresented the 

existence of a viable payables program and the purposes for which 

... .investor funds would be used. 38 ... rn :our·view, the proof of fraud 

was so overwhelming that the jurors could have easily inferred 

37 Government evidence demonstrated that undertaker money was 

deposited in 23 bank accounts, and that the money found its way 

through transfers into 11 additional bank accounts. 

38 In reality, undertaker monies acquired through sales presentations were used for purposes other than those represented by 

sales personnel, they were used to pay obligations due on old 

investments, and bankruptcy was used as a ploy to hinder and delay 

the discovery of the fraud. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 41 
• 

from the strong circumstantial evidence before them that for each 

ITSP count, defendants knowingly caused at least $5,000 in fraudu-

. lently00,obtairied funds,. to· cross state lines. 

F. Challenges to Sufficiency of the Evidence 

Appellants raise various challenges to the sufficiency of the 

evidence. See standard of review, supra at 37-38. 

1. Appellant Turner 

Mr. Turner challenges his conviction of bankruptcy concealment claiming that evidence supporting his conviction is insufficient, and that his conviction~ in light of the acquittal of 

another defendant on a separate count (but arising out of the same 

facts), constitutes an inconsistent verdict which cannot be sustained.39 

Here, the evidence indicated that on September 24, 1981, 

(eight days after bankruptcy was filed by Mr. Turner on behalf of 

the clearinghouses, and the day before a bankruptcy trustee was to 

.. -.be,.namedJ,'·Mr. ··Turner deposi.ted · two· checks drawn on ·clearinghouse 

funds into his office account at Valley Bank & Trust. The next 

39 Shortly after the Clearinghouses filed for bankruptcy, 

Mr. Turner procured payment (to himself and others) from clearinghouse accounts. He received two checks, one for $54,000 from 

Universal Clearinghouse (signed by defendant Anderson), and one 

for $16,000 from International Clearinghouse (signed by defendant 

Ashby). These checks form the basis of Counts 35 and 36 of the 

indictment. Initially Mr. Turner was named in both counts, but 

later Count 36 (dealing with the $16,000 check) was dismissed by 

the government as to Mr. Turner. 

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morning, before appearing at bankruptcy court, Mr. Turner called 

Valley Bank and requested that the checks he had deposited the 

previous: after.noon be taken -,to ·,-Empi-re State.-.-Bank 49,.-and- .negotiated 

for cashier's checks. Those checks were to be redeposited into 

Mr. Turner's account. That same morning a Valley Bank employee 

carried out Mr. Turner's instructions. 

At approximately 10:00 a.m. that day, Mr. Turner appeared 

before the Bankruptcy Court and represented to the court that he 

had no control over clearinghouse assets. At that hearing the 

bankruptcy court ordered that the clearinghouse accounts be frozen. By the time the court clerk contacted Empire State, however, 

the transactions at iss~e had already been completed. We believe 

the evidence was more than sufficient for any reasonable trier of 

fact to find the essential elements of bankruptcy concealment 

beyond a reasonable doubt. 

Mr. Turner also claims that Mr. Ashby's acquittal under Count 

36 of the indictment, and Mr. Turner's own conviction under Count 

-· ·, 35 · cannot· be, reconciled because both- arose .out of the .same set of 

facts. A properly convicted defendant cannot win reversal because 

the jury acquitted another defendant. United States v. Cudd, 499 

~.2d 1239, 1242 (10th Cir. 1974) ("A joint indictment ••• is but 

a procedural convenience and is to be considered as a separate 

charge against each defendant."). The fact that the same jury 

40 Both the UCH and ICH accounts were located at Empire State 

Bank. 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 43 
found Mr. Ashby not guilty of bankruptcy concealment on Count 36 

in no way calls into question Mr. Turner's proper conviction under 

Count 35. 

2. Mr. Crowther 

Appellant Crowther claims that there was insufficient evidence to convict him of Count 16--an !TSP.count. The trial evidence established that Mr. Crowther was a clearinghouse principal 

involved in its daily operations. He occasionally recruited sales 

staff and on at least one occasion falsely represented that acertain company was affiliated with the payables program. 

