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Parties Involved:
Donald Austin
Appellant
United States of America
Appellee

Document Text:

F I T_J ~ i) United St.tea-O®rtof Appeal, 

UNITED STATES COURT OF APPEALS Tenth Cireult 

FOR THE TENTH CIRCUIT NOV 12 199Z 

ROBERT L. HOECKER 

Clerk 

UNITED STATES OF AMERICA, 

Plaintiff-Appellee, 

v. 

DONALD AUSTIN and JAMES 

GRANDGEORGE, 

Defendants-Appellants. 

Nos. 92-1046, 92-1047 

(D.C. No. 91-CR-147) 

(D. Colorado) 

ORDER AND JUDGMENT* 

Submitted on the Briefs: 

Before MOORE, TACHA, and BRORBY, Circuit Judges. 

Defendants Donald Austin and James Grandgeorge appeal from 

multicount convictions arising from a complex real estate fraud. 

Both were convicted of mail fraud, wire fraud, and making false 

statements in connection with this scheme. The essence of the 

scheme was to purchase properties from legitimate sellers and then 

*This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

Appellate Case: 92-1046 Document: 010110148680 Date Filed: 11/12/1992 Page: 1 
divide each property into single family residences. Defendants 

recruited numerous people to act as "strawmen buyers" who secured 

mortgages from U.S. Mortgage Company which were, in turn, insured 

by the department of Housing and Urban Development. Despite HUD's 

requirement that each purchase be funded with a minimum 15% down 

payment by the purchaser, no such investment was made by the 

strawman. Closing documents were drawn, however, which falsely 

stated the down payments were made. Defendants paid the strawmen 

$1,000 for each of the transactions in which they participated. 

Although defendants assured the strawmen the defendants would be 

responsible for the payment of the loans on the properties, no 

such payments were made, and the properties went into foreclosure. 

Defendants incorporated Fidelity Escrow Services which they 

used as an "independent" entity in corinection with the sales 

transactions to give the transactions an appearance of legitimacy. 

The use of Fidelity convinced the loan closer on the strawmen 

purchases to believe the down payments were paid by the purchasers 

in cash or certified funds. 

Defendants also arranged for all loans to be handled though 

U.S. Mortgage Company which was able to charge high interest rates 

because the purchasers had no real interest in the property. The 

high interest rates and the prospect of HUD insurance made the 

loans attractive to secondary lenders. The processing of the 

loans granted by U.S. Mortgage to the strawmen was done by three 

people who were paid "kick-backs" by the defendants. 

Although defendants' scheme involved hundreds of properties, 

157 were identified in the indictment. Government agents were 

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unable to trace all of the fruits of these transactions, but a 

small portion was followed into other real property purchased by 

defendants through a series of transactions. 

Based principally upon · the defaulted loans, the district 

court determined the victims of this scheme lost more than 

$20,000,000. Under pre-guideline sentencing laws, the court 

sentenced Mr. Austin to a term of twenty-seven years and Mr. 

Grandgeorge to a term of twenty-three years. Each was given a 

sentence of five years' probation following release. In addition, 

the court imposed restitution in the amount of $12,618,772. This 

appeal followed. 

Defendants raise a number of arguments relating to the denial 

of motions to strike surplusage, the sufficiency of the evidence, 

the propriety of instructions, and sentencing. We conclude there 

is no error and affirm. 

Defendants argue the district court erred by failing to grant 

their motions to strike from the superseding indictment four pages 

of "introductory allegations" which were not supported by 

testimonial evidence. They maintain they were prejudiced because 

the statements contained in this introductory material filled gaps 

in the prosecution's case. We review rulings on motions to strike 

for abuse of discretion. United States v. Collins, 920 F.2d 619, 

631 (10th Cir. 1990), cert. denied, 111 S. Ct. 2022 (1991). 

In Lowther v. United States, 455 F.2d 657 (10th Cir.), cert. 

denied, 409 U.S. 857 (1972), a matter in which a defendant claimed 

error because the district court refused to strike portions of an 

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indictment which had no "testimonial relation" to the case, we 

held: 

The failure to strike certain portions of the Indictment 

was not prejudicial because of the Court's instructions 

that the Indictment was not evidence; that guilt or 

innocence was to be determined on the evidence; that the 

Government was not required to prove each aspect of the 

Indictment; and that a conviction could not be upheld on 

suspicion or conjecture. 

