United States Court of Appeals 

### FOR THE EIGHTH CIRCUIT

___________ No. 96-2666

___________ United States of America, *
* Appellee, * Appeal from the United States
* District Court for the Western
v. * District of Missouri.
* James Hubert Cain, Jr., *
* Appellant. *

___________ Submitted: January 13, 1997
Filed: November 12, 1997

___________ Before LOKEN, BRIGHT, and MORRIS SHEPPARD ARNOLD, Circuit Judges.

___________ MORRIS SHEPPARD ARNOLD, Circuit Judge.

After a f ive-day trial in 1996, a jury convicted James Hubert Cain, Jr., of one count of conspiracy to commit mail fraud, two counts of mail fraud, and four count s of interstate transfer of money obtained by fraud. (For reasons that we cannot discern, the judgment reflects convictions on

one count of conspiracy to commit mail fraud and on three counts each of mail frau d and interstate transfer of money obtained by fraud. Th e indictment, the jury instructions, and the verdict forms, however, all sho w the configuration of charges that we listed above.) The trial cour t sentenc ed Mr. Cain to 51 months in prison and to restitution o f $508,096.61.

## -2- Mr. Cain appeals his convictions, arguing that the evidence wa s insufficient, that certain hearsay was improperly admitted as coconspirato r statements, and that the trial court erred in re fusing to give a proffered jury instruction on "honest opinions" and "mere puffing." Mr. Cain also appea ls his sentence, contending that the amount of loss, and thus hi s guidelines range and the amount of restitution that he owes, was determine d incorrectly. We gran t Mr. Cain's motion to file an untimely reply brief. We affirm Mr. Cain's conviction but remand for resentencing.

I. The ess ence of the charges was that Mr. Cain conspired with other s to induce several people to invest in the company of which he was presiden t by knowingly misrepresenting to them, in documents and in person, tha t their investments wer e guaranteed by an escrow fund that would be used to buy government bonds. In reality, no money was ever placed in escrow for the purchase of bonds, and no bonds were ever bought. The individua l counts of the indictment related to specific correspondence and mone y transfers executed during the relevant events. Mr. Cain characterizes his defense in several different ways, but all of them amount to the basi c assert ions that he had no intent to defraud, that any of his ow n representations alleg ed to be fraudulent were instead merely predictions, projections, and opinions about events to occur in the future, and that he had no knowledge of the falsity of any representations made by others.

Witnesses variously described Mr. Cain, who held the title o f president of the company as of mid-July, 1993, a s the person "people would go to " "whenever there was a problem, when things became chaotic," th e pers on who "was supposed to be basically in charge of the day-to-da y operations," and the person "to look to ... for direction for the company, for control of the company." According to one w itness, Mr. Cain described himself by saying, "I run this operation ... if ... you need a decisio n made, I am the boss." Mr. Cain once directed another witness "to come to him on any matters co ncerning the company ... or problems and things like that." As president,

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Mr. Cain " had complete access to all of the books and records of th e company" and "controlled ... all distributions of funds."
In July or August, 1993, according t o the chief executive officer of the company, several individuals in the company began to revise the writte n materi als used in meetings with prospective investors. Among thos e documents was a summa ry sheet (so designated by the parties) stating that each investment " is " guaranteed "by the purchase and escrow deposit o f gover nment securities" (emphasis supplied). According to the chie f executive officer, Mr. Cain was among those who contributed to the content of th e revised summary sheet and had the entire original summary shee t bef ore him when he did so. According to the chief executive officer , Mr. Cain knew at that time that "there was no guaranty fund in place."

Marion Jo hnson testified that she attended a prospective investors' meeting in September, 1993, where Mr. Cain stated to her, with respect to investmen t in the company, that "yes ... the principal ... is safe " (emphasis supplied). An advertising consultant testified that she attende d the same meeting and that the revised summary sheet was distributed at tha t meeting. The advertising consultant's own notes from that meeting reflect that the "principal is protected by zero coupon bonds ... [and] [i] n effect, the principal is guaranteed" (emphasis supplied). A tax accountan t testifi ed that Mr. Cain "went through" the prospectus and the revise d

summar y sheet "in great detail" with Ms. Johnson and "[r]epeatedly " emphasized the escrow fund. That evening, Ms. J ohnson signed releases for almost $250,000 in insurance and annuity proceeds, to be transferred to th e company. The chief financial officer of the company testified that after the meeting with Ms. Johnson, Mr. Cain and several o thers discussed how to use the money that they would receive from Ms. Johnson. The group decided , first, to pay outstanding bills of approximately $90,000 and, second, to "establ ish[] and fund[] ... the guaranty fund." Obviously, then, th e escrow fund still did not exist in September, 1993. Nor "was there

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any surprise expresse d" by Mr. Cain during those post-meeting discussions "that the account for the guaranty fund had not already been funded, " according to the chief financial officer. The company paid the bills in question b ut did not establish the escrow fund, even though the chie f financial officer asked both Mr. Cain and the chief executive officer abou t it again. At that ti me, the chief executive officer instructed the chief financial officer "to wait"; Mr. Cain made no objection.