One of Mr. Crowther's responsibilities involved identifying 

possible investment opportunities for the clearinghouses. Count 

16 arose out of one of those transactions. Appellant Crowther was 

one of the signatories in a Denver, Colorado bank account in which 

fifty thousand dollars were deposited in January 1981. Those 

funds were secured through fraud from a Utah investor. One day 

after the money was deposited, Mr. Crowther withdrew all the funds 

in the form of two cashier's checks and closed the Colorado bank 

account. The account proceeds were thereafter placed in a highrisk investment in precious metals. 

Although Mr. Crowther contends that there was no evidence 

directly linking him to the transportation of the funds "either 

through fingerprint identification or handwriting identification," 

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Crowther Brief at 27, we believe this contention views the evidence needed for cpnviction too narrowly. We are of the opinion 

that the evidence presented was sufficient for a jury to conclude 

that (1) Mr. Crowther had knowledge that the $50,000 at issue was 

obtained by fraud and (2) Mr. Crowther caused the funds to be 

transported in interstate commerce. His conviction on Count 16 is 

affirmed. 

3. Mr. Willmitt 

Appellant Willmitt challenges the sufficiency of the evidence 

supporting his convictions on ITSP, mail.fraud, and wire fraud 

counts. Mr. Willmitt does not challenge the fact that the transfer of funds which form the basis of the various counts in fact 

took place. Rather, he re-argues the question of his role as a 

principal in the clearinghouse operationsr The gist of 

Mr. Willmitt's argument is that because.he had no role in directly 

establishing or implementin~ th~ undertaker side of the operation, 

the government failed to prove that he knew anything about the 

misrepresentations which were at the heart of the fraudulent 

scheme. As part of his argument, Mr. Willmitt takes issue with 

trial testimony which identified him as a principal in the clearinghouse 6rganization. 

The evidence presented at trial indicated that (1) 

Mr. Willmitt was aware of and discussed the general business 

operations with Mr. Cardall; (2) his level of control over assets 

and individuals in the operation led at least two individuals to 

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Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 45 
conclude that Mr. Willmitt was a principal in the op~rations; (3) 

Mr. Willmitt's offices in the Los Angeles area were connected by 

computer- -( including.- electronic ma-il) with the- Car.dall off ices in 

Salt Lake City; (4) identical copies of business documents were 

found in Mr. Willmitt's office and in Mr. Cardall's possession; 

(5) in taped telephone conversations Mr. Willmitt offered to backdate contracts in order to justify the receipt of payments to 

Mr. Willmitt's investment company; (6) one of the Cardallcontrolied businesses--Payable Accounting Company--paid for services rendered in Los Angeles by an accountant hired by 

Mr. Willmitt to perform some work for him; (7) seven clearinghouse 

bank accounts served as the source of funds for ninety-four percent of the Willmitt-controlled bank accounts in California; (8) 

Mr. Willmitt was a party to the fraudulent preparation of contracts and letters to support the claim that a buyer had been 

found for the Bahia Kino properti; (9) checks issued from 

Willmitt-controlled accounts (containing clearinghouse funds) went 

to pay for a car for Mr. Cardall's son, as well as for personal 

expenses incurred by Mr. Willmitt and his daughter; and (10) when 

word of the FBI search -Gf- Cardall's Salt Lake City offices reached 

Mr. Willmitt, he contacted his daughter in California and directed 

her to remove all Salt Lake City-related documents from the 

Willmitt offices in California. This brief summary of the extensive record amply supports the jury's conclusion that Mr. Willmitt 

knew that the moneys at issue were taken by fraud. Appellant's 

conviction on the ITSP, mail fraud, and wire fraud counts are 

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affirmed • 

. Mr. ,-Willmi tt -next.. argues that the evidence did not support 

his conviction on the bankruptcy fraud charge and that the jury 

instruction on that issue was contrary to law. Mr. Willmitt 

relies heavily on the fact that the $35,000 he received two days 

after ICH and UCH filed their bankruptcy petitions was drawn on a 

Payable Accounting Company's (PAC) account, rather than on one of 

the numerous clearinghouse accounts. 41 According to appellant, 

since PAC had not filed for bankruptcy, it was not a "debtor" 

within the meaning of the Bankruptcy Code, and, therefore, he had 

not engaged in concealment. Mr. Willmitt argues that at the time 

he received it, the money was the "legal and equitable" property 

of PAC and that he "was legally entitled to assume that [the] 

cashier's check was the property of PAC, not IHC or UCH . . . . II 

Id. at 77. At most, he argues, the money was subject to recovery 

as an avoidable preference or fraudulent transfer only after the 

bankruptcy trustee "obtained a judicial declaration that its 

transfer [from the clearinghouses] to PAC was void." Willmitt 

Brief, at 79. 

