The HONORABLE JOSEPH F. BATAILLON, United States Dis trict Judge for * the District of Nebraska, sitting by designation.



## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 97-3286

___________ United States of America, * * Plaintiff - Appellee, * * Appeal from the United States v. * District Court for the * District of Minnesota. David Alan Shoff, * * Defendant - Appellant. *

___________ Submitted: March 10, 1998 Filed: August 12, 1998

___________ Before WOLLMAN and LOKEN, Circuit Judges, and BATAILLON, District Judge. *

___________ LOKEN, Circuit Judge. David Alan Shoff persuaded relatives, fr iends, and even investment professionals that he w ould profitably invest their money in securities such as stock options. Shof f instead used his client s’ money for gambling and other personal expenses. He kept the fraudu lent

scheme alive for a number of years by providing client statements falsel y repor ting substantial investment profits, and by creatively evading inquiries from hi s more skeptical victims. S hoff was eventually indicted and convicted on thirteen counts-2-

of mail fraud and two counts of money laundering. He appeals his conviction and fiftymonth prison sentence. We reverse the money laundering conviction and remand fo r resentencing. I. The Money Laundering Issue.

Shof f argues the government’s evidence was insufficient to convict him o f violating 18 U.S.C. § 1956(a)(1)(B), which defines one type of money laundering:

(a)(1) Whoever, knowing that the property involved in a financia l transaction represents the proceeds of some form of unlawful activity , conducts . . . a financi al transaction which in fact involves the proceeds of specified unlawful activity --
* * * * * (B) knowing that the transaction is designed in whole or in part (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity . . . . Viewing the ev idence in the light most favorable to the verdict, we reverse only if n o reasonable jury could have found each element of this offense beyond a reasonabl e doubt. See United States v. Rounsav all , 115 F.3d 561, 565 (8th Cir.), cert. denied , 118 S. Ct. 256 (1997).

The money laundering counts were based upon two automobile purchases. The gov ernment

presented many witnesses to establish the fraudulent nature of Shoff’ s investment scheme, but its evidence of money laundering was limited to the following. First, in October 1993, Sho ff received a $30,000 check from his cousin’s wife, payable to Shoff personally. He deposited the check into a newly-opened checking account in the name of Shoff Trading Limited. Four days later, he wrote a check on that account to purchase a $17,290 money order payable to a local car dealer. The bank’s recordsA remit ter is a person to whom a negotiable instrument payable to another i s 1 issued. When the remitter delivers the instrument, the payee becomes a holder. See W EBER & S PEIDEL , C OMMERCIAL P APER IN A N UTSHELL 103 (3d ed. 1982). -3- list Shoff as purchaser of the money order. He used the mone y order to purchase a 1989 Mercedes. Second, in January 1996, a client invested $150,000 with Sh off by wiring the money, at Shoff’s direction, into a Shoff Trading checking account. A few days later, Shoff wrote a check on that account to purchase a $28,400 cashier’s check payable to
a local car dealer. The cashier’s check listed Shoff as the remitter. He used th e 1 cashier’s check to purchase a 1992 Mercedes. Shoff concedes the car purchases were “financial transactio ns” involving proceeds of his unlawful fraud. The issue is whether the se transactions were “designed in whole or in part . . . to conceal or disguise th e nature, the location, the source, the ownership, or the control of [those] proceeds.” The concealment portion of the money laundering statute is broadly worded, and
conce alment

-- that is, not telling the victim what is really going on -- is an essentia l featur e of all schemes to defraud. The government’s position on appeal is, in essence, that all sch emes to defraud people of money therefore include an element of mone y l a undering. We reject that notion. Money laundering is a separate crime with its own statutory elements. For sentencing purposes, the base offense level for mone y laundering is much higher than the base offense level for fraud. Compare U. S.S.G. § 2S1.1(a), with § 2F 1.1(a). To warrant imposing the enhanced sentence for money laundering, th e gov ernment

must prove the defendant conducted financial transactions that wer e themselves designed to conceal some relevant aspect of his use of the fraud proceeds. Cf. United St ates v. Hildebrand , 1998 WL 420504, at *4-5 (8th Cir. 1998). As prio r cases illustrate, this is often a difficult line to draw. We begin by comparing this case with the financi al transactions involved in cases that have upheld money laundering convictions. In United States v. Norman ,-4-

