PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

UNITED STATES OF AMERICA, 

Plaintiff-Appellee,

v.  No. 09-7442

RONALD L. HALSTEAD,

Defendant-Appellant. 

Appeal from the United States District Court

for the Northern District of West Virginia, at Clarksburg.

Irene M. Keeley, District Judge.

(1:01-cr-00045-IMK-JSK-4; 1:08-cv-00135-IMK-JSK)

Argued: December 7, 2010

Decided: March 7, 2011

Before NIEMEYER, KING, and DUNCAN, Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the

opinion, in which Judge King and Judge Duncan joined.
COUNSEL

ARGUED: Richard Aaron Jaffe, Houston, Texas, for Appellant. Daniel Steven Goodman, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON

BRIEF: Lanny A. Breuer, Assistant Attorney General, Greg

D. Andres, Acting Deputy Assistant Attorney General, Patrick

M. Donley, Fraud Section, Criminal Division, UNITED

STATES DEPARTMENT OF JUSTICE, Washington, D.C.;

Betsy Jividen, Acting United States Attorney, Wheeling, West

Virginia, for Appellee.

OPINION

NIEMEYER, Circuit Judge:

Ronald Halstead was convicted of both healthcare fraud

under 18 U.S.C. § 1347 and conspiracy to launder monetary

instruments under 18 U.S.C. § 1956 and sentenced to 151

months’ imprisonment. After unsuccessful appeals, he filed

this petition for collateral review under 28 U.S.C. § 2255 to

vacate his money laundering conviction on the ground that the

evidence was insufficient to support convictions of two distinct crimes. He claims that the transactions supporting his

money laundering conviction were the same transactions supporting his healthcare fraud conviction, leading to a "merger

problem." He argues that the only way the government could

have avoided "merger" of the two crimes would have been to

prove that he laundered the "net profits," not the "gross

receipts," of the healthcare fraud, which the government did

not do. In making this claim, Halstead relies on the Supreme

Court’s decision in United States v. Santos, 553 U.S. 507

(2008), which was decided after his convictions and which, he

argues, should be applied retroactively on collateral review.

In Santos, the Court held that, in order to avoid a merger

of the crimes of money laundering and operating an illegal

2 UNITED STATES v. HALSTEAD
gambling business, the term "proceeds" in the money laundering statute must be construed to mean "net profits," not "gross

receipts," of the illegal gambling business.

While we agree with Halstead that Santos does apply retroactively on collateral review, we conclude that it does not

warrant relief in this case where the laundering of proceeds

from the healthcare fraud involved transactions distinct from

and subsequent to the transactions involved in the healthcare

fraud itself. We read Santos to require a restricted interpretation of "proceeds" only when a broader interpretation would

risk a "merger" of a money laundering crime and a crime for

operating an illegal gambling business. In this case, however,

regardless of whether "proceeds" is defined as "gross

receipts" or "net profits," a merger problem does not occur,

because Halstead’s commission of healthcare fraud was complete before he committed money laundering. Accordingly,

we affirm.

I

Ronald Halstead, a trained chiropractor, had been a consultant to chiropractic and medical practices since 1982 through

his corporation, Management One Systems, Inc., doing business as Practice Systems. In late 1993, Halstead advised Robert Burns, a chiropractor in Morgantown, West Virginia, how

Burns could increase his income by performing more reimbursable tests per patient visit by linking his chiropractic practice with a medical practice and marketing the joint practice

in a specified manner. Under Halstead’s direction, Burns

formed a parent company, West Virginia Healthcare Management, to own two subsidiary corporations, one a chiropractic

clinic known as Mountaineer Chiropractic Center and the

other a medical clinic known as Priority One Medical Associates. He had Burns retain Dr. Amando Medina as a doctor

to staff the Priority One Medical Association, naming him

also as the nominal owner of the corporation. Dr. Medina,

however, performed scant medical work, as he was retained

UNITED STATES v. HALSTEAD 3
mostly to prescribe chiropractic services so that those services

would be covered by the patients’ healthcare benefits.

