F ILED U.S. COURT O F APP EALS EL EV EN TH C IRC UIT Sep tember 5 , 2 008 T HOMA S K. KA HN CLERK [PUBLIS H] IN THE UN ITED STATES COURT OF APPEALS FO R T HE EL EV EN TH CIRC UI T

____ ____ ____ ____ ____ ____ N o. 05- 1171 5

____ ____ ____ ____ ____ ____ D. C. Docket N o. 04-80032 -CR- DMM UNITED STAT ES OF AMERIC A, Pl ai nt iff -Ap pe ll ee, ve rs us LARRY E. SCHWARTZ, RAPHAEL RAYMOND LEVY , a.k .a. R. Ray Lev y , EDWARD MEYER, RONALEE L EVY ORLICK, Defen da nt s- App el la nt s.

____ ____ ____ ____ ____ ____ Appeal f rom the United State s District Court fo r the S outhe rnD istri ct

of F lor ida

____ ____ ____ ____ ____ ____ _ (S ep te m be r 5, 200 8)Honora ble Eug ene E . Siler, J r., United States Circuit J udg e for the Six th Circuit, sit ting * by desig nation. L ou is R atf

ie ld, a c od e fe nd ant, wa s tr ie d jo int ly wi th t he oth e rs . T he jur

y a c qu itt e d h im 1 of a ll c ha rg e s. As ind ic ate d in fr a

in p art I .B ., the jur

y fo un d th e de fe nd ants guil ty of se ve ra l of

fe ns e s, 2 including c onspiracy

to commit mail fraud, conspira cy to commit money

launder ing, a

nd the substantive offe nses that wer e objec ts of these c onspiracie s, e.g ., mail fraud a nd money launder ing. See B ruton v. United States, 391 U.S. 123, 88 S. Ct . 1620, 20 L . Ed. 2d 476 (1968). 3 2 Be fo re T JO FL A T , F A Y and S IL E R, Ci rc uit Jud ge s. * TJO FL AT , C ircuit Judg e. A S outh ern D istrict of Florida j ury found Larr

y Schw artz, Edw ard Mey er, Ra pha el Raym ond L ev y , and R ona le e O rl ic k gui lty of of fe nse s th ey

c om m itt ed in 1
carr y ing out af ra udul en t sc he m e to s el l hi gh- y ie ld p ro m iss or y not es , iss ue d by
co m panie s S ch w ar

tz and L ev y

ow ne d, to ind ivi dua l i nve sto rs . T he sc he m e ha d a 2 life of about four y ears; it cam e to an end shortly before S chwar

tz’ s com pany filed f o r b an kr up t c y. A s i n v e s t o r s b e c a me aw ar e th atth e i r n o t e s mi g h tb e c o me worthless, they

dem anded paym ent. Most w ere too late; the loss es they suffere d tot al ed in ex ce ss o f $30 m ill ion
. T he dis tr ic t c ourt a cc ep te d th e j ur y ’ s ve rd ic ts and s en te nc ed the de fe ndants to l en gth y

pr iso n te rm s. T he y

nowappe al
. S ch w ar

tz appe al s hi s c onvi ct ion s on the groundthat the district court comm itted a Bruton violatio n when it perm itted 3L evy also appe als his sentence s on the g rounds that the district cour t’s finding s of fa ct 4 at the sente ncinghear ing that he was a n org anizer of the c riminal activity and that he w as acc ountable for

$20 milli on in money

launder ing w ere clea

rly err oneous, and that the court misapplied the g roupingprovisions of the SentencingGuidelines. We find no clea r er ror in the c ourt ’s fi nd ing s o f f

a c t, o r e rr or

in i ts a pp lic atio n o f t

he g ro up ingpr ov isi on s o f t he Gu ide lin e s, and the re fo re a ff

ir m L e vy ’s se nte nc e s w ith out f ur the r c omm e nt. 3 the pr ose cu tor

to intro duc e int o e vid en ce an ou t- of -c ourt st at em en t by

c ode fe ndant Mey er that im

plicated him

in m ost, if not all, of the charged offe nses. Mey er ap pe al s th e dis tr ic t c ourt’ s r ef usa l t o di sm iss the c harg es a ga ins t hi m on the gr ound that the G ove rn m en t us ed state m en ts h e m ad e unde r a gr an t of im m uni ty to obtain h is indi ctm ent. L evy and Or lick challenge the sufficiency of the evidence to convi ct. W e consider these indivi dual appeals in th e above order, after

4 de sc ri bin g th e sa le of

the hig h- y ie ld p ro m iss or y not es , the c ri m es c harg ed in the in di ct m en t, an d t he cas e’s po st -in di ct m en t h is to ry . I. A. 1. F ir st C ap ita l S er

vic es se lls “ ca

pit al not es ” to i ndi vid

ua l i nve sto rs to ra ise
m one y f or it s f ac tor ing bus ine ss. L ar ry S chw ar tz f orm ed F ir st C ap ita l S er

vic es ( “ FC S” ) on D ec em

be r 23, 1992
. From

the beginni ng, FCS specialized in the purchase of discountedA ty pical fa ctoringdeal g oes like this. A fac tor purcha ses the ac counts rec eivable of a 5 “client.” The de btor’s pay ment is then directe d to the fac tor by the due date on the invoice. Ty pically the fa ctor g ives about 70 per cent of the invoice’ s fac e value up front to the client a nd keeps 30 pe rce nt as a “ rese rve,” as a kind of insura nce a g ainst defa

ult by the debtor ( either on this deal or anothe r dea l with the same client). When the de btor satisfies the invoice , the fa ctor se nd s th e re se rv e to t

he c lie nt, min

us (1 ) c oll e c tio n a

nd ha nd lin gfe e s, and

(2 ) s ome a g re e d r ate of re turn per w eek or

month that the rec eivable w as outstandingafte r the fa ctor purc hased it. The fac tor’s rate of re turn would ty pically be about 1 pe rce nt of the fa ce va lue of the invoice for e very t e nd ays b e f

o r e th e d e b t o r

s at i s f i e d th e i n v o i c e , w h i c ham o un t s t o 3 6
. 5 p e r c e n tannu a l l y. For a time, Fr ed Hor

win was the othe r direc tor. By all acc ounts he was a

fac toringguru 6 an d s p e ar h e a d e d F C S ’ s f a c t o r i n gp r o g r amw h i l e h e w a s w i thF C S
. B y 1 9 9 9 , h e h a d p art e d w ays wi th S c hw art z to s tart

his own f

a c tor ingfi rm . 4 ac co unt s r ec ei vable , or

inv oic es , af

inanc ing pr ac tic e ca lle d f ac tor ing
. S ch w ar

tz 5
w as F CS ’ s pr es ide nt and o ne of it s tw o di re ct or s. 6 E dw ar d M ey er

start ed a t F CS in O ct obe r 1994 a s aspe ci al pr oj ec ts
m an ag er. He se rv edas c on tro ll er fro m ab ou t J an ua ry

19 95 to Octo be r 19 99 . As
c o n tr o l l e r , h e mai n t a i n e dth e f i n an c i a l b o o k s an dr e c o r d s o f th e c o mp an y, inc lud ing the ge ne ra l l ed ge r, c as h di sbur se m en t j our na l, and a cc ount s pay ab le ledger. St ar tin g in199 6, F CS sol d “ se nio r ca pit al not es ” to i ndi vid

ua l i nve sto rs to raise m oney

for f actoring accounts receivable. FCS sold th e notes to inv estors dir ec tly and thr oughout sid e br oke rs . FC S pr ovi de d th e br oke rs w ithatr i- fo ld s al es br oc hur e adve rt isi ng the te rm s and o pti ons fo r “ Ca pit al F undi ng/ Se nio r Ca

pit al N ote s. ” O ne pane l of the brochure titled “ Safe ty

and Yield[:] the Capital N ote Advantages” provided anSome notes ear ned more than 9.25 per cent, de pendingon the amount borrow ed as 7 shown on the fa ce of

the note. Also, a note ’s rate of re turn often incr ease d by one to three and a ha lf pe rc e nt u po n r e ne wa l a s an in c e nti ve to s tay in t he pr ogra m. 5 overview of the notes. It stated: “ Notes [are] backed by

Feder al, State or L ocal G ove rn m en t r ec ei vable s, and I nsur ed Co rp or at e Re ce iva

ble s. ” T he ne xt paragraph stated: “ All funds are held in a segregated Capital N ote Acc ount used onlyfor the purchasing of Governm ent backed and Insured corporate re ceivables.” This w as followed by

a bulleted list of the not e’ s attributes: 9.25 annu al pe rc en ta ge r at e (“ A PR ”) ; 6- m onth te rm ; f ixe d pr inc ipa l; fi xe d in te re st r at e; li qui d; 7
m onthly int er es t paym en ts; ow ne rs hip of r ec ei vable s by