Id. at 666. The record is similar in this case. Here the 

district court instructed the jury that the indictment was not 

evidence; that the evidence consisted of only the sworn testimony, 

the exhibits, and stipulated facts; that the jury was to consider 

only the evidence; and that it would be a violation of the jury's 

"sworn duty" to consider anything but the evidence. 

These instructions served to insure the contents of the 

indictment the defendants contend were surplusage were not 

considered by the jury in reaching its verdict. We conclude, 

therefore, the district court did not abuse its discretion by 

denying defendants' motions to strike. 

Defendants next argue the evidence was insufficient to prove 

their guilt under 18 U.S.C. § 1010 which prohibits, among other 

things, the making of a false statement in connection with a 

credit transaction offered to HUD for insurance. The government's 

case centered upon settlement statements, called HUD-1 forms, 

prepared and submitted in connection with the closing upon real 

property transactions. These settlement statements were used to 

obtain loans from U.S. Mortgage Company and then were offered to 

HUD for insurance. Line 303 of each statement showed the 

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' 

purchaser made a cash down payment, as required by HUD, but no 

such payment was actually made. 

Defendants now contend line 303 is ambiguous, and does not 

actually state cash was transferred by the buyer at the time of 

closing. They argue, therefore, that the evidence of falsity is 

wanting. 

Having reviewed the exhibits, we conclude the argument is 

specious. When the entire HUD-1 form is read in a light most 

favorable to the government, as it must be on appeal, and when 

line 303 is placed in the context of the entire document, the 

settlement statement clearly purports to represent a cash payment 

was made at the time of closing by the buyer. United States v . 

Sasser, 971 F.2d 470, 476 (10th Cir. 1992). Even though the 

defendants suggested to the jury that line 303 is ambiguous, a 

rational jury, viewing the entire document and the inferences that 

could be drawn therefrom, could reject the suggestion of 

ambiguity, reasonably determine the documents contained a false 

statement, see United States v. Levine, 970 F.2d 681, 684 (10th 

Cir.), cert. denied, S. Ct. , No. 92-5614, 1992 WL 227478 

(U . S . Oct. 5, 1992); United States v. Cutler, 948 F.2d 691, 695 

(10th Cir. 1991), and find the defendants guilty of a false 

statement under 18 U.S.C. § 1010. 1 

1 Defendant Austin argues that the government "failed to 

provide any evidence of a HUD rule requiring a cash down-payment." 

Our review of the record disclosed the testimony of three 

witnesses who stated HUD had a rule which required a 15% cash down 

payment, one who stated the rule required a 15-20% down payment 

and a fifth who simply stated HUD required a cash down payment. 

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The defendants argue the evidence was insufficient to sustain 

the charges of mail fraud. Their premise is that the mailings 

upon which the charges were predicated -- mailing of warranty 

deeds, deeds of trust, title insurance policies, and hazard 

insurance policies -- did not further the fraudulent scheme. We 

disagree. This issue is reviewed to determine whether, after 

examining the evidence in a light most favorable to the 

government, any rational trier of fact could have found the 

essential elements of the offense beyond a reasonable doubt. 

United States v. Hollis, 971 F.2d 1441, 1447 (10th Cir. 1992). 

The government's burden in this case was to prove the mails 

were used "for the purpose of executing" the fraudulent scheme, 

Id. (quoting 18 U.S.C. § 1341). This requires a showing that the 

mails were used as a part of the execution of the fraud, but to 

satisfy this requirement, the government need not show the use of 

the mails was "an essential part of the scheme." Id. at 1448 

(quoting Schmuck v. United States, 489 U.S. 705, 709-11 (1989)). 

The warranty deeds which provided the basis of counts 1 

through 11 were used to transfer title to the strawmen buyers. 

The mailing was to county clerks to effect recording and to 

Fidelity Escrow Properties following recording. The deeds were a 

required part of the closing and essential to the culmination of 

the loan transactions. The deeds were also essential to create 

the appearance of legitimacy to HUD. Moreover, without the 

delivery and recording of the deeds, the mortgage company would 

have become suspicious of the validity of the transactions, and 

the cooperation of the title company, essential to the entire 

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• 

scheme, would have been compromised. We conclude, therefore, the 

mailing of the warranty deeds was part of the execution of the 

fraud. 

The mailings of the deeds of trust charged in counts 29 

through 33 were mailings of recorded deeds of trust from county 

clerks to U.S. Mortgage Company. Although U.S. Mortgage Company 

provided the initial funding for each transaction, it obtained the 

money to do so from an outside source, incurring a debt from U.S. 