Mr. Willmitt's argument overlooks two critical facts: (1) 

the evidence indicated, and the jury believed, that Mr. Willmitt 

41 The record indicates that on September 18, 1981, Messrs. 

Cardall and Anderson issued a $35,000 check on the PAC account 

with which they purchased a cashier's check payable to 

Mr. Willmitt's Baltimore Investment Company. Mr. Willmitt 

endorsed the cashier's check and cashed it. 

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was a principal in the clearinghouse operation, and (2) the plain 

language of section 541 of the bankruptcy code clearly and broadly 

. ::-~·:,.--defines what.,constitrntes t-he-.,debtor.'.s property. 

As a principal in the interrelated operations which comprised 

the scheme, Mr. Willmitt cannot now claim that he innocently 

relied on PAC's legal "ownership" of the funds he received. Testimony indicated that Mr. Willmitt was privy to Mr. Cardall's confidences concerning the business operation, and that his sugg~stions influenced the course of the business. Additionally, the 

evidence showed that numerous bank accounts were established by 

Cardall-controlled businesses and Willmitt-controlled businesses, 

and that extensive intercompany transfers were part and parcel of 

the overall scheme's operational mode. Finally, the evidence 

established that Mr. Willmitt had discussed bankruptcy plans with 

Mr. Cardall at the very time they were fraudulently "contracting" 

to sell the Bahia Kino property. From all of this evidence, any 

reasonable trier of fact could find beyond a reasonable doubt that 

Mr. Willmitt knew that the funds ostensibly drawn from the PAC 

account in~act-constituted .funds belonging to the debtor clearinghouses' estate. 

Secondly, the clear and unambiguous language of section 541 

states: 

(a) The commencement of a case under Section 

or 303 of this title creates an estate. 

estate is comprised of all the following 

wherever located and by whomever held: 

-48-

301, 302, 

Such 

property,_ 

Appellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 48 
( 1) Except as provided in s~~sections (b) and 

(c)(2) of this section, all legal or 

equitable interests of the debtor in 

property as of the commencement of the 

case. 

11 U.S.C. § 541 (1982 & Supp. II 1984) (emphasis added). This 

section "is to be broadly construed to include all property 

interests, whether reachable by state-law creditors or not, and 

whether vested or contingent. This definition draws into the 

estate all of the Debtor's property interests as of the filing 

date, save~ [the restricted transfer of beneficial interest in a 

trust.]" In re Deweese, 47 Bankr. 251, 254 (W.D.N.C. Bankr. 1985) 

(citation omitted); see also In re Shore Air Conditioning & 

Refrigeration, 18 Bankr. 643, 646 (D.N.J. Bankr. 1982) (Clear 

wording and intent of drafters demonstrates that scope of§ 54l(a) 

is very broad and encompasses all interests of debtor as of date 

its petition is filed.). A plain reading of this broadly worded. 

section makes clear that clearinghouse funds diverted into interrelated company accounts did not lose their status as "debtor's 

property" simply because they were held in a PAC account. 

Finally, Mr. Willmitt claims that the jury instruction on 

this count was contrary to law because it failed to include the 

terms "legal or equitable" as modifiers of the word "interest 11 • 43 

42 Neither subsection's exclusion is pertinent herein. 

43 The court's instruction as to Count 38 (charging Mr. Willmitt 

with fraudulent receipt of property belonging to a bankrupt's 

estate) read as follows: 

69. Count 38 of the indictment charges Stanley 

Willmitt with Fraudulent Receipt of Money in violation 

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As we've noted previously, in examining a challenge to a jury 

instruction, "we review the record as a whole to determine whether 

the··,inst.ructions : 'state. the .:law which ·governs-and provided the 

of Section 152 of Title 18 of the United States Code. 