F ir st C ap ita l e vid en ce d by a first lien on a U CC-1 f

iling ; no sales charge; and $25,000 m inim um . Ther e w as a fo otn ote li nke d to “ liquid ” that st at ed : “ N ote m ay be r ed ee m ed

by le nde r pr ior

to
m atur it y da te . Early red em

pt io ns wil l i nc ura on e m on th in te res t p en al ty.” Another panel of the brochure w as titled “ About First Capital Se rvices.” It state d, a m ong oth er

thi ngs, that F CS ha d be enin the “busi ne ss o f fi nanc ing gove rn m en t ba ck ed

and i nsur ed

r ec ei vable s si nc e 1992 , and a s of D ec em be r 1997 ha s purc ha se d ine xc es s of $22 5, 000, 000 in a cc ount s r ec ei vable
. ” I t f urthe r state d: [t ] o a ssure and m ai nta in the hig he st l ev el of sa fe ty of pr inc ipa l, Continent al Insurance C om pany part [sic] of the 65 Billion Dollar CN A /C ont ine nta l i nsur an ce gr oup co nduc ts i ts o w n in de pe nde nt d ue dilig ence on all rec eivables and all debtor com panies. FI RST CAP IT AL SE RVI CE S, IN C. W IL L O NL Y F IN AN CEAt trial, the Gove rnment introduce d into evidence at least thre e diffe rent pe rmutations 8 of the c apital note broc hure. The y wer e identica l except for minor deta ils, such as the value of FCS’s fac toringbusiness to date. 6 RECEIVABLES THAT ARE UND ERW RITTEN AND INSURED BYT H E CO N T IN EN T A L I N SU RA N CE CO MP A

N Y
. ( G ove rn m en t backed rece ivables are exem pt from this requirem ent.). (E m phasis in original). A th ird pa ne l o f th e b ro ch ur e was de di cat edto a li stof “ Deb to r Cl ie nt s,” inc lud ing “ G ove rn m en t” e nti tie s su cha s th e “ Fe de ra l G ove rn m en t, ” “ D ep ar tm en t of Navy,” “ Dep art m en t o f Tran sp or ta ti on ,” “ St at e o f Fl or id a,” “ St at e o f Geo rg ia ,”

“ City of N ewYork, ” and “ Brow ard County ,” and reliable “ Corporate” e ntities
suc h a s “ W al -M ar

t, ” “ 3M, ” “ G en er al E le ctri c, ” “ A T &T , ” “ H ei nz , ” an d “ Fl or ida Po wer & Li gh t.” Y et anothe r pane l ur ge d po te nti al inv es tor s th at upo n “ re vie w [i ng] thi s br oc hur e, ” “ [c ] om

m on s en se w ill te ll y ou this inv es tm en t i s an id ea l c om bin at ion of ha nd so m e ret urns , roc k- so li d s afet y , andli qu id it y .” 8 Upon se ndi ng a

c he ck to FC S, inv es tor s r ec ei ve d a“ Co rp or at e Fundi ng N ote ” in the m ai l tha t de ta ile d th e te rm s of the ir inv es tm en t and r ei te rate d th e re pr es en ta tio ns m ad e in the br oc hur e. I n part ic ular, the not e state d: “ Fo r the sol e purpos es of purchasing ins ured corporate r eceivables or governm ent backed
ac co unt s r ec ei vable s [ sic ]
. ” U nli ke the br oc hur e, the not e re fe rr ed to the inv es torAt some point, the note was a ccompa nied by a notice that a For

m UCC-1 Financ ing 9 State me nt h a d b e e n f

ile d, se c ur inga

lie n in the inv e sto r’ s f

avo r a g a ins t th e a c c ounts re c e iva ble purc ha se d b y

F CS. Amongthe cha

ng es touted in the letter w as that F CS “intends to purchase disc ounted 10 lif e ins ur anc e po lic ie s o n a

n e xclu siv e ba sis fr om R ay L e vy . . . [and ] [t]he se pr od

uc ts w ill continue to be insure d” and “ intends to fund various asse ts at g ener ally acc epted industry standards pr oviding high yields.” 7 as “ le nde r” and F CS a s “bor ro w er . ” P ar ag ra

ph f our of the not e state d th at

“ [t ] he te rm s of thi s no te c annot

be c hange d no r m ay

the not e be dis ch ar ge d inw hol e or in pa rt e xc ep t b y

a writ in g e xe cu te d b y

th e le nd er.” 9 2. U .S . C apital takes over FCS ’ s indiv idual inv estor note program and buy s FCS
co rp or at e not es . In199 7, the se nio r ca

pit al not es pr ogr am

c am e unde r inv es tig at ionby the Fl or ida D ep ar tm en t of F inanc ia l S er

vic es , sub se que ntl y

c al le d th e Fl or ida D ep ar tm en t of Banki ng and F inanc e. T he D ep ar tm en t w as c onc er

ne d th at the notes sh ouldbe registere d as securities, and it had several conversations with FC S. On D ecem

ber 4, 1997 , F CS sent a le tter to note hold ers, stating th at it wa s

“ple as ed to announ ce im

portant c hange s to the se nio r ca pit al not e pr ogr am . ” T he 10 le tte r m en tio ns tha t an “ of fe ri ng m em or an dum ” expla ini ng the c hange s w oul d follow; the m em orandum never m ade it to a note holder. On D ecem

ber 22, 1997, Raphael R aym ond Levy form ed U. S. Capital Fundi ng, I nc or

por at ed ( “ U
. S. Ca

pit al ”) , aF lor ida

c or por at ion
. Up to that po int ,T h e G o v ern m en ti n tro d u ce d a c o p y o f U
. S
. C ap i t al ’s M ar ch 1 1 , 1 9 9 9 co rp o ra t e f i l i n gs 11 listi ngOrlick a s president a nd L evy as direc tor. 8 Le vy had been selling FCS senior capital notes throug h his com panies – Am erican Benefits Se rvices, Incorporated (“ Am erican Benefits”), and Asset Ba sed Managem ent. U .S . C apital was e videntl y form ed for the purpose of enabling FCS to co nt in ue th e se ni orcap it al no te pro gr am . U.S. Capi ta l wo ul d s el l i ts own prom issory

notes to in divid ual investo rs and invest the proceeds in FCS

“ corporate” notes, which w ere subs tantially identical to the not es FCS had issued to i ndi vid ua l i nve sto rs , e xc ep t tha t F CS iss ue d th em onl y to U
. S. Ca

pit al
. T his plan w as e ff

ec tuate d a s f

oll ow s. O n D ec em

be r 31, 199 7, F CS , thr oughit s c ouns el , se nt a le tte r to the F lor ida O ff ic e of the Co m ptr oll er statin g th at

it w oul d st op s el lin g and r en ew ing se nio r ca pit al not es . S om e m onths l at er , S ch w ar tz r ea ff irm ed that po sit ionto K or inn e Harper, a D epartm ent investig ator, telling h er that the existing FCS senior capital not es w oul d m at

ur e in July

199 8 w ith out

r en ew al
. InF eb ru ar

y 199 8, L ev y ’ s da

ught er , Ro na le e L ev y

O rl ic k, be gan m an ag ing U.S. Cap it al ’s off

ic e an d a t s om e p oi nt sh e b eg an ex erci si ng si gn at ory au th or it y . By ea rl y 1 9 9 9 , s h e w as th e c o m p an y’ s p re s i d en t . Le v y re m ai n edU.S . C ap i t al ’s
ow ne r an d di re ct or

thr ough out

the c our se of

the c harg ed

c onsp ir ac ie s. 11A senior c apital note wa s rene wed or “rolled ove r” a

utomatically

unless the investor 12 re qu es t edl i qu i d at i o no f t h e n o t e i nwr i t i n g. 9 By April 1998, senior capital note holders, w ithou t solicitatio n, began
re ce ivi ng r en ew al not es iss ue d inthe nam e of U
. S. Ca pit al ins te ad

of F CS
. T he

12
re ne w al not es ha d th e sam e te rm s a s th e or igi na l and s ta te d: “ T he und er sig ne d, U. S. Capital Funding, Incorporated, borrower , her eby prom ises to pay

to the order of [investor] .” U .S . C apital also began m arketing its own notes, “ U. S. Capital not es , ” to i ndi vid

ua l i nve sto rs dir ec tly

– by pla ci ng a ds i n ne w spa

pe rs – and through independent brokers, ofte n insu rance agents, w ho were given sales brochures subs tantially

identical to tho se previouslyused by FCS
. Le vy

assured br oke rs and i nve sto rs that the m one y ge ne rate d f

ro m not es w oul d be use d to inv es t in FCS’ s factoring program as described on the brochures; he described U. S. Ca pit al a s F CS ’ s “ ex cl usi ve br oke r. ” I nve sto rs w ro te the ir c he ck s to U
. S. Ca

pit al , w hic h de posi te d th ei r m one y int o it s a cc ount

and i ssu ed

the m apr om iss or

y not e ide nti ca l t o th ose f

orm er ly iss ue d by

F CS , e xc ep t tha t U
. S. Ca pit al w as the bor ro w er . O rl ic k si gne d m ost of the not es and a cc om

pany ing li te ratur e expla ini ng th e n o t e p r o g r a m. In199 8, U
. S. Ca

pit al use d th e bul k of

inv es tor f unds r ai se d f

ro m it s no te program to purchase FCS corporate notes, which ind icated FCS as the borrowe rAt least some of the loans wer e sec ured by an intere st in the debtor’s asse ts. For 13 e xamp le , F CS is su e d th e fo llo wi ngloa ns in 1 99 8: $ 13 6, 50 0 to Qu a lity Eq ue str ian Co nn e c tio ns , in which Schwar

tz owned an intere st, for the purc hase of a horse , secur ed by

horses a nd equipment; $154,000 to Seahawk D eep O cea n Tec hnology , Inc., appa

rently for the pur chase of a ship, secure d by

a pre fer red ship’s mortg ag e; $762,607 to Vande rbilt Square, for the purc hase of “The Dry Tortug as Tre asure ,” sec ured by the trea sure itself; $1,027,062 in 1998 to Nick’s Italian 10 an d U
. S. Ca

pit al a s th e le nde r. T he r at e of r et ur n ontho se not es w as 10% pe r six
m onths, or