1998 WL 191147, at *2-3 (8th C ir. 1998), the defendant transferred fraud proceeds out of an account of which the victims were aware and had some control, into other accounts controlled by the defendant from which he secretly converted the proceeds to hi s personal use. C iting Norman , the government argues the fraud victims would not have consented to Shoff using their money to buy cars; therefore, any payment mechanis m other than endorsing their checks directly to the car d ealers was designed to conceal this use of the proceeds from the victims. Of course, endorsing victim checks to car dealers -- an impractical hypothetical because few d ealers would accept payment in this fashion

-- affirm atively discloses how the proceeds have been spent. A money launderin g violation requires proof of concealment, not the absence of full disc losure. Here, Shoff’s victims did not care where he initially deposited their funds. They transferred the money to him personal ly or at his direction, relying on his representation that he would invest, not on th eir ability to supervise or control his use of the proceeds. Shoff certainl y concealedthe fact that he was converting all their money to his personal use. But the open manner in which he u sed some of the proceeds to purchase two cars was no more desi gnedto help conceal this fraud than the fact that he spent most of the rest of th e proceeds at casinos to finance his fondness for gambling.

Another common type of money laundering involves the commingling of illegal proceeds with the identity or the funds of a legitimate and usually preexisting business. See, e.g. , United State s v. Nattier , 127 F.3d 655, 659 (8th Cir. 1997), cert. denied , 118 S. Ct. 1398 (1998); United States v. Termini , 992 F.2d 879, 881 (8th Cir. 1993); United States v. Posters ‘N’ Things, Ltd. , 969 F.2d 652, 661 (8th Cir. 1992), aff’d , 511 U.S

. 513 (1994). Such commingling effectively conceals the nature, source, ownership , and/or control of the unlawful proceeds. Here, the government relies o n Shoff’s decision to deposit investor moneys into a Shoff Trading b usiness account, rather than a personal account. But there was no proof that he thereby commingled fraud proceeds with moneys used for legitimate investment or trading activities. The Shoff Trading account was never part of a legitimate business; it was pure fraud.-5-

Still ano ther common type of money laundering is the transfer of unlawfu l proceeds into an account in another person’s name, as in N attier , 127 F.3d at 659, or the
use of such proceeds to buy assets in another person’s name, as in United States v

. Garcia -Emanuel , 14 F.3d 1469, 1478 (10th Cir. 1994), and United States v. Lee , 88 6 F.2d 998, 1003 (8th Cir. 1989) , cert. denied , 493 U.S. 1032 (1990). Here, on the other hand, S hoff personally purchased the cars, both were titled in his name, and he drov e them conspicuously. The government argues Shof f’s use of a money order and certified check concealed from t

he car dealers “that he was using something other than personal funds to purch ase the two Mercedes.” Of course, it is not unusual for a car dealer t o require payment in guaranteed funds before delivering an expensive vehicle. See United States v. Lo vett , 964 F.2d 1029, 1036 (10th Cir.), cert. denied , 506 U.S. 857 (1992)

. Therefo re, an intent to conceal from the dealers cannot be inferred from Shoff’s use of funds under his exclusive control and easily traceab le to the Shoff Trading account. See United States v. Rockelman , 49 F.3d 418, 422 (8th Cir. 1995). From this review, it is apparent the gover nment offered no particularized proof of the “designed to conceal” element of a § 1956(a)(1)(B) violation. There was proof Shoff spent his clients’ money on cars, but the money laundering statu te may not be so broadly construed that it becomes a “money spending statute.” See United States v. Herron , 97 F.3d 234, 237 ( 8th Cir. 1996), cert. denied , 117 S. Ct. 998 (1997), and Rockelman , 49 F.3d at 422, citing United States v. Sanders , 929 F.2d 1466, 1472 (10th Cir.), cert

. denied , 502 U.S. 846 (1991). The government distinguishes these cases because they involved the use of illegal drug proceeds, not schemes to defraud. Drug users do no t care how drug dealers spend unlawful proceeds, the government expla ins, whereas Shoff held his clients’ funds in trust for their benefit. But that theo ry simply equates fraudulent
conve rsion with money laundering. Shoff’s clients transferred money to him withou t rest riction, relying on his promises to invest and the phony account statements h e provided. That he fraudulentl y spent their money to buy groceries, or to buy cars, or to gamble at casinos was not the additional crime of money laundering absent proof tha t the spending transactions were themselves designed to-6-

conceal some relevant aspect of his use of the fraud proceeds. As the government failed to pr esent such additional proof, Shoff’s conviction of money laundering must b e reversed. II. A Fraud Sentencing Issue.