Halstead also hired a marketing specialist to generate

increased traffic through the combined medical and chiropractic clinics. The marketer implemented a program where the

clinic held marketing dinners, which were free for anyone

who filled out a form listing an employer who provided health

insurance benefits. At these dinners, the clinic would give out

certificates for free examinations and x-rays.

To capitalize on the patient traffic thus generated, Halstead

implemented a procedure for the clinic’s chiropractors to follow when seeing new patients, providing an exact script for

this purpose. The chiropractors were instructed to apply pressure to joints and ask the patient if he or she "noticed any pain

or discomfort." After applying pressure, the chiropractor was

supposed to tell the patient, "I think you’ll agree with me that

we have a serious problem here . . . ." Under the script, the

chiropractor was then instructed to take two x-rays of the

patient and to show the x-rays to the patient, informing the

patient that, "[t]hese vertebrae are severely twisted out of

position." Finally, the chiropractor was directed to tell the

patient that 20 to 30 visits were required to correct the problem. If the patient hesitated, the chiropractor was instructed to

say, verbatim: "As you remember those vertebrae are severely

twisted out of position. I hate to see you leave here today not

making a commitment to getting the treatment you know you

need, and I know you need." To make sure that the examination script was being followed, Halstead taped some of the

chiropractic exams, listened to them, and reviewed them with

the chiropractors to point out discrepancies between the script

and the actual examination.

To take advantage of the patients’ healthcare benefits,

which often required that a medical doctor order and supervise specified chiropractic services, Halstead and Burns

adopted two courses of action. First, they had the medical cor4 UNITED STATES v. HALSTEAD
poration, Priority One, do all the billing of insurance companies and other healthcare providers, regardless of whether the

patients’ visits were chiropractic or medical in nature. Second,

Halstead advised Burns to require Dr. Medina to focus on

authorizing chiropractic treatments. While Dr. Medina thus

became these patients’ physician, it was in name only, as he

actually acted mostly as a rubber stamp for the chiropractors’

requests. Often, Dr. Medina would go through stacks of treatment sheets, signing each one without a clear idea of what

treatments he was approving or whether they were necessary.

The clinic also employed a second doctor, Dr. Rebecca

Price, with the hope that she too would sign off on these chiropractic treatment forms. Dr. Price, however, refused to participate in this fashion, and when the practice forged her

signature on documents submitted to insurance companies

and other healthcare providers, she resigned.

Halstead and Burns also orchestrated the cash flow thus

obtained from the insurance companies and healthcare providers. All billings to them were conducted by Priority One, the

medical subsidiary, and the payments received were deposited

into Priority One’s checking account. Priority One then transferred these funds to the management company, West Virginia Healthcare Management, which had purportedly been

created to provide management services for Priority One.

West Virginia Healthcare Management then transferred the

money to Halstead and Burns’ checking accounts. With

respect to Halstead, the money was paid to the checking

account of his company, Practice Systems.

During the course of the conspiracy, Priority One billed

insurance companies and healthcare providers approximately

$5.78 million and received something less than that amount.

While some of the amounts received were attributable to

legitimate chiropractic services, the Probation Officer in this

case determined, for purposes of sentencing, that approxiUNITED STATES v. HALSTEAD 5
mately $1.287 million of the amounts received were from

fraudulent billing.

Halstead and his co-conspirators were indicted in September 2001, and Halstead was subsequently convicted of one

count of conspiracy to commit mail fraud and healthcare

fraud, in violation of 18 U.S.C. § 371; 14 counts of healthcare

fraud, in violation of 18 U.S.C. § 1347; and one count of conspiracy to launder monetary instruments, in violation of 18

U.S.C. § 1956(h). The district court sentenced him to 121

months’ imprisonment, entering judgment on July 1, 2004.