20% annua lly , and the not es state d th at the pr inc ipa l w as to be use d f or governm ent or corporate r eceivables insured by Continental Insu rance. 3
. Wh a tF C S d i dwi th U. S
. C ap i t a l ’s mo n e y. Besides buy ing accounts rec eivable, F CS used investor m oney to m ake asset ba se d lo an s. Fr om

199 7 to 199 9, F CS m ad e loans t ota lin g $2 8, 774, 303, w ith about $1 4 m illion of that in 1998 to 199 9, af ter U .S . C apital was supply ing FCS with funds. Fr om

1997 to 199 9, FC S collected a total of $2,307,911 from its asset b as edl o an d eb t o rs . S t ep h en Ke l l ey, afo re n s i c a cc o u n t an th i re db y FC S’s attorney s in 200 0 to prepare FC S’ s 1996 -2000 tax returns, testified that it was im poss ibl e to p inp oin t the sourc e of the f unds use d f

or any giv entr an sa ct ion be ca use F CS “ co m

m ing le d” ope ratin g and i nve sto r funds. B as ed on the pe rc en ta ge of

F CS ’ s in co m e re pr es en te d by U
. S. Ca pit al not es and the a m ount FC S spe nt o n is sui ng a sse t ba se d lo an s, how ev er , suc h lo an s “ w oul d have ha d to have be enf

unde d th ro ugh U
. S. Ca

pit al f unds
. ” T he loans w er e not c ove re d by FC S’ s a cc ount s r ec ei vable ins ur an ce . I n a ddi tio n, F CS e nte re d in to transa ct ion s 13F ish e ry

(i t is un c le ar i f t

his loa n w a s se c ur e d) ; and

$6 60 ,0 00 to R ive r R anc h A me ri c an Re so rt s, Inc or po rate d, a we ste rn -t he me d r e so rt

in c e ntr a l F lor ida , s e c ur e d b y re a l e state and

c hatte l. F or ins tanc e , o n Jun e 1, 19 98 , F CS bo ught t he re c e iva

ble s o f K ay e Ko tts & As so c iate s, 14 a consultingfirm, for $200,000. T he re ceiva bles wer e in the for

m of post-dated c hecks f

rom Kaye Kotts’ clients, many of whom we re not c redit-wor thy , and many

of whom def

aulted on their che cks. Also in 1998, FCS entere d into an unusual transa ction with South M ountain, a North Carolina r esort member ship club. The tra nsaction could be descr ibed as the pur chase of a c c ounts re c e iva

ble – f utu re me mbe rs hip du e s –

tha t, b e sid e s b e ing“ se c ur e d” by the me mbe rs hip du e s o we d b y

re so rt me mbe rs ov e r t

he c ours e of

fi ve y e ars , w e re a lso se c ur e d b y lie ns a g a ins t re so rt c hatte l and

a mor tg a g e on 15 a c re s o f p ro pe rt

y a dja c e nt t o th e re so rt . Sometime during the course of the a lleg ed conspira cy , Continental Insuranc e 15 discovere d that FCS and U.S. Capital wer e usingits name in its advertisements. On seve ral occa sions, Cont inental demande d that the two companie s stop their use of its name be cause the use wa s unauthorized and misleading . Continental sent a letter to Schwa rtz on Februa

ry 1, 1999, stating that FCS’s policy

would expire on Marc h 24, 1999 and would not be r enew ed. Americ an Credit Indemnity issued a policy

to FCS, effe ctive Apr il 1, 1999 to March 16 31, 2000. Under

the policy , the maxim um that America n Credit would pay

to satisfy claims was $1.5 milli on annually . L ike FCS’s pre vious policy with Conti nental Insuranc e, the Ame rica n Credit Indemnity

insurance cover ed only

acc ounts rece ivable. 11 for assets that – thoug h perhaps accurate ly described as acc ount s rece ivable –
w er e by na tur e not

ins ur ab le and, in fa ct , w er e uni nsur ed
. 14 FC S did not c ar ry ins ur an ce a de quate to co ve r al l of the a cc ount s r ec ei vable it did pur ch as e. F CS ’ s C ont ine nta l i nsur an ce pol ic y te ch nic al ly

c ove re d m ost

of it s ac co un ts rece iv ab le in di vi du al ly, bu t i t h ada $2 m il li on an nu al cei li ng . Further, Continental Insu rance, which becam e CN A I nsurance, dec lined to renew FCS’ s policybeginni ng March 24, 1999. T hus, none of the notes set to m ature 15 after that date we re c overed by Continental Insu rance. 16 4. Wha t U
. S. Ca

pit al did w ithind ivi dua l i nve sto r funds.One of the issues debated by

witnesses and c ounsel at trial wa s whether U.S. Capital’s 17 pr a c tic e amou

nte d to a “ Pon zi sc he me ” or

wa s me re ly

the or din ary

of fs e tti ngof

its ba lanc e wi th F CS. 12 U
. S. Ca pit al c om m ing le d in ve sto r funds in the sam e ac co unt s w iththe f unds it used to p ay

its own com

m issio n and the comm issio n of independ ent brokers. I n 1998 , U .S . C apital forw arded its note hold ers’ liquid ation requests to FCS , which
w oul d w ri te ac he ck

to U
. S. Ca

pit al , w hic h intur

n w oul d w ri te ac he ck

to the inv es tor to sa tis fy the r eque st. B y

e ar ly 199 9, tho ugh, U
. S. Ca

pit al w as appare ntl y rece iving m ore in new investo r funds than in liq uidatio n requests and therefore start ed sa tis fy ing tho se r eque sts – a s w el l a s pay ing int er es t and b ro ke ra ge co m m iss ion s – f

ro m f unds pr ovi de d by

ne winv es tor s. U
. S. Ca

pit al the n se nt the ba lanc e of

ne winv es tor

f unds m inu s pay out s f

or li qui da tio n, int er es t, and
com m issio ns to FCS, along with new business transm ittals docum enting each ind ivi dua l i nve sto r’ s c ur

re nt b al an ce . U
. S. Ca

pit al usu al ly

pa id b ro ke rs the ir 17
co m m iss ionw ith in a

w ee k of w he n U
. S. Ca

pit al iss ue d th e unde rl y ing not e. T he br oke rs be lie ve d th ei r co m m iss ionw as c om ing f

ro m U
. S. Ca pit al ’ s pr of

it fr om the
n o t e s p r o g r a m. 5. T hin gs f

al l a part . Inthe spr ing of

199 9, L ev y

w as ind ic te d inthe S outhe rnD istri ct of F lor ida for fr audulentl y

operating a viatical program through his com

pany Am ericanIn a viatica l settlement, a life insura nce policy

holder sells the right to benefits under 18 the policy . The buyer pa

y s the policy

holder a discount and g ets the full value when the po lic y ho lde r d ie s. Th e fo llo wi ngc a se s d e ta il L e vy ’s inv olv e me nt i n th e sc he me me nti on e d in th text . See United States v. L evy , 374 F.3d 1023 ( 11th Cir. 2004), cer t. gr anted, 545 U.S. 1101, 12 5 S. Ct. 25 42 , 1 62 L . E d. 2d 27 2 ( 20 05 ) (

jud g me nt v a c ate d a

nd re mand e d f

or c on sid e ratio n in light of United States v. Booke r, 543 U.S. 220, 125 S. Ct. 738, 160 L . Ed. 2d 621 (2005)) ; In re Fin. F eder ated Title & Trust, Inc., 273 B .R. 706, 719 (Ba nkr. S.D. Fla . 2001) (or deringan equitable lien a

nd constructive tr

ust in favor of a

bankruptc y

trustee a g ainst L evy ’s homestea d), aff ’d In re F in. Fede rate d Title & Tr ust, Inc., 347 F .3d 880, 882-84 (11th Cir. 2003). U.S. Capital sent investor money to companies such a s Merc hants Capital, Invoice 19 Funding , and Sun Capital Services. 13 Be ne fi ts, w hic h op er at ed out of the sam e of

fi ce a s U
. S. Ca

pit al
. T he ind ic tm en t 18
w as pub lic ly

r ep orte d, and b y

a ll ac co unt s, ins pir ed

m any se nio r ca pit al not e inv es tor s to li qui da te the ir U
. S. Ca pit al not es . U
. S. Ca pit al c oul d no t satis fy

inv es tor int er es t paym en ts o r liquid at ion
re que sts , and F CS , w hic h ha d be enope ratin g a t a los s f or y ea rs , w as una

ble to
m ar sha l the f

unds
. A lso in the spr ing of

199 9, U
. S. Ca

pit al be gan pu tti ng the f

unds of it s no te h o l d e r s i n t o f

a c t o r i n g c o mp an i e s b e s i d e s F C S
. J u l y 1 9 , 1 9 9 9 , w a s th e l a s tt i me 19 U
. S. Ca pit al f or w ar de d in ve sto r m one y

to FC S. U
. S. Ca

pit al sto ppe d is sui ng se nio r ca pit al not es by

the e nd o f Jul y , and F CS se nt m one y to U
. S. Ca

pit al to sa ti sf y an in ve st or ’s li qu id at io n re qu es t fo r th e fi na l t im e o n S ep te m be r 10 , 19 99
. U
. S. Ca pit al m ad e its la st p ay

m en t t o an in ve sto r on N ove m be r 24, 199 9. InO ct obe r 1999 , Me y er

le ft F CS and U
. S. Ca

pit al sue d F CS f

or de fa ult ingFCS’s Chapter 11 pla n of re org anization failed, howe ver, a nd its case wa s conver

ted 20 into a Chapter 7 liquidation case . Alan Goldber g , who had be en hire d by Schwar tz t o serve as FCS’s Chief Ope ratingOffic er in January 2000, develope d the fa iled reor g anization plan, and the bankruptc y

court a ppointed him the trustee in FCS’s Chapter 7 case
. On Oc tob e r 2 9, 19 99 , K e lly