Paragraph 5 of that Section in pertinent part provides: 

Whoever knowingly and fraudulently receives any 

material amount of property of a debtor after the filing 

of a case under Title 11, with intent to defeat the provisions of Title 11, shall commit a crime. 

As used in the foregoing code section, the term 

debtor refers to the entity filing for protection under 

the Bankruptcy Laws. 

70. Bankruptcy Fraud. Elements of Fraudulent 

Receipt of Money. In order to convict the Defendant 

Willmitt under·count 38 of the Indictment, the government must prove the following elements by evidence that 

convinces the jury beyond a reasonable doubt. 

1. That on or about September 16, 1981, the 

debtor filed a case under Title 11 of the Bankruptcy 

Act. 

2. That on or about September l8, 1981 and 

after the filing of the Title 11 case, the Defendant 

Willmitt received a material amount of property, 

$35,000, from the debtor. 

3. That the Defendant Willmitt received said 

property knowingly and fraudulent with the intent to 

defeat the provisions of Title 11 of the Bankruptcy Act. 

~or purposes of this case the provisions of Title 

11 of the Bankruptcy Law are defeated when a person 

without Court approval acts in a manner that diminishes 

the estate of the debtor, and thus interferes with the 

equitable use of distribution of any material part of 

the assets of the estate. 

77. Bankruptcy Fraud. Under the Bankruptcy Act, 

the estate of the debtor includes all property in which 

the debtor had an interest on the date of the commencement of the bankruptcy, wherever such property is 

located. The estate includes both tangible and intangible property as well as bank accounts and cash. Even 

when a debtdr is acting as a debtor in possession, until 

the appointment of a trustee, the property in possession 

of the debtor is still the property of the estate. The 

-soAppellate Case: 87-1582 Document: 01019899972 Date Filed: 09/06/1989 Page: 50 
jury with an ample understanding of the issues and the standards 

applicable.'" Big Horn Coal, 852 F.2d at 1271. Here, the court's 

• •• • -~-- 00 -,i_nstruction ··Clearly.,--conveyed the essence of theulaw and provided 

the jury with an understanding of the applicable standard. The 

·court's omission of the words "legal" or "equitable" in restating 

the section in no way prejudiced appellant. 

Finally, Mr. Willmitt challenges his conviction under RICO. 

In light of our preceding discussion concerning his involvement as 

a principal in the clearinghouse operation, we find no merit to 

his contentions. Mr. Willmitt's convictions on all grounds are 

affirmed. 

4. Mr. Anderson 

Appellant Anderson claims that he was merely a "gofer" in the 

clearinghouse operations and that, at most, his duties were ministerial in nature. Consequently, he argues that there was insufficient evidence to support his conviction on the RICO and ITSP 

counts. 

fact that property may have been maintained in bank 

accounts not in the name of the debtors on the bankruptcy petitions, those being Independent Clearinghouse 

and Universal Clearinghouse, does not necessarily mean 

that the property is not that of the debtor. Property 

of the debtor means all non-exempt property, regardless 

of in which name said property is kept or maintained. 

Opening Brief of Appellant Stanley Willmitt, at 75-76. 

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Mr. Anderson was a relative latecomer to the clearinghouse 

operation. By all accounts he was hired because of his banking 

,,,_ .. , background, and .,the ,evidence ·,showed.,,,that . .,he· had,:;substantial, dayto-day involvement with the clearinghouse bank accounts. Not only 

was he familiar with the source of clearinghouse funds (undertaker 

contacts) he was also aware of the fact that speculative ventures 

were being organized and funded via diverted undertaker funds. 44 

Additional evidence of Mr. Anderson's knowledge of, and participation in, the scheme to defraud was his statement to a clearinghouse sales agent to the effect that the bankruptcy petition had 

been filed to hold regulatory agencies at bay, but that the clearinghouses had ample assets to cover undertaker investments. This 

representation of clearinghouse assets was false, and 

Mr. Anderson's knowledge of the financial condition of the operation was well established. 