On appeal, Halstead’s convictions were affirmed, but his

sentence was vacated and the case remanded for resentencing

in light of United States v. Booker, 543 U.S. 220 (2005).

United States v. Filcheck, 165 Fed. Appx. 284 (4th Cir. 2006).

On remand, the district court, applying the advisory Guidelines range, sentenced Halstead to 151 months’ imprisonment,

and we affirmed. See United States v. Halstead, 261 Fed.

Appx. 472 (4th Cir. 2008).

Following Halstead’s convictions, the Supreme Court

handed down its decision in United States v. Santos, 553 U.S.

507 (2008), holding that, in order to avoid a "merger problem," the term "proceeds" in the money laundering statute

must be construed to mean "net profits" when the proceeds

are derived from an illegal gambling business. Based on that

decision, Halstead filed this motion under 28 U.S.C. § 2255,

contending that his conviction for money laundering should

be dismissed because a merger problem existed and the evidence at trial was insufficient to prove that the "proceeds"

from his healthcare fraud were "net profits," rather than "gross

receipts."

The district court denied Halstead’s motion. It assumed,

without deciding, that Santos applied retroactively but concluded that Santos did not apply to Halstead, based on our

unpublished decision in United States v. Howard, 309 Fed.

6 UNITED STATES v. HALSTEAD
Appx. 760 (4th Cir.), cert. denied, 130 S. Ct. 62 (2009). In

Howard, we concluded that the term "proceeds" in the money

laundering statutes generally means "receipts," not "profits,"

and that Santos applied only to money laundering cases in

which the predicate offense was illegal gambling.

The district court granted Halstead’s application for a certificate of appealability, noting that courts are split on the correct reading of Santos, and, by order dated May 4, 2010, we

expanded the certificate of appealability to address "whether

Santos applies retroactively to cases on collateral review,"

noting that the resolution of that question could preempt the

issue for which the district court granted a certificate of

appealability.

II

When Santos was decided, Halstead’s convictions were

final. Nonetheless, Halstead contends that Santos should be

retroactively applied on collateral review to his money laundering conviction under 18 U.S.C. § 1956 because it effected

a substantial change in the law, narrowing the reach of the

money laundering statute. In Santos, the defendants were convicted of both conducting an illegal gambling business and of

laundering the proceeds of that business. To avoid a merger

of the two crimes, the Supreme Court held that "proceeds" in

the money laundering statute meant the "net profits," rather

than the "gross receipts," of the illegal gambling business. In

doing so, the Court narrowed the scope of the money laundering statute.

The government concedes that Santos applies retroactively

to cases on collateral review, and we agree.

When the Supreme Court issues new rulings in criminal

cases, substantive rules generally apply retroactively, while

procedural rules do not. Schriro v. Summerlin, 542 U.S. 348,

351 (2004). "A rule is substantive rather than procedural if it

UNITED STATES v. HALSTEAD 7
alters the range of conduct or the class of persons that the law

punishes," id. at 353, and "rules" include "decisions that narrow the scope of a criminal statute by interpreting its terms,"

id. at 351.

In Santos, the Court did narrow the scope of the money

laundering statute by interpreting the term "proceeds" in

§ 1956(a)(1) to mean the "net profits" of an illegal gambling

business rather than its "gross receipts." Accordingly, we hold

that Santos applies retroactively on collateral review.

III

Applying Santos, Halstead contends that there is a potential

merger of the money laundering crime and the predicate

crime in this case, healthcare fraud, in the sense that the same

transactions could support convictions for both crimes. He

thus claims that Santos requires that the money laundering

statute be construed narrowly so as to apply only to the "net

profits" of the predicate crime and thereby avoid the potential

merger of the two crimes. Halstead asserts that because the

government did not prosecute the money laundering statute in

his case narrowly, as required by Santos, his money laundering crime merged with the healthcare crime, requiring that the

money laundering conviction be vacated. As he argues,

"[T]he same basic facts . . . in the health fraud part of the

indictment were repeated as the facts . . . of the money laundering part of the indictment. . . . The indictment simply

unbundled the [criminal conduct in this case] into legally separate components . . . . This overlap gives rise to the merger

problem which was discussed [in Santos]." He asserts that if

his money laundering count is not dismissed, he will be punished unfairly with a longer sentence than that which would

otherwise be imposed for violating only the healthcare fraud

statute.