Sc ha e ff e r, a re c e pti on ist

at U .S. Ca

pit a l, s e nt a

fa c sim ile 21 to Mey er a

nd Schwar

tz wit h “L iquidations” in the subject line. It list ed the names of investors who had de manded liquidation, the amounts they wer e due, the dates on whic h their note(s) had matured ( if they

had), a nd the dates on which those investors had written U.S. Capital reque sting liq uid atio n. Th e fa c sim ile de mand e d a tot a l of aro un d $ 16 mil lio n f

ro m F CS. In th e c ours e of

F CS’ s li qu idatio n, it f

ile d a pr oo f o f c la im i nd ic atin gtha t F CS ow e d U .S. Capital $33,501,232.12. Alan Goldber g , FCS’s trustee, te stified at trial that U.S. Capital was likely to rec over no more than $2.5 million from FCS, “in a perf ect wor ld.” 14 on its corpo rate f

undi ng no tes. O rlick resigned from U. S. Capital in Novem

ber, af te r sig nin g th e la st c he ck to aninv es tor . F CS ult im at el y f ile d f or Ch ap te r 11 bankr upt cy on M ay 12, 200 0. 20 Fro m Feb ru ary 2, 1 99 8 t o J ul y 19 , 19 99 , U.S. Capi ta l b ou gh t o ve r $2 2.9
m ill ionin FC S co rp or at e not es . O ve r a br oa de r pe ri od – January 16, 199 8 to Se pte m be r 10, 199 9 – F CS r et

ur ne d on ly $7. 2 m ill ionto U
. S. Ca

pit al
. O ve r the 21
co ur se of the w hol e pr ogr am , f

ro m w he n F CS be gan se lli ng s en ior c ap ita l no te s in 1996 to its c oll ap se in 1999 , ind ivi dua l i nve sto rs – m any of the m e lde rl y pe opl e lur ed int o th e pr ogr am

by pe ri odi c int er es t paym en ts and the r el at ive ly lowr isk
as soc ia te d w ithins ur ed

and g ove rn m en t a cc ount s r ec ei vable – l ost aro und $30
m ill ion
. B. O n Apr il 27, 200 4, aS outhe rnD istri ct of F lor ida gr an d j ur y r et ur ne d aRatfield was a lso indicted. See supra note 1. The supe rce ding indictment a lleg ed the 22 fo l l o wi n g. Count I : a ll d e fe nd ants c on sp ir e d to c omm it m a il f ra ud (1 8 U .S. C. § 13 41 ) a

nd int e rs tate tr ans po rt atio n o f s tol e n p ro pe rt y take n b y fr a ud (1 8 U .S. C. § 23 14 ), a ll i n v iol atio n o f 1 8 U .S. C. § 371, which make s it unlawful for “ two or more pe rsons [to] conspire e ither to commit any offe nse ag ainst the United States, or to def raud the United States, or any ag ency there of in any manner or for any purpose, a

nd one or more of such pe rsons do any act to ef fec t the object of the conspirac y .” 18 U.S.C. § 371. Counts 2-5: S chwa

rtz, Mey er, L evy , and Or lick committed mail fraud in violation of 18 U. S.C. § 1 34 1, wh ic h th e n p ro vid e d, in p e rt ine nt p art : Whoever, having de vised or intendingto devise any scheme or ar

tifice to def

raud, or fo r o bta ini ngmon e y

. . . b y me ans of fa lse or fr a ud ule nt p re te ns e s, repr esentations, or promises . . . for the pur pose of e x ecutingsuch sche me or artifice or attemptingso to do, places in any post office or authorized depository for mail matter , any

matter or thing

whateve r to be sent or

delivere d by

the Postal Se rv ic e . . . o r t ake s o r r e c e ive s th e re fr om, any su c h matte r o r t

hin g , o r k no wi ng ly cause s to be delivere d by

mail . . . shall be fined unde r this titl e or imprisoned not more than 20 year s, or both. 18 U.S.C. § 1341. Counts 6 a

nd 7: S c hw art z, Me y e r, L e vy , a nd Or lic k v ari ou sly

c omm itt e d inte rs tate tr ans po rt atio n o f s tol e n p ro pe rt y in v iol atio n o f 1 8 U .S. C. § 23 14 , whic h p ro vid e s: Whoever tra

nsports, transmits, or transfe rs in interstate or fore ign c ommerce any . . . secur ities or money , of the va lue of $5,000 or mor e, knowingthe same to have been stolen, c onverte d or take n by fra ud; or Whoever, having de vised or intendingto devise any scheme or ar

tifice to def

raud, or fo r o bta ini ngmon e y

. . . b y me ans of fa lse or fr a ud ule nt p re te ns e s, re pr e se ntatio ns , o r p ro mis e s, tr ans po rt s o r c a us e s to be tr ans po rt e d .
. . in i nte rs tate or fo re ig n c omm e rc e in t

he e xec uti on

or c on c e a lme nt o f a

sc he me or

art if ic e to defr aud that per son or those per sons of money or prope rty

havinga value of $5,000 or more . . . . 18 U.S.C. § 2314. 15 superceding 25 -count indi ctm ent charging Schwartz, Mey er, Le vy , and Orlick
w ithvari ous pe rm

utatio ns o f fr au d and the ft f or the ir r es pe ct ive r ole s inthe above schem e. T he case w ent to trial on October 19, 2004, and on De cem ber 1 the j ury 22Count 8: all defendants c onspired to commit money launder ing a ctivity

in violation of 18 U.S.C. § 1956(h), which prohibits “c onspir[i ng ] t o commit any offe nse def

ined in this section or section 1957.” 18 U .S.C. § 1956(h). Counts 9-18: defenda

nts variously

committed money

launder ing pr omotion in vi olation of 18 U. S.C. § 1 95 6( a )( 1) (A )( i) , whic h th e n p ro hib ite d “ c on du c t[in g ] or atte mpt [ing ] to c on du c t . . . a fina ncial tra nsaction which in fa ct involves the proc eeds of specifie d unlawful a ctivity ,” while “knowingthat the prope rty involved in [ the] financial tra nsaction re prese nts the proce eds of some for

m of unlawful a ctivity ,” and “ (A)( i) with the intent to promote the ca rry ing on of specifie d unlawful a ctivity .” 18 U.S.C. § 1956(a) (1)( A)(i)
. Counts 19-24: S chwa

rtz, L evy , Orlick, a

nd Ratfield var iously

committed money launder ing ( conce alment) in violation of 18 U.S.C. §§ 1956(a)( 1)(B )(i), which then prohibited “conduc t[ ing] or attempt[ing] to conduct . . . a f inancial tra

nsaction which in fa ct involves the proce eds of spe cified unla wful ac tivity ,” while “ knowingthat the prope rty involved in [ the] fi na nc ia l tr ans a c tio n r e pr e se nts the pr oc e e ds of so me fo rm

of un lawf ul a c tiv ity ,” and

“ (B )( i) knowingthat the transa ction is designe d in whole or in par t [ ] t o conce al or disguise the nature , the location, the sourc e, the owne rship, or the c ontrol of the proc eeds of specifie d unlawful activity .” 18 U.S.C. § 1956(a) (1)( B) (i). Count 2 5: O rl ic k c on du c te d mo ne tary tr ans a c tio ns in c ri min a lly de ri ve d p ro pe rt

y in v i o l at i o no f 1 8 U. S
. C
. § 1 9 5 7 , wh i ch p ro h i b i t s “kn o wi n gl y en gag[ i n g] o r a t t emp t [ i n g] t o en gage in a mon e tary tr ans a c tio n in

c ri min a lly

de ri ve d p ro pe rt

y of a va lue g re ate r t

ha n $ 10 ,0 00 and

is derive d from spec ified unlawf ul activity .” 18 U.S.C. § 1957(a)
. As we state su

pr a at no te 1, the jur

y fo un d Ratf

ie ld n ot guil ty

a s to a ll c ha

rg e s. 23 The jury

found Schwa

rtz guilty of Counts 1-11, and 14, and not guilty as to Counts 12, 24 20, and 22. The jury

found L evy

guilty as to Counts 1-9, 13, 15-19, 21, and 24, a nd not guilty

as to Count 23. The jury found Meyer guilty

of Counts 1, 8, and 14, and a cquitted him as to Counts 2-5 25 and 7. 16 co nvi ct ed S ch w ar

tz and L ev y

of c onsp ir ac ie s to c om

m it m ai l f ra ud and i nte rs ta te 23 tr an spor ta tio n of sto le n pr ope rty

