In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 06-3534

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

TERRY L. SPIRK,

Defendant-Appellant.

____________

Appeal from the United States District Court for the

Northern District of Illinois, Western Division.

No. 05 CR 50054—Philip G. Reinhard, Judge.

____________

ARGUED AUGUST 8, 2007—DECIDED SEPTEMBER 26, 2007

____________

Before EASTERBROOK, Chief Judge, and COFFEY and

MANION, Circuit Judges.

EASTERBROOK, Chief Judge. Terry Spirk’s career in

the insurance business culminated in 1991 with his

ownership of Lancaster Annuities Service Corporation.

After LASCO had operated profitably for several years,

Spirk decided to diversify and founded American Senior

Alliance, Inc. (ASA), to provide discounted health and

travel programs for members. Recruiting members proved

more difficult than expected, however, and by 1996 ASA

could not stay in operation without financial assistance

from LASCO, its sister corporation in a holding-company
2 No. 06-3534

structure that Spirk created. (The capstone was American

Benefits Group.)

Spirk decided to raise operating funds for ASA by selling

convertible notes in its profitable sibling LASCO. He

assured investors that the investments were safe because he had guaranteed them and pledged his life insurance policy as additional security. He did not register

these notes with state or federal securities regulators,

however, and in 1998 the Illinois Securities Department

told Spirk that he must either register the notes or stop

selling them. Spirk signed a consent order promising to

comply. But he went on selling the notes without registration and without providing investors with information

that an issuer of securities must supply. When investors

asked about regulatory approval, Spirk told them that

the Illinois Securities Department had authorized the

notes’ sale; he instructed his staff at LASCO to tell

investors the same thing.

By late 1998 LASCO was having trouble making interest payments on the notes and could not redeem notes

presented for repayment of principal. Spirk tried to solve

this problem by selling notes even faster, using the

money from new investors to pay off the old, or at least

to pay interest and keep them happy. Spirk regularly

assured potential investors that LASCO was booming

and their investments safe, though he knew that these

representations were untrue. Late in 2000 the Illinois

Securities Department issued an order banning Spirk from

selling securities whether or not he registered them; this

did not stop him from peddling yet more LASCO notes. But

using new money to pay old investors, with interest, can’t

last unless the number of new investors increases exponentially. In LASCO’s case the end came early in 2001,

when both LASCO and Spirk entered bankruptcy. Investors lost more than $3 million. Unlike most operators of

Ponzi schemes, Spirk did not live the high life while the
No. 06-3534 3

money rolled in; he plowed the cash into LASCO and ASA,

even reducing his salary so that he could pay the staff’s

wages. This is cold comfort to the investors, however,

many of whom lost their retirement savings.

Spirk violated not only state securities laws but also §5

of the Securities Act of 1933, 15 U.S.C. §77e, which

provides that no securities may be sold in or by means of

interstate commerce unless a registration statement is in

effect or some exemption applies. Notes are among the

many kinds of securities covered by this rule. 15 U.S.C.

§77b(a)(1). Although intra-state sales are exempted by

§3(a)(11), 15 U.S.C. §77c(a)(11), the exemption is lost if

even a single security is offered or sold to a person outside

the issuer’s state of incorporation. It seems unlikely that

Spirk never tried to induce anyone domiciled outside of

Illinois to buy the notes. And other exemptions, such as

the non-public offering exemption of §4(2), 15 U.S.C.

§77d(2), are unavailable to persons who promote the

stock widely and fail to comply with the SEC’s Regulation

D. See SEC v. Ralston Purina Co., 346 U.S. 119 (1953).

Had he been indicted for violating §5, Spirk would have

had no option but to plead guilty.

The indictment, when it came in 2005, did not mention

the Securities Act. Instead it contained fifteen counts of

fraud—eleven of mail fraud, 18 U.S.C. §1341, one of wire

fraud, 18 U.S.C. §1343, and three of transporting in

interstate commerce checks obtained by fraud, 18 U.S.C.

§2314. Section 5 of the Securities Act does not require

proof of fraud: sale of unregistered securities is a crime

no matter how candid the issuer. The fraud charges did

not avoid the need to show interstate commerce; all three

fraud statutes, like §5 of the Securities Act, have commerce elements. Nor did charging 15 counts change

the applicable penalty: Whether charged as a securities

crime or as fraud, Spirk’s acts fall within U.S.S.G. §2B1.1,

and the number of counts is rendered irrelevant by
4 No. 06-3534

U.S.S.G. §3D1.2, which treats as one group all convictions

arising from the same sort of conduct committed as part

of a single scheme or plan. (The number of counts does

matter if the guideline range exceeds the statutory maximum for a single count. Spirk’s sentence of 108 months

is less than the maximum for a single conviction under

§2314 but would have required two unregisteredsecurities counts, as each has a maximum penalty of five

years. 15 U.S.C. §77x.)

By charging a vanilla securities offense as a 15-count

fraud offense, the indictment greatly complicated matters.

The prosecutor called to the stand a parade of investors,

who testified about what Spirk told them and how much

they had lost. The prosecutor called Spirk’s employees at

LASCO and had them testify about how funds were

raised and disbursed. Doubtless the prosecutor sought to

engage the jurors’ sympathy for the put-upon investors

and depict Spirk as an inveterate liar—that’s what the

Assistant United States Attorney told us at oral argument—but the price was a long trial where no trial should

have been necessary. And the prosecutor handed Spirk

an opportunity to make a rejoinder that he would not

have had to a securities-law charge. For although Spirk

conceded every fact needed to convict him of violating §5,

he vigorously denied that he had defrauded anyone. Some

of his representations were true, Spirk insisted, and

others were puffery rather than misrepresentations of

fact. What’s more, Spirk maintained, he intended to pay

everyone eventually; that’s why he guaranteed the notes,

putting his own assets behind LASCO’s promises. The

prosecutor responded with proof suggesting that Spirk did

not really plan to repay—that he did not reaffirm the

guarantee following his bankruptcy, that he allowed his

life insurance to lapse, that he has not paid investors

any portion of his post-bankruptcy earnings, and so on.
No. 06-3534 5

Spirk’s main argument on appeal is that his fervent

belief in LASCO’s long-run prospects, and his desire to

repay, entitle him to a judgment of acquittal. The district

judge allowed Spirk to present this argument to the jury

(and allowed the prosecutor to respond at length) but

should have put the whole subject off limits. The to and

fro is irrelevant.