The government contends that Halstead reads Santos too

broadly. It argues that Santos applies only to money launder8 UNITED STATES v. HALSTEAD
ing cases in which the predicate crime is illegal gambling.

The government urges that we adhere to our earlier holdings

that the term "proceeds" in the money laundering statute

refers to "gross receipts," rather than simply "profits." See,

e.g., United States v. Singh, 518 F.3d 236, 247-48 (4th Cir.

2008). It argues that Santos created an exception to this general rule, and thus, only in cases where the predicate offense

is illegal gambling should we read "proceeds" to mean "net

profits." While the government acknowledges that it could

prosecute a defendant for both illegal gambling and money

laundering only if it could prove that the defendant laundered

"net profits" of the illegal gambling business, not its "gross

receipts," it asserts that it can prosecute a defendant for laundering "gross receipts" from other underlying illegal activities.

Because Santos was decided by a 4-1-4 vote, its holding

has been the subject of much debate. This court has not, however, addressed this question in a published opinion.

In Santos, the government proved that defendants Santos,

Diaz, and others operated an illegal gambling business and

that Santos’ runners "gathered bets from gamblers, kept a portion of the bets (between 15% and 25%) as their commissions,

and delivered the rest to Santos’s collectors. Collectors, one

of whom was respondent Diaz, then delivered the money to

Santos, who used some of it to pay the salaries of collectors

(including Diaz) and to pay the winners." Santos, 553 U.S. at

509. On these facts, the government obtained convictions of

Santos and Diaz for running an illegal gambling business, as

well as for money laundering.

A four-Justice plurality comprised of Justices Scalia, Souter, Thomas, and Ginsburg announced the judgment of the

Court and joined the plurality opinion written by Justice

Scalia. Recognizing that the money laundering statute at its

core prohibits financial transactions involving "the proceeds

of specified unlawful activity . . . with the intent to promote

UNITED STATES v. HALSTEAD 9
the carrying on of specified unlawful activity," 18 U.S.C.

§ 1956(a)(1) (emphasis added), the plurality observed that, if

"proceeds" meant "gross receipts," "nearly every violation of

the illegal-lottery statute would also be a violation of the

money-laundering statute, because paying a winning bettor is

a transaction involving receipts that the defendant intends to

promote the carrying on of the lottery. Since few lotteries, if

any, will not pay their winners, the statute criminalizing illegal lotteries, 18 U.S.C. § 1955, would ‘merge’ with the

money-laundering statute." Santos, 553 U.S. at 515-16 (plurality opinion). This scenario, the plurality wrote, gave rise to

a "merger problem." Id. at 516. Justice Stevens, writing separately and concurring in the judgment only, agreed. See id. at

524 (Stevens, J., concurring). Thus, because the defendants

were tried for laundering "gross receipts" of the illegal gambling business, a five-justice majority held that their money

laundering convictions had to be vacated.

Although the plurality and Justice Stevens reached the

same result, they were not in complete accord as to the reasons for reaching it. For its part, the plurality found that the

term "proceeds" in 18 U.S.C. § 1956(a)(1) was ambiguous

because proceeds can mean either "gross receipts" or "net

profits," and neither the statute nor statutory context gave an

indication as to which meaning was more appropriate. 553

U.S. at 513 (plurality opinion). The plurality thus invoked the

rule of lenity and concluded that "proceeds" should always be

defined as "profits" because that definition is "always more

defendant-friendly." Id. at 514.