( both un de r Co unt

1) , and m one y

launde ri ng (C ount 8) , a s w el l a s num er ous subs tanti ve c ount s. Me y er w as c onvi ct ed

of the 24
co nspi ra cy

c harg es and o ne c ount

of m one y launde ri ng. O rl ic k w as c onvi ct ed of 25
c o n s p i r a c y t o c o mm i tmai l f r au dan di n t e r s t a t e tr an s p o rt a t i o no f s t o l e np r o p e rty –Th e jur y fo un d O rl ic k guil ty

of Counts 1- 7, 19 , 2 1, and

24 -2 5, and

no t guil ty

of Counts 26 8-9, 13, 15-18, a

nd 23. Schwar tz was sentence d to 60 months’ imprisonm ent as to Counts 1-5, 120 months as 27 to Counts 6-7, and 210 months as to Count s 9-11 and 14, with thre e-year terms of super

vised r e l e a s e , a l l t o b e s e r

v e d c o n c ur r e n t l y. 60 months a s to Counts 1- 5, 12 0 mo nth s a s to Counts 6- 8, and 23 5 mo nth s a s to 28 Counts 9, 13, 15-19, 21 and 24, with three- y ear terms of super

vised rele ase, a ll to be served concur rently with eac h other a

nd with the sentenc e pre viously imposed in Case No. 99-Cr- 8125- Hurley (S.D. Fla .). 48 months a s to Counts 1, 8, and 14 , w iththr e e -ye ar t e rm s o f s up e rv ise d r e le a se , a ll t o 29 b e s e r v e d c o n c ur r e n t l y. 6 0 m o n th s a s t o e a c hc o un t , t o b e s e r v e d c o n c ur r e n t l y. 30 The c ourt delayed its order of re stitut ion pursuant to 18 U.S.C. § 3664(d)(5), which 31 pr ov ide s: I f t he vic tim ’s los se s are no t a sc e rt a ina ble by the date tha

t is 10 da y s p ri or to se nte nc ing , th e atto rn e y

fo r t he Go ve rnme nt o r t

he pr ob atio n o ff

ic e r s ha ll s o inform the cour

t, and the cour

t shall set a date f

or the fina l determination of the v i ct i m ’s l o s s es , n o tt o ex ce ed9 0 d ay s af t er s en t en ci n g. 17 but not c onsp ir ac y

to co m m it m one y

launde ri ng –

and num er ous subs tanti ve co unt s. 26 O n M ar ch15, 200 5, the c ourt se nt S ch w ar tz to pr iso n f

or 210 m onths, 27 L ev y f or 235 m onths, and M ey er f or 48 m onths. O rl ic k w as se nte nc ed on Apr il 28 29 28, 200 5 to ate rm

of 60 m onths. 30 On June 1, 2005, the court conducted a restitution hearing and am ended 31 the j udgm en ts o f Sc hw ar tz , Me y er , and L ev y

to or de r $32, 381, 080. 62 i n re sti tut ion
. T he c ourt am en de d O rl ic k’ s j udgm en t t o or de r $16, 894, 476. 72 i nTh e fo ur c od e fe nd ants c ha lle ng e the ir c onvic tio ns on

se ve ra l g ro un ds . T he on ly 32 g rounds havingmerit, that are worthy of discussion, are those dea lt with in t he succ eedingtext . Prior to trial, the Gover

nment moved the cour

t in lim ine to obtain advanc e ruling s on 33 th e a dm i s s i b i l i ty

o f s t at em en t s m ad e b y

th e d ef en d an t s t o FBI agen t s an d o th er s , i n cl u d i n g a statement made by

Meyer dur ing a

nd in relation to FCS’s bankr uptcy proce eding s. The statements, as prof

fer ed, had be en re dacte d in an attempt to avoid B ruton problems. Sever al of the proff ere d statements implicated Schwa rtz. His attorney

there fore argued that, eve n as reda cted, the statements implicated his client in violation of the Six th Amendment and B ruton. Although the transcr ipt of the hea ringon the motion in li mine is not clear, it appe ars that the c ourt re se rv e d r

uli ngon the a dmi ssi bil ity

of the se ve ra l st ate me nts until the y we re of fe re d into evidenc e at tria l. At trial, when the Gover

nment offe red Me yer’ s statement into evidence , Schwar tz’s counsel re iterate d the objection he ha d made at the hear ing. T he cour t overrule d his objection, concludingthat the re daction wa s sufficient to re move Schwar tz’s identit y . 18 re sti tut ion
. T he f

our c ode fe ndants the re af

te r fi le d ti m el y

not ic es of

appe al
. 32 II. T he G ove rn m en t i ntr oduc ed int o e vid en ce ove r Sc hw ar tz ’ s ob j ec tio ns a red act edst at em en t m ad e b y co de fen da nt Meyer, who di d n ot tes ti fy at t ria l. Sc hw ar tz arg ue s th at

the state m en t i nc ulp at ed him in vio la tio n of

the S ixth A m en dm en t’ s C onf

ro ntatio n C lause by

im ply ing his gui lt w ith out

a ff or din g hi m the opp ortun ity

to cr oss -e xam ine the de cl ar an t. S ee Br uto n v. U nit ed

S ta te s, 391 U
. S. 123 , 88 S
. Ct
. 162 0, 20 L
. E d. 2d 4 76 ( 1968 ). U nli ke in Br uto n, the 33 statem ent here did not incul pate Schw artz by nam e. Instead, it nam ed
co rp or at ion s he ow ne d or c ontro lle d, w hic h he arg ue s c om pe lle d an in fe re nc e of hi s g ui lt . See Gray v. Marylan d, 5 23 U.S. 18 5, 1 95 , 11 8 S . Ct. 1 15 1, 1 15 6, 1 40 L. Ed. 2d 294 (1998) (notin g that the “ kindof, not th e sim ple fact of, inference ”19

m atters). T he Governm ent, though, in its clos ing argum ent to the jury , linked Sc hw ar tz to the a ff

idavit by nam e. A ft er

the G ove rn m en t’ s arg um en t, S ch w ar tz
m ove d f or am istri al and the c ourt de nie d th e m oti on. Ine va luatin g S ch w ar

tz ’ s B ru tonc la im , w e ex am ine the w hol e re co rd to de te rm ine w he the r a re as ona ble j ur or w as c om pe lle d to dr awan in fe re nc e of Schw artz’ s guilt from

the codefendant statem ents. Se e H arrington v. California, 395 U
. S. 250 , 254 , 89 S
. Ct
. 172 6, 172 8, 23 L
. E d. 2d 2 84 ( 1969 ) (“ O ur j udgm en t
m ust be ba se d onour

ow n r ea din g of

the r ec or d and o n w ha t se em s to us t o have been the probable im

pact of the [c odefendant statem ents] on the m inds o f an
av erag e jury.”). A. W e co nsi de r the f

oll ow ing in the or de r it w as pr es en te d to the j ur y a t tri al : the G ove rn m en t’ s e vid en ce a ga ins t S ch w ar tz li nki ng h im

to Me y er ’ s st at em en t; the state m en t i tse lf

; and the G ove rn m en t’ s c los ing arg um en t.

1. The G overnm ent called forty -two w itnesses in it s case in chief, which lasted from Oc tober 20 to Novem

ber 12, 2004. O ne of the G overnm ent’ s chief goals wa s to sho w that F CS, at Sc hwartz’ s direction, used investo r m oney to m ake asset based loans, in spite of its representation to investors th at it would use their m oneySumme rs c oo pe rate d w iththe Go ve rnme nt p ur su ant t o a lim ite d u se immun ity 34 agree ment. He wa s not charg ed as a codef endant in the indictment. The Gover nment called Summers on October

29, the six th day

the jury hear d testimony . Although nume rous witnesses had testified to the e ffe ct that Schwar tz was the president of F CS and to some ex tent ran the sh ow , Summe rs wa s th e fi rs t to g o into d e ta il r e g ard ingSc hw art z’s mana g e me nt o f F CS and his oth e r c or po ratio ns . Summe rs wa s a

pa rt ne r i n th e fi rm

Mattl in & Mc Clo sk

y wh e n Sc hw art z as ke d h im t o 35 ha nd le the le g a l f

or matio n o f F CS in

19 92 . B e sid e s r e pr e se nti ngF CS, h e re pr e se nte d Sc hw art z persona lly

in two or three matters. He sold his partnership shar es bac k to Mattlin & McClosky sometime around 1994 a

nd beca me “g ener al counse l” to FCS. Acc ording ly , he moved out of Mattlin & McClosky ’s offic e and suble ased of fice space from F CS (although F CS paid for the sublease) . His office was sepa rate d from F CS’s office spa ce by a door, which was usua lly kept closed a nd sometimes locked. Summers was not tec hnically “in-house” counsel to F CS. Al tho ugh F CS r e ta ine d h im, he ma int a ine d o the r c lie nts a s w e ll. Horwin lef

t FCS in 1999. 36 20 st ric tl y to pu rch as e g ov ern m en t o r in su redacco un ts rece iv ab le
. L ee S um m er s, F CS ’ s f

ir st atto rn ey , te sti fi ed

f or m or e than tw o day s a

bout Schw artz’ s busi ness affair s with FCS and other corporations. Schw artz r ecruited 34 Sum m er s in199 2 to f

orm F CS , w hic h r et ai ne d hi s le ga l se rv ic es unt il 1999
. 35 Sum m er s te sti fi ed

to the f oll ow ing
. Schw artz w as the president of FCS. Schw artz and a shareholder nam ed Fred H orwin w ere the onlytwo direc tors. FCS had early on form ed a com

m ittee 36 to co ns id er p ot en ti al in ve st m en ts an d m ak e rec omm en da ti on s t o t he bo ard
. Schw artz, however, as CE O and “ m aj or shareholder,” occasionally funded an inv es tm en t i n sp ite of

the c om m itt ee ’ s r ec om

m en da tio n a ga ins t i t. D ur ing the c our se of

his w ork f

or F CS , S ch w ar

tz oc ca sio na lly

c am e uponSumme rs pr ov ide d f e w d e ta ils a

bo ut t he se tr ans a c tio ns . 37 May 20, 1987 incorpora

tion papers listed Schwa

rtz as the incorporator, initial director, 38 and pr e sid e nt. Re ins tate me nt p a pe rs fi le d in