Mortgage to that source. It was, therefore, essential for U. S . 

Mortgage Company to broker each loan to a secondary lender so that 

U.S. Mortgage could obtain funds to pay its lender. The loan 

purchase agreement through which this secondary loan was obtained 

required a recorded deed of trust for each property. Therefore, 

in addition to adding the appearance of legitimacy to the 

transaction, the mailing of the recorded deeds of trust to U.S. 

Mortgage was a step without which the ultimate scheme could not 

have been accomplished. 

The title insurance policies which provided the basis for 

counts 23 through 28 were mailed from Security Title Guaranty 

Company to a named strawman buyer. U.S. Mortgage Company required 

the creation of a title policy for each of its mortgage loans 

because each of its loan purchase agreements with the secondary 

financier required proof of clear title. Again, the mailing of 

the title insurance policy was a vital step in the ultimate 

scheme. 

The hazard insurance policies and premium checks which were 

the basis of counts 12 through 22 were mailed to either State Farm 

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Insurance Company's or Allstate Insurance Company's local or 

regional offices. U.S. Mortgage Company required hazard insurance 

on each property it financed, and the HUD-1 settlement statement 

provided information for the payment of the premium as part of the 

closing costs. Thus, the mailing of the insurance premiums and 

the policies were incident to the entire scheme. 

Mr. Austin contends the wire transfers of funds from the 

secondary lenders to U.S. Mortgage Company which formed the basis 

of wire fraud charges were not incidental to the scheme to 

defraud. He argues because the jury acquitted codefendant John 

LaGuardia, the president and owner of U.S. Mortgage, Mr. LaGuardia 

was not a "co-schemer" by definition. Thus, defendant maintains, 

the wire transfers made to U.S. Mortgage could not have been an 

incident to fraud. We review this argument under the same 

standard applied to review of the sufficiency of the evidence of 

mail fraud. 

Mr. Austin's position minimizes the significance of the 

secondary loans without which U.S. Mortgage would have been unable 

to fund the loans for the individual transactions. Thus, whether 

Mr. LaGuardia was a "co-schemer" is not relevant to the issue of 

whether the wire transfers themselves were incidental to the 

fraud. 

In this context, the government did not have to prove the 

secondary loans actually made were the only source of funds to 

U.S. Mortgage, as defendant implies. It was sufficient to show 

that the secondary loans provided U.S. Mortgage with the resources 

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• 

necessary to pay its lenders and that payment of those lenders was 

incidental to the overall scheme. 

Mr. Grandgeorge argues instruction 26, 

objection, incorrectly stated the law and misled 

given 

the 

over 

jury. 

his 

He 

contends the instruction permitted the jury to find him guilty of 

the§ 1010 false statement charges without a showing that he 

directly participated in the making of the HUD-1 form which 

provided the basis of the offense. We review the legal 

sufficiency of instructions de novo, United States v. BarreraGonzales, 952 F.2d 1269, 1271 (10th Cir. 1992), but in doing so, 

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

instructions stated the governing law and provided the jury with 

ample understanding of the issues and standards applicable." Id. 

(citing Big Horn Coal Co. v. Commonwealth Edison Co., 852 F.2d 

1259 (10th Cir. 1988)). Reversal of a conviction based on an 

instruction is required only if we have a substantial doubt 

whether the jury was fairly guided in its deliberations. United 

States v. Willis, 890 F.2d 1099, 1105 (10th Cir. 1989). 

The aspect of instruction 26 about which Mr. Grandgeorge 

complains is that which advised the jury: "the government need not 

prove that the defendant personally made or physically wrote the 

statement." Defendant argues this instruction is contrary to the 

language of 18 U.S.C. § 1010 because that section "clearly states 

that one of the elements of making a false statement is that the 

defendant made, passed, published or uttered the statement set 

forth." No authority is cited in support of this argument. 

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The government's theory of prosecution was not predicated 

upon the direct actions of Mr. Grandgeorge, but rather upon his 

actions in aiding and abetting the commission of the offense. 

Thus, the trial court instructed on the elements of aiding and 

abetting, including the fact the offense can be committed by 

knowingly causing a statement to be made. That instruction is 

consistent with the law holding evidence of aiding and abetting 

the making of a false statement is sufficient upon a showing that 

the defendant either made the false statements or caused them to 

be made. Sasser, 971 F.2d at 476. We see no error in the 

instructions and do not believe the jury was misled. 