Justice Stevens, on the other hand, began by evaluating the

money laundering statute’s legislative history for clues as to

the proper interpretation of "proceeds." Santos, 553 U.S. at

525-26 (Stevens, J., concurring). Since this analysis yielded

no definitive answer, Justice Stevens determined that Congress could have defined the term "proceeds" differently when

applied to different predicate offenses. As he stated, "[T]his

Court need not pick a single definition of ‘proceeds’ applica10 UNITED STATES v. HALSTEAD
ble to every unlawful activity, no matter how incongruous

some applications may be." Id. at 525. He thus focused on the

definition of "proceeds" when the unlawful activity was illegal gambling and found that "[t]he consequences of applying

a ‘gross receipts’ definition of ‘proceeds’ to the gambling

operation conducted by respondents are so perverse that I cannot believe they were contemplated by Congress." Id. at 526.

What he found to be perverse was essentially the effect of the

"merger problem" coupled with differential sentences for the

two crimes. As he explained:

Allowing the Government to treat the mere payment

of the expense of operating an illegal gambling business as a separate offense is in practical effect tantamount to double jeopardy, which is particularly

unfair in this case because the penalties for money

laundering are substantially more severe than those

for the underlying offense of operating a gambling

business. A money laundering conviction increases

the statutory maximum from 5 to 20 years, and the

Sentencing Commission has prescribed different

Guidelines ranges for the two crimes.

Id. at 527. Resting on that rationale, Justice Stevens

announced his holding, allowing him to join in the judgment:

The revenue generated by a gambling business that

is used to pay the essential expenses of operating

that business is not "proceeds" within the meaning of

the money laundering statute.

Id. at 528.

In rejecting the plurality’s rationale, Justice Stevens

objected to the plurality’s application of the rule of lenity to

restrict for all cases the definition of the ambiguous term

"proceeds." Rather than arriving at a universal interpretation

of the term "proceeds" through the rule of lenity, Justice SteUNITED STATES v. HALSTEAD 11
vens rested his holding, as he stated, on "my conviction that

Congress could not have intended the perverse result that the

dissent’s rule would produce if its definition of ‘proceeds’

were applied to the operation of an unlicensed gambling business." Santos, 553 U.S. at 528 n.7. To the extent that Justice

Stevens’ holding sought to avoid the perversity of results in

the circumstance where the term "proceeds" was not defined

narrowly, he acknowledged that the rule of lenity might

"weigh in [that] determination." Id. at 528.

The scope of the Court’s holding in Santos, in which no

opinion attracted a majority, has led to a division among the

courts of appeals. There are perhaps three groups into which

the courts of appeals’ decisions might be placed. One group

has concluded that the five justices in the Santos majority

agreed that the term "proceeds" means "net profits" only in

the context of an illegal gambling activity. See United States

v. Spencer, 592 F.3d 866, 879 (8th Cir. 2010); United States

v. Howard, 309 Fed. Appx. 760 (4th Cir.) (unpublished), cert.

denied, 130 S. Ct. 62 (2009); see also United States v. Demarest, 570 F.3d 1232, 1241-42 (11th Cir.), cert. denied, 130 S.

Ct. 421 (2009) (holding that it was not plain error to limit

Santos to illegal gambling cases); United States v. Bueno, 585

F.3d 847, 850 (5th Cir. 2009), cert. denied, 130 S. Ct. 2359

(2010) (same). Another group has noted that both the plurality

and Justice Stevens were concerned that the same underlying

transactions could support a violation of both the predicate

offense and money laundering, the so-called "merger problem." Therefore, these courts have concluded that whenever

a predicate offense presents a merger problem, the term "proceeds" should be defined as "net profits," and that when no

merger problem exists, the term "proceeds" should be defined

as "gross receipts." See United States v. Van Alstyne, 584 F.3d

803, 814 (9th Cir. 2009); United States v. Lee, 558 F.3d 638,

642-43 (7th Cir. 2009); see also United States v. Bucci, 582

F.3d 108, 123-24 (1st Cir. 2009) (suggesting in dicta that it

finds this interpretation of Santos persuasive). Finally, several

courts of appeals have acknowledged the merger problem but

12 UNITED STATES v. HALSTEAD
have also emphasized the fact that Justice Stevens relied on

the absence of legislative history to conclude that proceeds

from an illegal gambling business should mean net profits.

