United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 96-2666

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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

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

___________

MORRIS SHEPPARD ARNOLD, Circuit Judge.

After a five-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 counts 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 fraud and interstate transfer of money obtained by fraud. The

indictment, the jury instructions, and the verdict forms, however, all show

the configuration of charges that we listed above.) The trial court

sentenced Mr. Cain to 51 months in prison and to restitution of

$508,096.61.
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Mr. Cain appeals his convictions, arguing that the evidence was

insufficient, that certain hearsay was improperly admitted as coconspirator

statements, and that the trial court erred in refusing to give a proffered

jury instruction on "honest opinions" and "mere puffing." Mr. Cain also

appeals his sentence, contending that the amount of loss, and thus his

guidelines range and the amount of restitution that he owes, was determined

incorrectly. We grant Mr. Cain's motion to file an untimely reply brief.

We affirm Mr. Cain's conviction but remand for resentencing.

I.

The essence of the charges was that Mr. Cain conspired with others

to induce several people to invest in the company of which he was president

by knowingly misrepresenting to them, in documents and in person, that

their investments were 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 individual

counts of the indictment related to specific correspondence and money

transfers executed during the relevant events. Mr. Cain characterizes his

defense in several different ways, but all of them amount to the basic

assertions that he had no intent to defraud, that any of his own

representations alleged 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 of

president of the company as of mid-July, 1993, as the person "people would

go to" "whenever there was a problem, when things became chaotic," the

person who "was supposed to be basically in charge of the day-to-day

operations," and the person "to look to ... for direction for the company,

for control of the company." According to one witness, Mr. Cain described

himself by saying, "I run this operation ... if ... you need a decision

made, I am the boss." Mr. Cain once directed another witness "to come to

him on any matters concerning 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 the

company" and "controlled ... all distributions of funds."

In July or August, 1993, according to the chief executive officer of

the company, several individuals in the company began to revise the written

materials used in meetings with prospective investors. Among those

documents was a summary sheet (so designated by the parties) stating that

each investment "is" guaranteed "by the purchase and escrow deposit of

government securities" (emphasis supplied). According to the chief

executive officer, Mr. Cain was among those who contributed to the content

of the revised summary sheet and had the entire original summary sheet

before 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 Johnson testified that she attended a prospective investors'

meeting in September, 1993, where Mr. Cain stated to her, with respect to

investment in the company, that "yes ... the principal ... is safe"

(emphasis supplied). An advertising consultant testified that she attended

the same meeting and that the revised summary sheet was distributed at that

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 accountant

testified that Mr. Cain "went through" the prospectus and the revised

summary sheet "in great detail" with Ms. Johnson and "[r]epeatedly"

emphasized the escrow fund. That evening, Ms. Johnson signed releases for

almost $250,000 in insurance and annuity proceeds, to be transferred to the

company.

The chief financial officer of the company testified that after the

meeting with Ms. Johnson, Mr. Cain and several others 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

"establish[] and fund[] ... the guaranty fund." Obviously, then, the

escrow fund still did not exist in September, 1993. Nor "was there
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any surprise expressed" 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 but did not establish the escrow fund, even though the chief

financial officer asked both Mr. Cain and the chief executive officer about

it again. At that time, the chief executive officer instructed the chief

financial officer "to wait"; Mr. Cain made no objection.

Other meetings were held with prospective investors in the fall of

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 summary

sheet. They further testified that in reliance on the revised summary

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 subsequent

meeting where Mr. Cain was also present, Mr. Ross's mother invested $10,000

in the company. Finally, Charles Heiman testified that he and his wife

attended one meeting where Mr. Cain was present. The revised summary sheet

was also distributed at that meeting. Mr. and Mrs. Heiman invested $10,000

in the company on that day.

The chief financial officer testified that after all of these

meetings, he asked Mr. Cain and the chief executive 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 established, and in fact instructed

the chief financial officer "to spend money for other purposes." In spite

of those circumstances, the chief executive officer testified, Mr. Cain

"represented to the investors that there was a fund" and in fact

"emphasized that with ... the ... investors."

We believe that the evidence is more than sufficient to show that

Mr. Cain colluded with others to induce several people to invest in the

company of which he was
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president by misrepresenting to them that their investments would be

completely safe because of the existence of an escrow fund that was used

to buy government bonds, at times when he knew that 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. 640

(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. Bell, 573

F.2d 1040, 1043-44 (8th Cir. 1978), that a conspiracy existed, that

Mr. Cain was a member of that conspiracy, that certain statements were made

by other conspirators during the course of the conspiracy and in

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 admitted

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 exact

statements to which he objects. The gist of his argument seems to be,

however, that any statements made after November, 1993, could not have been

coconspirator statements, since by that time the conspirators (for our

purposes, Mr. Cain, the chief executive officer, and the chief financial

officer) were antagonistic to one another. 