The crime of fraud means intentional falsehoods that

are material (i.e., likely to be significant to a reasonable

person deciding what to do). See, e.g., Neder v. United

States, 527 U.S. 1 (1999). Someone who obtains a loan

from a bank by representing that his income is $1 million

a year, when actually he earns only $100,000 annually,

has committed fraud even though he sincerely believes

that he can repay. The lie exposes the bank to a materially

greater risk of nonpayment than the lender knew it was

accepting, and the creation of this risk by deceit is a

crime even if the borrower plans to repay—indeed, even

if the borrower actually repays. See, e.g., United States v.

Hamilton, No. 06-1249 (7th Cir. Aug 29, 2007); United

States v. Masquelier, 210 F.3d 756, 759 (7th Cir. 2001);

United States v. Dunn, 961 F.2d 648, 651 (7th Cir. 1992).

The law requires people to tell the truth, so that their

trading partners may decide for themselves which investments to make and which goods to buy or sell. People

who want to raise money cannot obtain it by deceit and

then try to persuade a jury that their intentions were good;

a license to lie with a “good heart” would expose people

to far too much risk and deny them the option of making

intelligent and autonomous choices on their own behalf.

Some people willingly accept risk, but they want to be

compensated; by overstating LASCO’s business prospects,

Spirk secured high-risk investments at low-risk rates, so

investors would have been losers even if LASCO had paid

as promised. And many of the investors from whom
6 No. 06-3534

Spirk raised money would not have made high-risk

investments no matter the promised rate of return.

The prosecutor’s decision to pursue fifteen fraud charges

created other complications. Instead of having to show

that Spirk used the means or instrumentalities of interstate commerce once, the prosecutor assumed the burden

of showing fifteen uses. Spirk contends that for one count,

at least, the prosecutor conspicuously failed. Why Spirk

should care is beyond us: 14 convictions are the same as 15

for sentencing purposes. But the $100-per-count-of-conviction special assessment (which as far as we can see has

not been and never will be paid) means that we cannot

invoke the concurrent-sentence doctrine. See Ray v. United

States, 481 U.S. 736 (1987).

Perhaps the Criminal Justice Act, 18 U.S.C. §3006A,

should be amended to provide that the public fisc will not

reimburse more than $100 for an appeal to contest a

concurrent sentence, and then only if the special assessment has been satisfied. Solvent defendants would not

spend more than $100 to save $100, and the sixth amendment does not entitle insolvent defendants to more legal

assistance than a wealthy defendant would buy in the

market. But, as things stand, Spirk has enjoyed (at public

expense) the assistance of one of the nation’s top law

firms to make this pointless argument, which the appellate briefs have debated with vigor. The prosecutor’s

brief runs 49 pages. So we must soldier on.

William V. Schubert testified that he invested $250,000

in LASCO’s notes. The money came via two checks, one for

$200,000 that Schubert hand-delivered to Spirk or

LASCO’s accountant, and the other for $50,000 carried to

LASCO’s offices by an employee of Schubert’s insurance

agent. The notes were handed over in exchange for the

checks. Spirk’s marketing efforts to Schubert were oral.

For taking Schubert’s money Spirk was convicted (in
No. 06-3534 7

Count 8) of mail fraud, but where’s the mailing? The

prosecutor’s theory is that Spirk caused LASCO’s accountant to mail Schubert a letter, dated two days after

LASCO received the second check, describing Schubert’s

rights under the note and attaching a photocopy of its

first page. That the mailing follows the fraud does not

(necessarily) foreclose a conviction for mail fraud. Compare

Schmuck v. United States, 489 U.S. 705 (1989), with

United States v. Maze, 414 U.S. 395 (1974). Still, it was

essential to prove beyond a reasonable doubt that the

letter was mailed rather than hand-delivered, as the

checks and notes had been, and on this the evidence

is equivocal.

The record contains the letter but not its envelope.

LASCO’s files do not show whether it was mailed, sent by

courier, or handed over when Spirk or the accountant

next saw Schubert in person. Schubert testified that he

“received” the letter but did not say how. This ensued:

PROSECUTOR: And how would that have gotten

to you? You didn’t go in to [LASCO’s office in]

Naperville and pick it up, correct?

SCHUBERT: No.

PROSECUTOR: So, how would you have received

it then?

SCHUBERT: Mail, probably.

Schubert was not a hostile witness; why was the prosecutor asking leading questions? But even with leading

questions all he could get was “[m]ail, probably.” Schubert

implied here, and made clear in response to other questions, that by the time of trial he could not remember

receiving the letter. “Mail, probably” was just a guess—and

not necessarily a good guess, given his history of dealing

with Spirk face-to-face. The prosecutor did not establish that any mail, in either direction, passed between
8 No. 06-3534

Schubert and Spirk. A guess is not proof beyond a reasonable doubt.

Spirk’s conviction on Count 8 is reversed. The convictions on the other counts, and the sentences corresponding to those counts, are affirmed.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—9-26-07