These courts have concluded that "proceeds," as used in the

money laundering statute, means "gross receipts" unless there

is either a merger problem or the money laundering statute’s

legislative history indicates that the "net profits" definition is

appropriate for the specific predicate offense. See Garland v.

Roy, 615 F.3d 391, 401-02 (5th Cir. 2010) (holding that courts

must look to both the merger problem and legislative history);

United States v. Kratt, 579 F.3d 558, 562 (6th Cir. 2009)

(holding that courts must look to both legislative history and

merger, but specifying that there is only a merger problem

when it "leads to a radical increase in the statutory maximum

sentence"); see also United States v. Yusuf, 536 F.3d 178, 186

n.12 (3d Cir. 2008) (holding that Justice Stevens’ concurrence

rested on the narrow grounds that proceeds means net profits

when there is no legislative history to the contrary).

The standard for finding the holding of a divided Court in

which no opinion attracted a majority, such as was the case

in Santos, is addressed in Marks v. United States, 430 U.S.

188 (1977), where the Supreme Court stated, "When a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of five Justices, ‘the holding

of the Court may be viewed as that position taken by those

Members who concurred in the judgments on the narrowest

grounds.’" Id. at 193 (quoting Gregg v. Georgia, 428 U.S.

153, 169 n.15 (1976) (opinion of Stewart, Powell, and Stevens, JJ.)). In Marks, the Court attempted to determine the

binding effect of Memoirs v. Massachusetts, 383 U.S. 413

(1966), where three justices wrote for the plurality holding

that the book at issue was not obscenity and therefore was

entitled to constitutional protection, while two members concurred in that judgment on the grounds that the First Amendment provided an absolute shield against governmental action

suppressing obscenity. The Court concluded that the plurality’s position constituted the holding of the Court because it

UNITED STATES v. HALSTEAD 13
was a narrower holding than the holding of the concurring

two members. Marks, 430 U.S. at 193-94.

The holding of Santos must thus be distilled by looking to

the holdings of the component opinions. The plurality opinion

concluded (1) that the term "proceeds" was ambiguous; (2)

that interpreting "proceeds" in the money laundering statute to

mean "gross receipts" of an illegal gambling operation created

a merger problem; (3) that the rule of lenity required a narrow

interpretation of "proceeds" to avoid the merger problem; and

(4) that for all cases, therefore, "proceeds" as used in the

money laundering statute means "net profits." Justice Stevens’

opinion concluded (1) that the term "proceeds" was ambiguous; (2) that the legislative history did not provide the term’s

meaning in the context of illegal gambling and that Congress

could have defined proceeds differently for different predicate

offenses; (3) that the ambiguity should not be resolved generally by applying a rule of lenity, but rather should be resolved

on a case-by-case approach; (4) that interpreting proceeds in

the money laundering statute to mean gross receipts in connection with illegal gambling created a merger problem with

a perverse result because of the heavier penalty imposed by

the money laundering for an offense that was no more than

illegal gambling; and (5) that in the context of illegal gambling, proceeds means "net profits."

In its narrowest sense, therefore, the five justices could be

found to have held that the money laundering term "proceeds"

means "net profits" when the proceeds are from an illegal

gambling operation. They also agreed that the driving force

for their holding was the merger problem resulting from the

circumstances in that case—a prosecution of defendants for

transactions that supported convictions for both illegal gambling and money laundering. Finally, they agreed that the

merger problem had to be solved by defining the term "proceeds" in the money laundering statute to mean "net profits,"

because if "proceeds" were defined to mean "gross receipts,"

any crime involving costs would automatically become

14 UNITED STATES v. HALSTEAD
money laundering when the money received from the crime

was used to pay expenses. Justice Scalia, speaking for the plurality, explained this:

For a host of predicate crimes, merger would depend

on the manner and timing of payment for the

expenses associated with the commission of the

crime. Few crimes are entirely free of cost, and costs

are not always paid in advance. Anyone who pays

for the costs of a crime with its proceeds—for example, the felon who uses the stolen money to pay for

the rented getaway car—would violate the moneylaundering statute. And any wealth-acquiring crime

with multiple participants would become money

laundering when the initial recipient of the wealth

gives his confederates their shares. Generally speaking, any specified unlawful activity, an episode of

which includes transactions which are not elements

of the offense and in which a participant passes

receipts on to someone else, would merge with

money laundering.

Santos, 553 U.S. at 516 (plurality opinion). And Justice Stevens provided a similar explanation:

Allowing the Government to treat the mere payment

of the expense of operating an illegal gambling business as a separate offense is in practical effect tantamount to double jeopardy . . . .

Id. at 527 (Stevens, J., concurring).

As noted above, however, the plurality and Justice Stevens

disagreed on the proper scope of the remedy to the merger

problem. The plurality argued that, in all cases, "proceeds"

should be defined as "net profits," due to the possibility of a

merger problem in some cases. Justice Stevens explicitly dissented from this portion of the plurality’s opinion. Justice SteUNITED STATES v. HALSTEAD 15
vens believed that "proceeds" should be defined as "net

profits" when the predicate offense is illegal gambling. In

cases with other predicate offenses, Justice Stevens believed

that the meaning of "proceeds" should be defined on a caseby-case basis.

Obviously, if the circumstances of Santos were now to arise

before a court of appeals—where the defendant was prosecuted for money laundering and illegal gambling—the money

laundering statute would be construed to require a transaction

involving the "net profits" of the gambling enterprise. But if

the merger problem were now to arise before a court of

appeals in a case where money laundering was charged along

with some other predicate offense, it is not clear that the holding in Santos would require that "proceeds" be defined as "net

profits." Justice Stevens clearly stated that his vote was limited to the circumstances of the case before the Court and that

in other circumstances, he would review the issue again,

which would include a review of the legislative history. See

Santos, 553 U.S. at 525 (Stevens, J., concurring) ("[T]his

Court need not pick a single definition of ‘proceeds’ applicable to every unlawful activity, no matter how incongruous

some applications may be"). Thus, when presented with some

other predicate offense, a court of appeals would not be

required to conclude that "proceeds" means "net profits"

based on Santos. Nonetheless, a court of appeals presented

with such a case would certainly be wise to harken to Santos

and determine whether its approach suggested the proper outcome for that case with a different predicate crime. What does

remain clear from Santos is that when a merger problem

arises, a judicial solution must be found to eliminate its

unfairness.

In sum, we read Santos to hold that when a merger problem

arises in the context of money laundering and illegal gambling, the required solution is to define the proceeds of the

illegal gambling business as its net profits. When, however,

a merger problem arises in the context of money laundering

16 UNITED STATES v. HALSTEAD
and an illegal activity other than illegal gambling, because of

Justice Stevens’ opinion that would require addressing that

situation on a case-by-case approach, we will leave further

development of a solution to a future case that presents the

problem. As we demonstrate below, the merger problem does

not arise in this case, and we need not address the appropriate

solution to a case involving money laundering and healthcare

fraud.

IV

The money laundering statute of which Halstead was convicted criminalizes "financial transactions" when, among

other things, they involve the transfer of money that is the

"proceeds" of an illegal activity. See 18 U.S.C. § 1956(a), (h).

Thus, when the illegal activity includes money transactions to

pay for the costs of the illegal activity, a merger problem can

occur if the government uses those transactions also to prosecute the defendant for money laundering. An individual cannot be convicted of money laundering for paying the

"essential expenses of operating" the underlying crime. Santos, 553 U.S. at 528 (Stevens, J., concurring). But when the

financial transactions of the predicate offense are different

from the transactions prosecuted as money laundering, the

merger problem recognized in Santos does not even arise.