19 96 lis te d Sc hw art z as pr e sid e nt a nd lis te d F ir st Consolidated’s addre ss, which was the same a s FCS’s. First Consolidated’s 1997 and 1998 filing state ments both list ed Schwa rtz as the president a

nd reg istered a g ent. The 1999 f iling state me nt, ho we ve r, lis te d N ikk i N e db or (t he atto rn e y

wh o e ve ntu a lly

re pla c e d Summe rs at F CS) as F irst Consoli dated’ s ag ent, with Schwar tz s till as president. The 2000, 2001, 2002, a nd 2003 filings listed Schwa

rtz as ag ent and pr esident. Th e Go ve rnme nt i ntr od

uc e d tw o c he c ks ma de fr om F CS to F ir st C on so lid ate d: a July 39 31, 1998 chec k in the amount of $35,000 and a J une 24, 1998 che ck in the amount of $70,000. Summers testified that he knew that First Consolidated re ceive d commissions from FCS, and that, likewise, F irst Consoli dated sometimes sent money to FCS. He did not know, howeve r, wh e the r t he tw o c he c ks me nti on e d a bo ve re pr e se nte d c omm iss ion pa y me nts . 21 busin ess oppo rtunities. Sum m ers advised him

to offer each opportuni ty to FCS be fo re takin g it

him se lf , and t es tif

ie d th at S ch w ar tz nor m al ly got H or w in’ s c onse nt before doing so. On sever al occasions, Sc hwartz and Horw in purchased sto ck the y be cam e aw ar e of

in the c our se of

a ct ing in the ir

c ap ac ity a s di re ct or s of FCS. 37 Schw artz owned and operated a com pany called Fir st Conso lidated Fi nanc ia l C or

por at ion( “ Fi rs t C onso lid at ed ”)
. T he G ove rn m en t i ntr oduc ed F ir st Consol idated’ s incorporation papers and filing statem ents, which sho we d that Schw artz c ontrolled th e com pany . First Consolidated refer red investors to FCS 38 and, in return, FCS paid a com m issio n to Schwar

tz – above and bey ond h is FCS
sa lary – f or e ac h r ef er ra l. 39 FC S re gul ar ly

did bus ine ss w ithoth er

c or por at ion s owne d part ly

byFCS had loane d $100,000 to Nick’s Italian Fishe ry less than a year

befor e. 40 S h i p s , S um m e r s n o t e d , o f t e nd e p r e c i at e r a

p i d l y. 41 22 Sc hw ar tz , both by

f ac tor ing the ir

a cc ount s and b y

m ak ing the m

loans ( m any

of
w hic h w er e ne ve r re pa id)
. T hr ee sc en ar ios r ec ount ed by S um m er s li nk S ch w ar

tz to the Brutonized statem ents at issue. First, FCS m ade a loan to Florida Restaurant Managem ent, which had been fo rm ed by S um m er s a t S ch w ar

tz ’ s r eque st, f

or the pur pose of pur ch as ing the
re sta ur ant N ic k’ s I ta lian F ish er y . A lth oughS um

m er s’ te sti m ony

is not e nti re ly 40 clear , it see m s that FCS w as j oined in the purchase by Schw artz’ s consul ting firm First Consolid ated, defendant Le vy , and a m an nam ed Alex, the m aitre d’ at N ic k’ s. S um

m er s “ did not iss ue any sto ck to Fi rs t C ap ita l” a s ar es ult of the loan, an d di d no t kn oww he the r FC S’ s bo oks ac co unt ed f or the loan. S e c o n d , F C S l o an e dar o u n d$ 1 6 0 , 0 0 0 t o S e ah aw kDe e p Oc e anTe c h n o l o g y, In c. (“Se ah aw k ”) , atre as u re s al v ag er . Th e l o an wa s s ec u re db y a p re fe rr eds h i p ’s
m ortgage on on e of Se ahawk’ s “ resear ch vessels.” T he value of the lien wa s ba se d onathr ee - to f

our -y ear- old

appr ai sa l of

the ve sse l. S ubse que nt t o th e loan,

41 the ve sse l’ s c re wpla ce d se ve ra l a dm ir al ty li en s onit

f or it em s li ke doc ka ge and
m at er ia ls, w hic h turn ed

out to be sup er ior

to FC S’ s in te re st i n th e shi p. I t i s unc le ar w he the r Se ah awk e ve r re pa id the loan.At some point, either whe n FCS loaned money to Vander

bilt or later, Schwa

rtz was the 42 sole direc tor and primar

y share holder of V ander

bilt. S ummers could not re member whether Schwar tz held his interest in Vande rbilt personally or through other c ompanies under his control. In any case , Summers testified unequivoca lly that Schwar

tz controlled Vander

bilt S quare . I t is unclear f

rom the re cord whether

Seahawk or anothe r salvag e compa ny , Ody ssey 43 Marine, a ctually

discovere d the trea sure. Th e Dr y To rt ug a s is a c ha in o f s e ve n is land s a

bo ut s e ve nty

mil e s w e st o f K e y

Wes t, 44 Florida . The islands and its surroundingshoals and waters compose the Dry Tortug as National Park, administere d by

the National Par

k Service
. Summers relayed anothe r notable e pisode involving a deal in which F CS factore d the 45 acc ounts rece ivable of Q -Pack, a food pac kag ing c ompany . Summers discovere d that Q-Pac k was fr audulently

endorsingthe sig nature of the de btor, Fr ito-L ay , on letters indicatingthat Fr itoL ay consente d to the fac toringdeal. Summers re commended that FCS stop factoringQ-Pac k’s invoices, but Schwar

tz and Horwin overr

uled him. He later

discovere d that First Consolidated, owned by Schwar tz, and another c orporation owned by Horwin we re pr oviding c onsulting service s for Q- Pack at the time Summers discove red Q -Pack’ s fra ud. 23 T hir d, F CS loane d m one y to V an de rb ilt

S quare , ac om

pany c ontro lle d by Sch wart z, to pu rch as e th e Dry Tort ug as tre as ur e fro m

Seah awk
. The t reas ur e, a 42 43 collection of artifacts r ecovered f rom a Spanish galleon in th e w aters of the D ry T ortug as , inc lud ed

gol d bars , c annon, j ew el ry , and a str ola be s. A cc or din g to 44 Sum m er s, “ V an de rb ilt

use d ac om

bin at ionof

c as h and i ts s toc k to pur ch as e” the
co lle ct ion
. S um

m er s di d no t kn oww he the r FC S doc um en te d it s lo anto V an de rb ilt

and h e did

not thi nk V an de rb ilt

e ve r re pa id i t. 45 On No ve m

be r 4, 2 00 4, t he Gov ern m en t ca ll edAlan Gol db erg as awit ne ss . On Mar ch 31, 2000, Schw artz hire d Goldberg, a professional bankrup tcy

trustee
an d t urn- aro un d- art is t, t o l eadFCS t o p ro fit ab il it y as C hi ef Op erat in g Off

ic er.The c ase w as filed on Ma rch 31, 2000. 46 24 Af ter FC S’ s Chapter 11 bankruptcycase wa s converted to a Chapter 7 46 l i qu i d at i o n ca s e, Go l db er g wa s ap p o i n t edtru s t ee t o p re s i d e o v er FC S’s liquid at ion
. I n hi s c ap ac ity a s F CS ’ s C hie f O pe ratin g O ff ic er and, late r as the bankrupt cy

trustee, Goldberg becam e intim ately acquainted with FCS ’ s financial his tor y and i ts o uts tandi ng c re dit s and d eb ts. H e te sti fi ed a s f oll ow s. F CS m ad e loans t o F lor ida Re sta ur an t M an ag em en t f

or the pur pose of buy ing Nick’ s and then paidoff N ick’ s debts and carried the paym ents at first as

“ ac co unt s r ec ei vable , ” an d th ena s “ as se t ba se d lo an s. ” A t tha t po int , S ch w ar tz
an d L ev y both ha d an owne rs hip int er es t i n N ic k’ s I ta lian F ish er y , a cc or din g to G old be rg . F CS ne ve r co lle ct ed adim e fr om

N ic k’ s or

F lor ida Re sta ur an t Mana ge m en t. Gol db erg als o re la y edhi s ro le in th e h un t fo r th e Dry Tort ug as tre as ur e. FCS m ade a loan to Vanderbilt Square to acquire the collection. T hat loan was secured by

the collection, w hich FCS had appraised at around $5 m illion
. FCS also m ade a loan to Michael’ s Jewelr y and Michael’ s International, both of which pr om ote d and tri ed

to se ll the tr ea sur e. E ve ntu al ly F CS a cquir ed

pos se ssi on o f the tr ea sur e as part ia l satis fa ct ionof the de bt o w ed

by V an de rb ilt
. As FC S’ s bankrupt cy

trustee, Goldberg w as interested in selling th e trea sure25

to p ay ba ck F CS ’ s c re dit or s. S ch w ar tz tol d hi m , how ev er , that F CS ha d a lr ea dy
so ldan d s en t t he tre as ur e to an Ida ho -b as edco rp or at io n c al le d Gra ndSla m . Goldberg, believing the treasure had been soldfor a frac tion o f its value, tr aveled to I daho i n th e hope s th at the c oll ec tio n c oul d be r ec ove re d. T he pr es ide nt o f G rand S lam

inf orm ed him , how ev er , that the c om pany ha d ne ve r re ce ive d th e good s.G old

be rg , w itha“ cr ew ” of

de puty U
. S. m ar sha ls and B oc a Ratonof fi ce rs , e x e c u t e daw r i to f

e n try i n ah u n tf

o r th e mi s s i n g tr e a s u r e . T h e y d i s c o v e r e ds o me of the loot in Schwartz’ s hous e and m ore at F CS’ s office, in a FedE x box shoved int o S ch w ar

tz ’ s c re de nz a. T he y

a lso f ound 12 “ gol df

ing er ” bars w orth f

ro m $ 2 0 ,0 0 0 t o $ 4 0 ,0 0 0 ap i ec e i n a s h o e b o x i na c l o s et i nSc h wa rt z’s m o th er ’s
co ndom ini um . G old

be rg ult im at el y

sol d th e “ tr ea sur e” f

or about $45 0, 000, or about 10 % of its appraised value as originallyreported by FCS
. Ac cording to Goldb erg, Schw artz owned and served as the president of a corporation called Big Sun, which benefited from loans issu ed by