Particularly relevant to his convictions was evidence that, 

in addition to the clearinghouse accounts, Mr. Anderson controlled 

other accounts 45 in which hundreds of thousands of dollars in 

-undertaker -funds were deposited.· From those accounts Mr. Anderson 

made various disbursements to himself 46 and others, including a 

44 On at least one occasion Mr. Anderson solicited a third party 

to serve as a token director in one of the Cardall-organized oil 

ventures funded with undertaker monies. 

45 Appellant Anderson controlled accounts in the name of Jons 

Investment Company but listing his brother's name, address, and 

social security number instead of his own. 

46 A number of checks from the Anderson-controlled accounts were 

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$10,000 "loan," to cover a third person's mortgage payment which 

was never repaid. 47 Anderson-controlled undertaker funds were 

_.,. ····>,·di verted 0 '.-even :after •,bank1mptcy was :declared, -and those accounts 

were not listed as part of the bankrupt estate. Mr. Anderson's 

own affidavits omitted reference to those accounts. From these 

facts the jury could have found beyond reasonable doubt that 

Mr. Anderson was a full and knowing participant in the scheme to 

defraud, including its ITSP, bankruptcy fraud, and mail fraud 

aspects. 

Finally, Mr. Anderson challenges the RICO conviction. In 

light of our preceding discussion of his extensive involvement in 

the clearinghouse operation, we find no merit to his RICO chal~ 

lenge. Mr. Anderson's convictions are affirmed. 

G. Mailings Required by Law as Basis for Mail Fiaud Conviction 

Messrs. Cardall and Crowther appeal their conviction on a 

mail fraud count, arguing that the mailing which served as the 

basis for the count was a legally compelled mailing; consequently, 

.. ---it. could not- be the basis .. for a . er iminal, · conviction under 18 

issued to, and endorsed by, "John o. Anderson," Farrell Anderson's 

brother. However, Mr. John Anderson's testimony established that 

he never endorsed those checks nor received any funds therefrom. 

The evidence indicated that defendant Farrell Anderson was the 

maker and endorser of those checks. 

47 . This transaction took place in S~ptember 1981, after the 

August payments to undertakers had been missed and after the 

clearinghouse principals (including Anderson) had discussed the 

clearinghouse's imminent bankruptcy. 

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u.s.c. S 1341 unless the government proved the mailings were 

necessary to the execution of the fraudulent scheme. The "legally 

.. ,2-~·-· compelleds·mailingt' .. ,,i-n·' this case. 0 was.,,·a•·notificabion by the· Bureau 

of Land Management that appellants had successfully bid on a BLM 

lease of potential oil properties in Wyoming. 48 

In order to convict a defendant under 18 U.S.C. S 1341 (1982) 

the government must prove two elements: (1) a scheme or artifice 

to defraud or obtain money or property by false pretenses, representations or promises; and (2) use of the United States mails for 

the purpose of executing the scheme. See Pereira v. United 

States, 347 U.S. 1, 8 (1954); United States v. Taylor, 832 F.2d 

1187, 1192 (10th Cir. 1987). The crux of the parties' disagreement on this point of appeal concerns the second element--whether 

the use of the mails was "for·the purpose of executing the 

scheme." The government argues that 

[t]he scheme involved here had many aspects, one of 

which was the diversion of clearinghouse funds for purposes other than that represented to undertakers. 

Count 21 dealt with such a diversion. Undertaker money 

were used for acquisition of oil leases and exploration 

of the leases. The evidence showed that Business Con- .. -;sultants- engaged in the.,acquisition of a number of oil 

leases and that the one involved in Count 21 was merely 

a part of a larger plan •••• Clearly, the development of land leased by the BLM could not have commenced 

until receipt of notice of a successful bid ••.• The 

notification that one bid had succeeded furthered the 

scheme. Since the notification came from Wyoming, 

receipt via the mail was not unexpected. 

Appellee's brief, at 32-33. 

48 

bid. 

Appellants diverted clearinghouse funds to make the lease 

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For their part appellants contend that the object of the 

fraud was to obtain money from undertakers. Once the money came 

• --- 0 •• into the··cl·ear-inghouse:, the·· "·fraud". as to that investor was ·complete. Therefore, notification by the BLM that they had been 

awarded the oil lease did not further the scheme in violation of 

the mail fraud statute. 