That is the case here.

In this case, Halstead complains that the transactions of his

healthcare fraud conviction and his money laundering conviction were the same, raising the merger problem. He states in

his brief:

The basis of the money laundering was that Halstead

helped set up all the business structures, interrelationships and flow of monies from the various corporate entities engaged in the health care fraud, and

that he knew that the fees he received or money paid

to Burns were proceeds of the healthcare fraud.

UNITED STATES v. HALSTEAD 17
However, the same basic facts, "manner of means"

and "overt acts" in the health fraud part of the indictment were repeated as facts, "manner and means"

and "overt acts" of the money laundering part of the

indictment.

Basically the health care fraud was perpetrated

through the formation of a medical corporation [Priority One] nominally owned by a medical doctor,

and a management corporation [West Virginia Medical Corporation] owned by the chiropractor, Robert

Burns.

While he recognizes that the healthcare fraud charges "focus

on the billing [of] insurance companies, while the money

laundering charge focuses on the transfers [of] money

between the two entities," he seeks to derive comfort from the

fact that both crimes were the product of a single conspiracy,

implying that a conspiracy can involve only the commission

of one crime. But this is not the way he was charged nor was

it the way he was convicted. While Halstead entered into a

single agreement with Burns and others for the purpose of

fraudulently obtaining funds from insurance companies and

healthcare providers, they agreed to commit several crimes

including healthcare fraud, mail fraud, and money laundering.

Entering into a single agreement to commit numerous crimes

does not insulate the conspirators from liability for the crimes

that they thereafter commit in furtherance of their agreement.

In this case, Halstead committed healthcare fraud when he

directed Priority One to submit fraudulent claims to healthcare providers and those companies paid those claims; Priority One "obtain[ed] by false or fraudulent pretenses . . .

money or property owned by . . . a health care benefit program." 18 U.S.C. § 1347(2). At the moment that the healthcare provider paid money to Priority One, the crime of

healthcare fraud was complete, and the money that the health18 UNITED STATES v. HALSTEAD
care provider paid to Priority One was the "proceeds" of the

healthcare fraud.

After Priority One fraudulently obtained money from the

healthcare providers, Halstead directed that the money be

transferred from Priority One to West Virginia Medical Corporation, a company created to manage Priority One. He also

directed that the money be further transferred from West Virginia Medical Corporation to Burns and himself, in his case

through his company, Practice Systems. These transfers constituted the "transactions" of money laundering, in violation

of 18 U.S.C. § 1956(a). Halstead conducted a financial transaction with money he knew was the result of healthcare fraud,

and he had the intent to further an unlawful activity when

making those transfers, one category of transfers from Priority

One to West Virginia Medical Corporation and another from

West Virginia Medical Corporation to his own corporation’s

bank accounts. Moreover, both the transfers to the management company and the transfers to Halstead’s company were

separate from the transactions constituting healthcare fraud.

The healthcare fraud charges were defined by the obtaining of

money from the fraudulent billing of healthcare providers,

while the money laundering charge was defined by transferring the proceeds thereafter.

Thus, the merger problem never arises in the circumstances

of this case, and Santos provides Halstead no relief.

Halstead argues that our holding will lead to finding every

individual who commits healthcare fraud also guilty of money

laundering because everyone will eventually transfer the proceeds of a healthcare fraud scheme into his own account. This

argument, however, is nothing more than a disagreement with

the definition of federal crimes. While healthcare fraud constitutes one crime, money laundering constitutes a distinct

crime, and in this case the transactions involved for each are

not the same.

UNITED STATES v. HALSTEAD 19
Accordingly, the judgment of the district court denying

Halstead’s motion under 28 U.S.C. § 2255 is

AFFIRMED.

20 UNITED STATES v. HALSTEAD