FCS
. G old be rg a lso c onf

irm ed S um m er s’ te sti m ony

that S ch w ar

tz ow ne d and op erat edFir stCo ns ol id at ed . In ad di ti on to hi s s al ary of $9 6,0 00 a y ear a s C EO
an d pr es ide nt o f FC S, S ch w ar tz w as pa id b ro ke ra ge c om m iss ion s by

F CS f or the deals he negotiated as the operator of First Consolidated. G oldb erg identified26

Sc hw ar tz ’ s si gnatur e on s ev er al c he ck s dr awn ona cc ount s he ld b y F CS , tw o of
w hic h w er e pay ab le to Fi rs t C onso lid at ed
. T he f oll ow ing e xc hange be tw ee n th e p r o s e c u t o r

an dGo l db e r g i s p art i c u l ar l y re l e v an tf o r o u r B r u t o ni n qu i ry: Q : [ A ] re y ou a

ble to quanti fy

any of the tr an sa ct ion s a s f

ar a s th e total dol lar figure
. . . that y ou were able to identify as additional co m pe ns at io n p ai d t o M r. Sch wart z o ve r an d abo ve th e 9 6,0 00 we have a lr ea dy

ta lke d a bout ?

. . . . A: Y es, sir. Q : A nd what ge ne ra l f

igure do y ou r ec al l? A : T he nin ety

day pe ri od i m

m ed ia te ly pr ec ed ing the bankr

upt cy , so that is nin ety

day s from

May 12th o r 14th earlier, First Ca pital Service s disb ursed to Lar ry Schw artz $120,000 and $1 35,000 was dis bur se d to F ir st C onso lid at ed
. I ’ m sor ry , 126 , 000 to F ir st Co nsol idate d. Sch wart z’s at to rn ey

cro ss -ex am in edGol db erg on th atli ne of q ue st io ni ng . Goldberg said that the m oney disbu rsed to First Consolid ated wa s to pay
co m m iss ion s, and “ one w as to re pay aloan th at

. . . F ir st C onso lid at ed

a lle ge dly
m ad e to F ir st C ap ita l, tw o or thr ee I don ’ t r ec al l. ” S ch w ar tz ’ s a tto rn ey

sa id: Q : F ir st C ap ita l S er

vic es , the c om

pany w ithy ou [ G old

be rg ] a t i ts he ad , and the c om

m itt ee s of uns ec ur ed

c re dit or s e nte re d in to a se t t l e m e nt

a gr e e m e nt

w i th F i r st

C on so l i dat e d, L arry

S c hw art z , r i gh t ? A : C or re ct . Q: And that settlem ent agreem ent was f or all claim s that First Capital Service s and the com

m ittees of unsecured cre ditors had agains t either Fi rs t Co ns ol id at ed , Larry Sch wart z an d a ctua ll y

a Deb ra St an le y , Z. B. L ev in, S ar a L ev in and P al m Bay Ca pit al , r igh t? A : I be lie ve that’ s c or

re ct . Q : A nd h owm

uc h w as the a m ount

of that se ttl em en t?Th e le tte r s tate s: 47 Pursuant to terms of that ce rtain promissory note in the amount of $2 million that is dated ef

fec tive October

1, 1997 in favor of

First Capital Service s, Inc., be advised that Va

nderbilt has fa iled to make pay ments of the ac crue d interest due on No ve mbe r 1 , 1 99 7 a

nd a ll s ub se qu e nt p ay

me nts . A s a

re su lt o f s a id f

a ilure , F CS has ele cted to take possession of some of it’s the [sic] collateral that ser ves as the secur ity for sums due unde r the note. In particula r, F CS hereby

demands the delivery of the a rtifac ts known as the Dr

y Tortug as Artifa cts Collection, including but no t li mit e d to g old

ba rs , s ilv e r c oin s, pe arl s, oli ve jars , b e a ds , thre e a str ola be s, g o l d c h a i n s , r i n g s , v ar i o u s p l at e s , v ar i o u s c e r am i c p i e c e s , c ann o nb a l l s , p o t t e r y, c h ar d s an d

b a l l a s ts t o n e s . P l e a s e d e l i v e r a l l o f s a i d c o l l at e r a l t o F C S f

o rth w i th
. In the e ve nt F ir st C a

pit a l de c ide s to a c c e le rate the sums d ue un de r t he no te , it sh a ll execute ag ainst the collater al in its possession and all other collater al which ha s been g iven as sec urity

for the loa

n. 27 . . . . A: 650,000 I believe. On N ovem

ber 8, the Governm ent called N ikki Nedbor. S he testified that Sc hw ar tz a lon e int er

vie w ed he r fo r the pos iti on o f in- hous e co unse l, a s S um m er s’ replace m ent. A ccording to her, Sc hwartz w as the president of Vanderbilt Square,
su bs eque nt ly renam edTreas ur es & Exh ib it s In te rn at io na l, In co rp or at ed . On Novem ber 12, 1999, N edbor wrote a letter on FCS letterhead to L arry Schw artz, as president of Vanderbilt Square, dem anding the collateral of the Dr y Tortugas collection in p aym ent of Vanderbilt’s debt to FCS
. 47 St ep he n K el le y

te sti fi ed on N ove m

be r 9. H e is a

f or en sic a cc ount an t w ith th e f i rm Be rg er , Ep s t ei n & G arv er , P A, w h i ch wa s h i re di nJ an u ary 2 0 0 0 b y FC S’s counsel to p repare FCS ’ s tax returns for the y ears 1996 throug h 200 0. While at FC S’ s of fi ce he le ar

ne d th at S ch w ar tz w as “ af

fi liate d” w iththe Bi g S un f am ily ofKe lle y a lso te sti fi e d th at F CS r e c e ive d th e fo llo wi ngsums i n r e pa y me nt o f t ho se loa ns : 48 $60,000 from Nick’ s, $40,000 from Michae l’s International, and about $57,000 fr om BigSun. Th e c ourt

wa s r e fe rr ingto t

he re da c tio ns the Go ve rnme nt h a d ma de in a n atte mpt to 49 avoid a B ruton problem, see note 34, supra. 28 co rp or at ion s. K el le y of fe re d de ta ile d te sti m ony

on F CS ’ s a sse t ba se d lo an s f ro m 199 7 to
som etim e in 1999 , based on several sum m ary reports of FC S’ s book s. D uring that t i m e p er i o d , F CS i s s u ed , i n t eral i a, th e f o l l o wi n g l o an s : $ 1 ,0 2 7 ,0 6 2 t o Ni ck ’s It al i an Fi s h ery, $7 6 2 ,6 0 7 t o Va n d erb i l tSq u ar e, $ 5 9 2 ,7 5 3 t o Mi ch ae l ’s In te rn at ion al , $46 2, 420 to B ig S un, and $ 154, 000 to S eahaw k. 48 O n Ju ly 19, 199 7, F CS be gan a cc ount ing f or c er ta in transa ct ion s to Bi g S un, Nick’ s, and Michael’ s International as asset based loans, even though they had originallybeen car

ried on the boo ks as accounts receivable. K elley ’ s team wa s unable to finddocum entation to j ustify that change one way

or the other. 2. On N ovem

ber 10, bef

ore ca lling any

witnesses, the Governm ent proffer ed
an“ A ff idavit of E dw ar d M ar

k M ey er , ” w hic h or igi na te d a s e vid en ce in FC S’ s bankr upt cy pr oc ee din gs. S ch w ar

tz r ai se d “ [t ] he sam e obj ec tio ns tha t w e have di sc us se d abo ut Bru to n.” The co ur t o ve rru le d t he ob jecti on “ wit h t he ch an ge s we have previouslym ade” and adm itted the docum ent into evid ence as 49B e fo re re da c tio n, thi s st ate me nt r e a d: “ F ir st C on so lid ate d F ina nc ia l Co rp or atio n is a 50 company owned [and] controlled by L arr y Schwar tz.” In this inst ance , “F irst Consoli dated” was substituted for “ Mr. Schwar tz,” which 51 a pp e are d in

the or ig ina l. 29 G ove rn m en t’ s E xhi bit

1. 76. T he n apr ose cu tor r ea d th e te xt o f the state m en t t o th e ju ry. T he a ff

idavit ’ s th em e is s um

m ed up i n it s a sse rt ionthat “ Fi rs t C ap ita l w as in the busin ess of fac toring account receivables and also m ade asset-based loans.” It state s: Para graph 9. When First Capital m ade loans to or advanced m onies pur suant t o f

ac tor ing a gr ee m en ts w iththi rd part ie s F ir st Co nsol idate d w as pa id a c om m iss ionsom et im es appr oa ch ing 20 50 pe rc en t of

the a m ount

a dvanc ed
. Para gr ap h 10
. I n so m e ins tanc es w he n F ir st C ap ita l m ad e loans t o or fa ct or ed inv oic es f

or thi rd part ie s, inc lud ing F ir st C onso lid at ed , it rece iv edsh ares of s to ckor o wne rs hi p i nt eres t i n t ho se th ird pa rti es . T he se share s of

sto ck or ow ne rs hip int er es ts w er e not e nte re d in to the book s and r ec or ds o f Fi rs t C ap ita l. E xam ple s of tr an sa ct ion s in w hic h F ir st C onso lid at ed r ec ei ve d sh ar es of sto ck or ow ne rs hip 51 int er es t i nc lud e Su

pe ri or W at er log ge d L um

be r an d A viatio n Co m posi te s, I nc or

por at ed
. Para graph 12. I w as never able to asce rtain that the shares of stock had been properly

issued in the nam e of Fir st Capital and was never ab le to en te r suc h a sse ts o n th e co m pany ’ s bo oks. Para gr ap h 13
. F ir st C ap ita l a lso m ad e loans and a dvanc ed m oni es to Vanderbilt Square Com

pany and to Michael’ s International Jewele rsRedac ted: “At the time, Mr. Schwa rtz repre sented to me that he owned Micha el’s 52 J ewe lers.” Redac ted: “At the dire ction of Mr Schwa rtz.” 53 Redac ted: “substantially owned a nd/or controlled by