Defendant Grandgeorge, in a rather prolix and somewhat 

confused argument, seems to contend the district court erred in 

both the length of its sentence to confinement and in the 

calculation of the amount of restitution. Mr. Grandgeorge argues 

the trial court improperly considered an "unfounded" allegation 

that he had hidden assets as a partial basis for the calculation 

of his sentence. In consideration of these arguments, it must be 

clear that because these were pre-guideline offenses, the 

defendants were not sentenced under the United States Sentencing 

Commission Guidelines. Nonetheless, the district court used the 

guidelines as an aid in arriving at appropriate sentences. 

Regardless, prior to the enactment of the Sentencing Reform Act of 

1984 and under pre-guideline sentencing practices, appellate 

courts generally had no authority to review the length of a 

sentence. United States v. Brown, 784 F.2d 1033, 1039 (10th Cir. 

1986); Vasguez v. Cooper, 862 F.2d 250, 254 (10th Cir. 1988). 

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l 

Moreover, sentences were regarded as lawful so long as they were 

within the statutory limits. Brown, 784 F.2d at 1039. Because 

defendants do not contend the court exceeded the statutory limit 

in the sentences it imposed, we decline to consider 

about their length. 

any argument 

To the extent Mr. 

restitution determined by 

provisions of the Victim 

Grandgeorge 

the district 

contests 

court 

Witness Protection 

the amount of 

pursuant to the 

Act (formerly 18 

U.S.C. § 3579), our review of the court's decision to impose 

restitution is confined to an abuse of discretion standard. 

United States v. Richard, 738 F.2d 1120, 1122 (10th Cir. 1984). 

In the process of review, we grant substantial deference to the 

determination of the district judge. Id. We review the district 

court's factual findings relative to the amount of restitution on 

a clearly erroneous standard. United States v. Rogat, 924 F.2d 

983, 984-85 (10th Cir.), cert. denied, 111 S. Ct. 1637 (1991). 

Applying these standards, we see neither an abuse of discretion 

nor a clearly erroneous determination of fact. 

The district court chose to base its imposition of 

restitution upon the amount of the net value of the loss suffered 

by the victims calculated by the total outstanding loan amounts 

plus costs, less any amounts the victims recovered or could 

recover from the sale of collateral. That calculation is sound, 

and we accord it the substantial deference to which it is 

entitled. Moreover, we disagree with the defendant that United 

States v. Cook, 952 F.2d 1262 (10th Cir. 1991), mandates a 

different result. 

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In Cook, we held the district court's power to award 

restitution was confined to the charges of conviction. Id. at 

1265. There is no indication here that the district court's award 

crossed that boundary. 

Finally, Mr. Austin contends the district court erred in 

imposing restitution upon him because there was no proof of his 

ability to pay. Viewing the court's findings upon a clearly 

erroneous standard, we find no error. 

The statute upon which the findings were made provided: 

Any dispute as to the proper amount or type of 

restitution shall be resolved by the court by the 

preponderance of the evidence. . The burden of 

demonstrating the financial resources of the defendant 

and the financial needs of the defendant and such 

defendant's dependents shall be on the defendant. 

18 U. S.C. § 3580(d), repealed by Pub. L. No. 98-473, 98 Stat. 

1987. Thus, the burden fell upon Mr. Austin to prove by a 

preponderance of evidence that he was, as he claimed, destitute 

and unable to pay restitution. He chose to do little to carry 

this .burden except to stand on his attorney's allocution at the 

time of sentencing. Moreover, prior to sentencing, the court 

offered Mr. Austin opportunity to address it directly and refute 

the government's evidence. He declined the invitation. 

Although the government offered exhibits and affidavits 

tending to show the disposition of the proceeds of this scheme, 

Mr. Austin simply stood upon his claim that he had no funds. It 

is then no wonder that the district judge observed, "I also think 

it is very highly likely, e~tremely probable, that you do have 

money and properties out there that you have not revealed to the 

Government, are not interested in revealing." We, therefore, 

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l 

conclude that not only did Mr. Austin fail to carry his burden, 

but he also did not refute the evidence presented by the 

government. Under those circumstances, we cannot say the district 

court's finding was clearly erroneous. 

AFFIRMED. The mandate shall issue forthwith. 

Entered for the Court 

John P. Moore 

Circuit Judge 

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