In defining the scope of the mail fraud statute, the Supreme 

Court has instructed that "[t]he federal mail fraud statute does 

not purport to reach all frauds, but only those limited instances 

in which the use of the mails is a part of the execution of the 

frarid, leaving all other cases to be dealt with by appropriate 

~tate law." Kann v. United States, 323 U.S. 88, 95 (1944). To 

be part of the execution of the fraud, however, the use of the 

mails n~ed not be an essential element of ~he scheme, as long as 

it is "incident to an essential part of the scheme," Pereira, 347 

U.S. at 8, or "a step in [the] plot." Badders v. United States, 

240 U.S. 391, 394 (1916). The question in this case is whether 

this mailing was sufficiently related to appellants' scheme to 

b~in~·th~i~-conduct within the statute. We conclude it was not. 

In Kann the Supreme Court reversed a mail fraud conviction 

on the basis that the alleged use of the mails had not beeri for 

the purpose of "executing the scheme" in violation of federal 

law. In that case certain corporate officers and directors had 

set up a dummy corporation to which they diverted for their own 

use profits from their employer-corporation. As part of the 

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scheme, certain checks drawn on two separate banks wete sent by 

mail. Those transactions became the basis of the mail fraud 

,,counts; , The,'Court :held ·that since-.. the · checks ·ha'd--been deposited 

and the money irrevocably received by defendant, "[t]he scheme in 

each case had reached fruition." 323 U.S. at 94. Thus, it was 

immaterial that the depositor bank had used the mails to seek 

collection from the drawee bank. The Court concluded that •i[i]t 

[could not] be said that the mailings in question were for the 

purpose of executing the scheme, as the statute requires." Id. 

The Court distinguished cases where the mails "are used prior to, 

and as one step toward, the receipt of the fruits of the fraud," 

id., or when they are used as "a means of concealment so that 

further frauds which are part of the scheme may be perpetrated." 

Id. at 94-95. 

By contrast, in Pereira, the Court upheld the conviction of 

a man accused of defrauding a widow of her property after mairying her. Defendant had convinced his wife to sell securities she· 

owned in California and to advance him the money for a proposed 

-·..:-.venture; - The securities. were .sold -and ,,a check was sent to Texas, 

where it was deposited for collection. After· the check cleared, 

a cashier's check was drawn in favor of the defendant, who thereafter disappeared with the money. The Court held that the mailings in Pereira played a significant part in enabling the defendant to acquire dominion over the funds with which he later 

absconded. Consequently, the conviction under section 1341 was 

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affirmed. 

In ,Parr-. v. United-"States, 363 U.S~ --370. (19,ti.O), the Court 

reversed mail fraud convictions on the basis that the evidence 

could not support a judgment that the mails had been used as part 

of a scheme to defraud. The evidence showed, inter alia, that 

the Parr defendants had misappropriated, converted, and embezzled 

funds and property of the Benavides Independent School District 

in Duval County, Texas, by (1) arranging to have district checks 

issued in the name of fictitious persons and/or family members; 

which checks were then cashed for the benefit of defendants; (2) 

converting checks received by the school district in payment of 

taxes; and (3) obtaining gasoline and other services through the 

unauthorized use of school district credit cards. 

Defendants argued, and the Court agreed, that those crimes 

were "essentially state crimes and could become federal ones, 

under the mail fraud statute, only if the mails were used 'for 

the purpose of executing such a scheme.'" 363 U.S. at 385 (quot-

_:·. ing 18 u.s.c .. § 13.41). The.Court -concluded that legally compelled mailings, which were lawful in and of themselves, could 

not be made the basis for a criminal conviction under§ 1341 simply because certain individuals who were authorized to make the 

tax assessment planned to steal some of the tax money after it 

was received. Moreover, the mailings associated with the 

unauthorized use of district credit cards could also not support 

a conviction under section 1341 because there was an insufficient 

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connection between the mailings and the execution of the scheme 

to defraud. Relying on Kann, the Court held that "'[t]he scheme 

·,,, had: reached·· fruit-ion'·~ when- [defendants]-· ·received .-the goods. and 

services o •• 'irrevocably. It was immaterial to them, or to 

any consummation of the scheme, how the [oil company] ••• would 

collect from the [District].'" Id. at 393 (quoting Kann, 323 

UeS. at 94). 