We have carefully 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 believe

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). We

therefore reject Mr. Cain's assertions on this issue.

Mr. Cain also contends that the trial court improperly refused to

give a jury instruction on "honest opinions" and "mere puffing." In the

first place, such an instruction was inapplicable to the misrepresentation

with respect to the present existence of an escrow fund. In the second

place, however, we note that the trial court did give jury instructions

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 view, the jury instructions (including the verdict director,

to which Mr. Cain also objects), taken as a whole, fairly and adequately

contained the applicable law, see, e.g., United States v. Casas, 999 F.2d

1225, 1230 (8th Cir. 1993), cert. denied, 510 U.S. 1078 (1994), and covered

the essence of Mr. Cain's proffered instruction, see, e.g., United States

v. Bettelyoun, 16 F.3d 850, 853 (8th Cir. 1994). We therefore reject

Mr. Cain's contentions on this issue as well.

III.

At the sentencing hearing, the trial court found that the conspiracy,

"as alleged in the indictment," existed from December, 1992, to December,

1993, and that Mr. Cain, "even though he was a late comer[]," was

"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

$298,851.61 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 of

whom pleaded guilty as conspirators), and $154,045.00 for stock sales

between March and December, 1993, made by a commissioned stockbroker.
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On appeal, Mr. Cain argues that the evidence failed to show that he

knew about the $55,200.00 in other stock sales or about the $154,045.00 in

stock sales made by the commissioned stockbroker (who was acting, according

to Mr. Cain, at the direction of the chief executive officer and the chief

financial officer). In the alternative, Mr. Cain asserts that since he did

not join the company until mid-July, 1993, he should not be held

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 commissioned

stockbroker. The chief executive officer testified that he first met

Mr. Cain "sometime in March or April," 1993, and talked with him over "two

or three months" "about ... becoming involved in the company." During that

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, he

discussed with Mr. Cain 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 the

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," presumably

that one did not exist, despite misrepresentations to the contrary in the

original summary sheet, which, as revised in other sections, was used

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 himself

very familiar with the financial status of the company in terms of ... cash

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 cash

balance[s] in the various checking accounts were." Mr. Cain also knew,

after that time, according to the chief financial officer, about the

commissioned stockbroker's sales, because on "one occasion ... there was

a rather heated telephone exchange ... between [the commissioned

stockbroker] and [another company officer], and Mr. Bert Cain was present.

And following that altercation there was discussion between myself and [the

other officer and Mr. Cain] relating to the specific circumstances relating

to [the commissioned stockbroker]."

Under the federal sentencing guidelines, the relevant conduct, and

hence base offense level, 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 acts

and omissions of others in furtherance of the jointly undertaken criminal

activity." 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

conspiracy prior to the defendant's joining the conspiracy, even if the

defendant knows of that conduct." See U.S.S.G. § 1B1.3, application note

2, ¶ 8.

We have no difficulty concluding, from the evidence recounted, that

when Mr. Cain was hired in mid-July, 1993, he knew of the stock sales made

by the chief executive officer, the chief financial officer, and the

commissioned stockbroker. From that knowledge, it is reasonable to

conclude as well that future stock sales by those three people were

foreseeable to Mr. Cain. Nor is it irrational to believe that Mr. Cain

knew in mid-July, 1993, of the original summary sheet's misrepresentation

that an escrow fund existed 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 the

revised summary sheet in future stock sales, whether he or the other three

persons in question made those sales. 
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We do not see any evidence in the record before us, however, that

justifies the conclusion that Mr. Cain joined the conspiracy during the

months between March and July, 1993. Specifically, we cannot extract from

the record before us, except by resort to raw speculation, the conclusion

that Mr. Cain agreed, before he was hired, to the use of either the

original or the revised summary sheet in future stock sales. We reverse,

therefore, the attribution to Mr. Cain of any stock sales before mid-July,

1993. Accordingly, we vacate the sentence in this case and remand for

limited additional proceedings to determine an appropriate guidelines range

for Mr. Cain and the amount of restitution that he owes.

IV.

For the reasons stated, we affirm Mr. Cain's conviction but remand

his case for limited further proceedings consistent with this opinion.

A true copy.

Attest:

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