Sh off argues the district court erred in including a $99,984 wire deposit into a Shoff Trad ings bank account in calculating the amount of fraud loss, see U.S.S.G

. § 2F1.1 (b)(1), and in fashioning a restitution order. Because we have reversed hi s mone ylaundering conviction, this issue will affect Shoff’s base offense level a t resentencing, as well as the amount of restitution. The deposit in question was wired from a Shanghai bank by Thirsk, Incorporated. The presentence investigation report found that Thirsk was an offshore investor who was defrauded, even though no government witness identified Thirsk at trial. Shoff timely objected to this PSR finding. The government introduced no additional evidenc e concernin g Thirsk at the sentencing hearing. The district court overruled Shoff’ s objection because “relevant conduct for purposes of sentencing can mean things other thanoccurred at trial. And for those reasons the findings as made in the [PSR] ar e accepted and adopted.” This was error because a PSR to which the defendant ha s objected may not be evide nce at sentencing. See, e.g. , United States v. Burke , 80 F.3d 314, 316- 17 (8th Cir. 1996). On appeal, the government argues the trial evidence was sufficientto support the district court’s finding. But the district court did not base it s finding on the trial evidence. Therefore, this issue must be addressed again a t resent encing, with the government bearing its customary burden of proof by a pre ponderance of the evidence. We leave to the district court’s discretion whether t o permit additional evidence on the issue at resentencing.-7- III. Other Issues.

Shoff moved for leave to file a pro se suppleme ntal brief, arguing that his counsel overlooked reversible errors in the trial transcript and those issues will be procedurally barred unle ss he is permitted to raise them. Because issues of trial error are usuall y barred unless raised on direct appeal, we granted the motion and nowconsider the issues raised in Shoff’s pro se brief. Shoff first argues his conviction was taint ed by prosecutor misconduct in labeling him a “con man” in opening statement, and in asserting in closing argument that h e “exhibits all the signs of a liar” and “is still making false representations to [the jury ] today.” Because Shoff did not raise this issue at trial, we review only for plain error

. The prosecutor’s opening was limited to descr ibing what the government would attempt to prove. The use of colorful pejoratives is not improper. See United States v. Rude , 88 F.3d 1538, 15 47-48 (9th Cir. 1996), cert. denied , 117 S. Ct. 690 (1997). Likewise, the prosecutor’s closing was care fully limited to arguing what the evidence had proved, rather than improperly expressingthe prosecutor’s personal opinion. See United States v. French , 88 F.3d 686, 688 (8th Cir. 1996). There was no misconduct.

Shoff next argues his Fifth Amendment privilege against self-incrimination wa s viol ated when the prosecutor elicited testimony from a United States Postal Inspecto r that during a noncustodial, prearrest interview Shoff had declined to identify Thirsk , Incorporated. The district court sustained Shoff’ s objection to that testimony, cautioned the jury to disregard it, but refused to instruct the jury that the prosecutor acte d improperly in eliciting it. This was not an abuse of the court’s substa ntial discretion. Cf. United States v. Davenport , 929 F.2d 1169, 1174-75 (7th Cir. 1991) (“[t]he privileg e again stself-incrimination is not a privilege to attempt to gain an advantage in th e cr iminalprocess, whether in its investigatory or its trial stage, by selective disclosur e followed by a clamming up”), cert. denied , 502 U.S. 1031 (1992).-8-

Sho ff next argues the prosecutor in closing argument improperly commented on Shoff’s f ailure to call his former partner as a witness and improperly suggested th e government could have called many more witnesses. We disagre e. The comments were
a f air response to Shoff’s own reference to these uncalled witnesses in his openin g stateme nt and closing argument. Moreover, in response to Shoff’s objections, th e district cou rt instructed that the defense has no burden to produce witnesses and th e burden of proof “rests firmly with the government.” See Uni ted States v. Neumann , 887 F.2d 880, 886-87 (8th Cir. 1989), cert. denied , 495 U.S. 949 (1990). Finally, we reject Shoff’s contention that the district court abused its discretio n in conclu ding that a brief conversation between two witnesses was not a prejudicia l violation of the court’s witness sequestration order. The judgment of the district court is reversed insofar as it convi cts Shoff of money laundering, and the case is remanded for resentencing.
A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.