In Maze, another case involving the fraudulent use of credit 

cards to receive goods and services from motel operators in several states, the Supreme Court again held that the mailings at 

issue were not sufficiently closely related to the scheme to 

defraud and therefore did not fall within the purview of section 

1341. According to the Court, the scheme to defraud reached fruition when defendants checked out of the motels, and the scheme 

did not depend on which victim ultimately bore the loss. Maze, 

414 U.S. at 402. 

The most recent Supreme Court discussion of this issue is 

·-found in· Schmuck v~ United States, U.S. , 109 S. Ct. 1443 

(1989). There, a used-car distributor was charged with multiple 

counts of mail fraud. The scheme to-defraud involved the "rolling back" of automobile .odometers in used cars and resale of 

those cars to retail dealers who, in turn, sold the cars to consumers. The mailing of the title-application forms on behalf of 

the £inal purchasers formed the basis for the various counts. 

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Petitioner contended that tlie title applications were not in 

furtherance of the fraudulent scheme and, thus, did not satisfy 

_ -:-the- mail-ing ·element cof.--the er ime.--- -:In" holding, that· the mailing in 

question fell within the scope of the statute, the Court reemphasized that the mailing must be related to an essential part of 

the scheme, although the relationship need not be direct. Id. at 

1448. The Court stated: "[A]lthough the registration-form mailings may not have contributed directly to the duping of either 

the retail dealers or the customers, they were necessary to the 

passage of title, which in turn was essential to the perpetuation 

of Schmuck's scheme." Id. The Court distinguished Kann, Parr, 

and Maze in that in all three of those cases the fraud had 

reached fruition, and "the longterm success of the fraud did not 

turn on which of the potential victims bore the ultimate loss." 

Id. at 1449. By contrast, in Schmuck the fraud had not reached 

fruition because "a failure in [the] passage of title would have 

jeopardized Schmuck's relationship of trust and goodwill with the 

retail dealers upon whose unwitting cooperation his scheme 

depended." Id. In sum, then, the mailings related to passage of 

- _ _,_·tit-le ··were,-necessary-- in maintaining the .-.ongoi.ngH, viability of the 

fraud. · 

Unlike the situation in Schmuck, the BLM mailing in this 

case was not necessary in maintaining the ongoing viability of 

defendant's fraud, either directly or indirectly. 49 It is clear 

49 While the government contends that "undertaker funds were 

.expended to develop some of the leases," Appellee's Brief, at 33, 

it has not directed us to evidence anywhere in the record that the 

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that undertaker funds were employed to acquire and exploit various oil properties, including the successful BLM lease bid, and 

that those .:funds were .. 0·largely acquired by·-·fraud-_:~· "However, the 

success of defendants' fraudulent scheme in no way depended upon 

the receipt of a BLM bid award. The scheme had "reached fruition" at the point that defendants acquired undertaker funds 

through misrepresentation; we hold that the BLM's use of the mail 

to notify defendants of the bid award was not "for the purpose of 

executing the scheme." Consequently, we reverse defendants' con.:.. 

victions on Count 21. 

In light of our disposition, we find it unnecessary to 

decide whether the BLM bid award constituted a legally compelled 

mailing; and, if so, whether Parr would apply to this case in 

order to defeat the mail fraud conviction. 

H. Argument that Reversal of a RICO Predicate Offense Requires 

Reversal of the RICO Convictions.· 

As a final matter, appellants Cardall and Crowther argue 

".,. ,that· reversal -of one or-~more of- the· predicate offenses requires 

~eversal of their RICO convictions. 50 Because we have reversed 

funds were expended in the development of this BLM lease. Absent 

evidence to show that the bid award was but one step in an ongoing fraud to which undertaker funds continued to be diverted, we 

cannot agree with the government's unsupported claims. 

50 Mr. Willmitt raises a similar argument, but we need not 

address his contention because we have reversed none of his 

convictions. 

Mr. Holman has also challenged the sufficiency of the 

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their convictions on one count of mail fraud, we examine the 

eff~ct of our action on the RICO counts. 