Other me etings were held with prospective investors in the fall o f 1993. Donald and Eva Jantz testified that they attended one meeting where Mr. Cain was present and that they were given a copy of the revised summar y sheet

. They further testified that in reliance on the revised summar y sheet, they invested $10,000 in the company. Robert Ross testified that he and his mother attended a meeting at which Mr. Cain was present. The revised summary sheet was distributed on that day as well. At a subsequen t meeting where Mr. Cain was also present, Mr. Ross's mother invested $10,00 0 in the co mpany. Finally, Charles Heiman testified that he and his wif e attended one meeting where Mr. Cain was present. The revised summary shee t
was also distributed at that meeting. Mr. and Mrs. Heiman invested $10,00 0 in the company on that day.

The chief financial officer testified that after all of thes e meetings, he asked Mr. Cain and the chief execut ive officer "almost daily" about "whether or not the guaranty fund should have any money put into it. " Mr. Cain always "pass [ed] the buck back" to the chief executive officer, never directed that the escrow fund be establish ed, and in fact instructed the chief financial officer "to spend money for other purposes." In spite of tho se circumstances, the chief executive officer testified, Mr. Cai n "r epresented to the investors that there was a fund" and in fac t "emphasized that with ... the ... investors."

We believe that the evidence is more than sufficient to show tha t Mr. Cain colluded with others to induce several people to invest in th e company of which he was

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presid ent by misrepresenting to them that their investments would b e completely safe because of the existence of an escrow fund that was used to buy government bonds, at times when he knew t hat no such escrow fund or bonds existed. See , e.g. , Atkinson v. United States , 344 F.2d 97, 99-100 (8th Cir. 1965), cert. denied , 382 U.S. 867 (1965), and Morris v. United States , 7 F.2d 785, 792-93 (8th Cir. 1925), cert. denied , 270 U.S. 64 0 (1926); see also United States v. Kaplan , 554 F.2d 958, 963-64 (9th Cir. 1977) ( per curiam ), cert. denied , 434 U.S. 956 (1977), and United States

v. Hartenfeld , 113 F.2d 359, 361-62 (7th Cir. 1940), cert. denied , 311 U.S

. 647 (1940). We turn, then, to Mr. Cain's other contentions.

II. The trial court made a finding pursuant to United States v. Bel l , 573 F.2d 1040, 1043-44 (8th Cir. 1978), that a conspiracy existed, tha t Mr. Cain was a member of that conspiracy, that certain statements were mad e by other conspirators during the course of the conspiracy and i n furtherance of it, and, therefore, that those statements were admissible under Fed. R. Ev. 801 (d)(2)(E). On appeal, Mr. Cain first argues that no conspiracy existed. We reject that contention in light of our discussion on the sufficiency of the evidence.

In the alternative, Mr. Cain asserts that certain statements ad mitted under Fed. R. Ev. 801(d)(2)(E) were in fact not coconspirator statements within the meaning of the rule. Mr. Cain does not specify the exac t statemen ts to which he objects. The gist of his argument seems to be , however, that any statements made after November, 1993, could not have bee n
cocons pirator statements, since by that time the conspirators (for ou r purposes, Mr. Cain, the chief executive officer, and the chief financial officer) were antagonistic to one another.

We have c arefully read the transcript of the trial. There are very few "statements" within the meaning of the rules dealing with hearsay, see especially Fed. R. Ev. 801(a)(1), 801(c), 802, 805, 806, and we believ e their admission to be

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harmless error, if error at all. See , e.g. , United States v. Smith , 550 F.2d 277, 282 (5th Cir. 1977), cert. denied , 434 U.S. 841 (1977). W e therefore reject Mr. Cain's assertions on this issue.

Mr. C ain also contends that the trial court improperly refused t o give a jury instruction on "honest opinions" and "mere puffing." In the first place, such an instruction was inapplicabl e to the misrepresentation with re spect to the present existence of an escrow fund. In the secon d place, however, we note that the trial court did give jury instruction s requiring proof of "affirmative representations or omissions" and allowing the jury to accept a defense of "good faith," "opinion[s] honestly held," and "honest mistake[s] in judgment."

In our vi ew, the jury instructions (including the verdict director, to which Mr. Cain also objects), taken as a whole, fairly and adequately contained the applica ble law, see , e.g. , United States v. Casas , 999 F.2d 1225, 1230 (8th Cir. 1993), cert. denied , 510 U.S. 1078 (1994), and covere d the essence of Mr. Ca in's proffered instruction, see , e.g. , United States

v. Bettelyoun , 16 F.3d 850, 853 (8th Cir. 1994). We therefore rejec t Mr. Cain's contentions on this issue as well.