We begin our analysis by examining what the government must 

prove in order to secure a conviction under 18 u.s.c. §§ 1962(c), 

(d) (1982). Section 1962(c) prohibits any person associated with 

an enterprise (affecting interstate commerce) from conducting the 

enterprise's affairs through a pattern of racketeering activity. 

Section l9b2(d) prohibits persons from conspiring to violate any 

of the substantive RICO provisions, including section 1962(c). 

The definition of_ "pattern of racketeering activity" in the 

RICO statute "requires at least two acts of racketeering activity" within a ten~year period. 18 U.S.C. S 1961(5) (1982). 

"Racketeering activity" encompasses a number of crimes identified 

in the statute, including mail fraud, wire fraud, ITSP, and bankruptcy fraud. 18 U.S.C. S 1961(1) (Supp. V 1987). In order to 

prevail under section 1962(c) the government had to prove beyond 

reasonable doubt that defendants conducted the affairs of the 

clear.i-n~house -enterpr-ise,·--which -undisputedly affected interstate 

commerce, through a pattern of behavior which included at least 

two predicate acts of mail fraud, wire fraud, ITSP, or bankruptcy 

fraud within a ten-year period. In addition, under section 

evidence supporting his RICO convictions. Because improperly 

admitted evidence may have colored Mr. Holman's conviction, we 

have· reversed and remanded for a new trial. The jury may have 

.also relied upon the FSI evidence in considering his guilt on the 

RICO counts. Consequently we reverse the RICO convictions and 

remand for a new trial on those counts as well. 

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1962(d), the government had to prove agreement among defendants 

to perform the necessary racketeering acts in furtherance of the 

-affairs of th~~nterprise. 

In addition to the RICO counts, Mr. Cardall was separately 

convicted on twenty-five other counts, and Mr. Crowther was convicted on eighteen other counts. All of these offenses qualify 

as RICO predicate offenses. The fact that we have overturned 

their conviction on one mail fraud count does not eliminate the 

fact that ample independent grounds exist to sustain the RICO 

conviction. 

Appellants' reliance on United States v. Ruggiero, 726 F.2d 

913 (2d Cir.), cert. denied, 469 U.S. 831 (1984), is unwarranted. 

In Ruggiero the Second Circuit reversed a defendant's RICO conspiracy conviction after concluding that one of the crimes 

charged did not qualify as a RICO predicate act. However, the 

Ruggiero court's decision turned on the fact that defendants were 

never separately convicted of the predicate offenses alleged in 

· - ·;.,'·Support of .. the RICO~ count. · The ju·ry' s finding -that defendant had 

violated§ 1962(d) therefore depended on the inference that the 

jury had-found that defendants committed at least two of the 

alleged offenses. Since the jury's verdict may have rested on a 

legally insufficient basis, the RICO conviction had to be 

reversed. 

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The circ~mstances in this case clearly differ from those in 

Ruggiero. In our judgment, this case is more like United States 

v. Weisman, 624· F;;-2d -1118 (,2d:;:CiL-)·, ·cert.--.denied,· 449 U.S. 871 

(1980). In Weisman the appellant challenged his RICO conviction 

claiming that certain conspiracy counts were improperly considered as predicate acts under RICO. Although the court squarely 

rejected that contention, it noted that even if defendant's contentions were correct, .the RICO conviction was neverthel~ss valid 

because the separate substantive crimes charged in the indictment 

were also alleged in the RICO count as predicate acts of racketeering. Weisman, 624 F.2d at 1123-24. As a result, "the 

[Weisman] court was assured by the separate convictions that the 

jury had found defendant guilty of committing at least two of the 

predicate acts" necessary for conviction. Ruggiero, 726 F.2d at 

922 (distinguishing Weisman). Here, likewise, the substantive 

crimes of mail fraud, wire fraud~ ITSP, and bankruptcy fraud were 

specifically alleged as predicate racketeering acts in the RICO 

counts. Thus, the separate convictions justify our conclusion 

that the jury found the necessary predicates to the RICO convic-

. --·· .:,. tions. .Messrs.- ,cardall· and,:Crowther 's RICO· convictions are 

affirmed. 

III. 

Based on the foregoing discussion, the verdict and judgment 

below is AFFIRMED in part, REVERSED in part. We REMAND for a new 

trial on the charges against Mr. Holman. 

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