III. At the sentencing hearing, the trial court found that the consp iracy, "as alleged in the in dictment," existed from December, 1992, to December, 199 3, and that Mr. Cain, "even though he was a late comer[]," wa s "responsible for all of the money obtained during the conspiracy." That amount, the trial court found, was $508,096.61. That total was the sum of $298,8 51.61 for the stock transactions at issue during the trial , $55,200.00 for other stock sales (not at issue during the trial but made by the chief executive officer and the chief financial officer, both o f whom p leaded guilty as conspirators), and $154,045.00 for stock sale s between March and December, 1993, made by a commissioned stockbroker.

## -7- On appeal , Mr. Cain argues that the evidence failed to show that he knew about the $55,200.00 in other stock sales o r about the $154,045.00 in stock sales made by the commissioned stockbroker (who was acting, accordin g to Mr. Cain, at the direction of the chief execu tive officer and the chief financial officer). In the alternative, Mr. Cain asserts that since he di d

no t join the company until mid-July, 1993, he should not be hel d responsible for any stock sales before that time.
The chief financial officer of the company testified that money began "coming in" from stock sales in early March, 1993. Those sales, he stated , were made by him, the chief executive officer, and the commissione d stockbr oker. The chief executive officer testified that he first me t Mr. Cain "sometime in March or April," 1993, and talked with him over "tw o
or three months" "about ... becoming involved in the company." During tha t time, according to the chief executive officer, Mr. Cain "had total access to the office" and "the company books and records."

Also during that time, the chief executive officer stated, h e discussed with Mr. Ca in in "great detail" the sales that the commissioned stockbroker was making, since the chief executive officer considered the commissioned stockbroker "a major pain in my side." Mr. Cain told th e chief executive officer that "he was going to be [a] hatchet man" and "fix " the situation with the commissioned stockbroker, who was allegedly being paid exorbitant commissions. The chief executive officer also testified that he discussed with Mr. Cain "the issues with the bond fund," presumabl y that one did not exis t, despite misrepresentations to the contrary in the origina l summary sheet, which, as revised in other sections, was use d during meetings with prospective investors.
The company actually hired Mr. Cain in mid-July, 1993. According to the chief financial officer, after Mr. Cain was hired, he "made himsel f very familiar with the financial status of the company in terms of ... cas h flow, ... liabilities, [and] ... sources of income." He did so by going through "the books and records of the company."

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Mr. Cain especially "wanted to know on a daily basis what the cas h balance[s] in the various checking accounts were." Mr. Cain also knew , afte r that time, according to the chief financial officer, about th e commissioned stockbroker's sales, because on "one occasion ... there was

a rath er heated telephone exchange ... between [the commissione d stockbroker] and [another company officer], and Mr. Bert Cain was present. And following that altercation there was discussion between myself and [th e other officer and Mr. Cain] relating to the specific circumstances relatin g to [the commissioned stockbroker]."

Un der the federal sentencing guidelines, the relevant conduct, an d hence base offense le vel, for a participant in a conspiracy is determined by reference to "all acts and omissions committed, aided, abetted, ... or willfully caused by the defendant ... [and] all reasonably foreseeable act s and omissions of othe rs in furtherance of the jointly undertaken criminal activi ty." See U.S.S.G. § 1B1.3(a)(1)(A), § 1B1.3(a)(1)(B). " A defendant's relevant conduct does not include the conduct of members of a

con spiracy prior to the defendant's joining the conspiracy, even if th e defendant knows of th at conduct." See U.S.S.G. § 1B1.3, application note 2, ¶ 8.

We have n o difficulty concluding, from the evidence recounted, that when Mr. Cain was hired in mid-July, 1993, he kn ew of the stock sales made by t he chief executive officer, the chief financial officer, and th e commis sioned stockbroker. From that knowledge, it is reasonable t o conclude as well that future stock sales by those three people wer e foresee able to Mr. Cain. Nor is it irrational to believe that Mr. Cai n knew in mid-July, 199 3, of the original summary sheet's misrepresentation that an escrow fund e xisted and also knew that, in fact, no such fund did exist. From that knowledge, we may infer that as of mid-July, 1993 , Mr. Cain agreed, at least tacitly, to the use of that assertion in th e revised summary sheet in future stock sales, whe ther he or the other three persons in question made those sales.

## -9- We do not see any evidence in the record before us, however, tha t jus tifies the conclusion that Mr. Cain joined the conspiracy during th e months between March and July, 1993. Specifical ly, we cannot extract from the record before us, except by resort to raw speculation, the conclusion that Mr. Ca in agreed, before he was hired, to the use of either th e original or the revis ed summary sheet in future stock sales. We reverse, therefore, the attribution to Mr. Cain of any st ock sales before mid-July, 1993. Accordingly, we vacate the sentence in this case and remand fo r limited additional proceedings to determine an appropriate guidelines rang e for Mr. Cain and the amount of restitution that he owes.

IV. For the reasons stated, we affirm Mr. Cain's conviction but reman d his case for limited further proceedings consistent with this opinion.

A true copy.

Attest:

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