L arr y Schwar tz.” 54 30 (“ Mi ch ae l’ s Je w el er s” ). T he se f unds w er e use d by

V an de rb ilt

to 52 pur ch as e the inv en tor

y of Mi ch ae l’ s Je w el er s and o the r as se ts. Para gr ap h 14
. A s part

of the se tr an sa ct ion s w ithV an de rb ilt and Mi ch ae l’ s I nte rn at ion al Je w el er s, alarg e am ount of gol d c oin s, pe ar ls, gold finger bars, silver bars and other artifa cts (known collectively as the “ D ry T ortug as T re as ur e” ) cam e int o th e poss es sio n of F ir st Ca pit al
. P ortio ns o f the tr ea sur e w er e de liv er ed to the of fi ce s of F ir st Ca pit al in Bo ca

Raton . Aportio n of

the gol d w as pe rs ona lly

br ough t by m e an d Z ac hary

Me tr ic k, ope ratio ns m an ag er of F ir st C ap ita l, to 53 First U nion Bank, T own Center Branch, located at 5355 Town Ce nter Ro ad , Bo ca

Raton , F lor ida , 334 86, to be sto re d inasa fe ty de posi t box. Para graph 15. In addition to the “ Dr y Tortugas Trea sure,” invento ry fr om Mi ch ae l’ s Je w el er s c onsi sti ng o f num er ous w at ch es , inc lud ing Ro le x, Cart ie r an d othe r de sig ne r m ak es , w as a lso de liv er ed to the of fi ce s of F ir st C ap ita l. T he se w at ch es w er e subs eq ue ntl y sol d to w hol es al er s. T he pr oc ee ds o f the se sa le s di d no t go int o th e book s and records of Fir st Capital. T hese loans and advances were never re pa id t o F ir st C ap ita l. Para graph 16. In addition to loans m ade to third parties, on several oc ca sio ns F ir st C ap ita l l oane d su bst an tia l sum s of

m one y to co m panie s. E xam

ple s of the se tr an sa ct ion s in cl ude d lo an s or 54 fa ct or ing arr an ge m en ts m ad e w ithBi g S un I nve stm en ts, I nc . , and Fl or ida Re sta ur an t M an ag em en t, I nc . ( w hic h owne d and o pe rate d a restaurant known as N ick’ s Italian Fishery ). T his inclu ded factored invo ices for and advanced m oney to Southern Multi-Capital, w hich pr ovi de d pavin g se rv ic es f or Bi g S un. F ir st C ap ita l w as ne ve r ab le to collect on the invo ices fr om Big Sun or never intended to seek31

collection from

Big Sun of the invoices. T he invoi ces totaled hundre ds o f tho usands of dol lars . Para graph 17. A dditi onally , F irst Capital directly paid the invo ices generated by

m aterialm en, suppliers and contractors who w ere pr ovi din g se rv ic es and m at er ia ls t o B ig S un I nve stm en ts f or co nstru ct ionw ork inO ca la , F lor ida
. T he se a m ount s to ta le d ine xc es s of several hundred thous and doll ars. Such advances w ere book ed as ad dit ion al loans t o B ig S un. B ig S un, how ev er , ne ve r re pa id any of the loans o r advanc es m ad e ei the r dir ec tly to it or on b eh al f to i ts thi rd party c re dit or s. Para graph 18. I w as directed to issue checks to third party com panies w ith out any due dil ige nc e be ing c ondu ct ed a s to w he the r the loans b y First Capital should b e m ade. A ft er the pr ose cu tor

r ea d th e state m en t t o th e j ur y , the c ourt i nstru ct ed

the j ury to consid er it only

against Mey er. B. T he pr ose cu tor ’ s c los ing arg um en t t o th e j ur y be fo re it r et ir ed to co nsi de r its verdicts included th e following rem arks on the above evidence:

W e talked ear lier about what Fir st Capital did with the m oney an d sp ec if

ic al ly w e knowf

ro m the dis cu ssi on and ana ly sis don e by Mr
. K el le y

and M r. G old

be rg and the e vid en ce in thi s c as e that F ir st Ca pit al uti liz ed

asig nif ic an t po rt ionof

the m one y

that w as inv es tor funds to g o to a sse t- ba se d lo an s, m any of w hic h w er e co ntr oll ed

by or af fi liate d w ithMr
. S ch w ar

tz . Wha t are som e of

tho se c om

panie s? N ic k’ s I ta lian F ish er

y , ar es taur an t. T he y

don ’ t have any accounts receivable. T here is no factoring in a re staurant. W ho owes y ou m one y

in a re sta ur an t? T he c ust om er

that c om es in to b uy

f ood, buy a m eal. T here’ s no accounts receivable there. A nd Mr. G oldb erg te sti fi ed that whe n he w en t i n to the boo ks and r ec or ds o f Fi rs t32

Ca pit al he dis co ve re d th at

the y w er e doc tor ed

r ec or ds atte m

pti ng t o show that the m onies that hadbeen sent to Nick’ s Italian Fishery we re fa ct or ing w he n th ey

w er e not . N ow , w ho w oul d do that? T he re ’ s on ly tw o pe opl e in this c as e that would have access to those records and have a m otive to d o that and that’ s Edw ard Mey er and Larr y Schw artz. Whatar e the ty

pe s of a ss e t - ba se d l oans thatw e r e i nv ol ve d? Mi ch ae l’ s I nte rn at ion al , Mi ch ae l’ s Je w el ry , S outh M ount ai n R es ort, an[ as se t- ba se d lo an ]
. B ig S un I nve stm en t. W e knowf ro m the re co rd s f ile d w iththe S ta te of

F lor ida that M r. S ch w ar

tz is a dir ec tor o f th a tc o mp an y. W e also know that, w ith regard to other entities that are listed he re, t ha t Van de rb il t Sq ua re was a reci pi en t o f an ass et -b as edlo an .

. . . . Se ah awk D ee p O ce an , ade ep se a div ing ve sse l us ed in tr ea sur er [ sic ] hun tin g. W e know f ro m Mr
. K el le y

that the se A BL ’ s th at

oc curr ed , $9 m ill ionin ‘ 98, onl y

$18 5, 000 w as c oll ec te d f ro m tho se . A nd w ith re gard to the ne xt y ear, $4. 6 m ill ionin as se t- ba se d lo an s, onl y $654 , 000 w as c oll ec te d.

. . . . L et ’ s ta lk a

bout L ar ry S ch w ar tz . L ar ry S ch w ar tz , it is undi sput ed

that he , dur ing the r el ev an t y ears a ft er Mr
. H or w in l ef t, th athe own edan d c on tro ll edFir stCap it al
. . . . Mr. Schw artz w as responsibl e in large m easure f or the AB L div er sio ns. Y ou w ill r ec al l tha t de al s th at oc curr ed and transa ct ion s that oc curr ed

ove r the obj ec tio n or

the r ej ec tio n by

the inv es tm en t com m ittee or the executive com m ittee or the loan com

m ittee, w ha te ve r nam e y ou p ut o n it int er na lly a t F ir st C ap tia l [ sic ] S er

vic es , that the onl y

pe rs on tha t r ea lly

ha d th e au tho ri ty

to ove rr ide the de ci sio ns and the r ej ec tio ns o f the a d ho c co m m itt ee of Z ac k M etri ck , L ee S um m er s and E dw ar d M ey er

w as L ar ry S ch w ar tz , and h e did

it w h e n e v e r h e p l e a s e db e c au s e i twa s h i s c o mp an y. So y ou c an ’ t have it

both w ay s. H e w as r es pons ibl e in l ar ge mea s u r e f o r d i v e rt i n g mo s to f

th i s mo n e y.

. . . . Ev en m o re i m

p o rt an t , h o we v er , wi th re g ar dt o Mr . Le v y’ s33

know le dge of

w ha t w as r ea lly

goi ng o n, is the e vid en ce in thi s c as e that M r. L ev y

w as apartne r w ithMr
. S ch w ar tz in one of

the be ne fic ia l years o f th es e as se t-b as edlo an s, Ni ck ’s Ita li an Fis he ry . Tha t i s p ret ty darn si gn ifi can t, l ad ie s an d g en tl em en , bec au se itsh ows ci rc um stanti al ly

that R ay L ev y kno w s L ar

ry S ch w ar tz ow ns this re sta ur an t.

. . . . W e know

that M r. Me y er

kne we xa ct ly

w ha t w as goi ng o n w ith this com pany and that he aided it despit e the fa ct that he knew what wa s goin g on th ere because he signed a declaration h im self in which he adm itted that. G overnm ent Exhibit 1.76, af ter this com

pany has gone in the toi le t and g one in bankr upt cy , the uns ec ur ed

c re dit or s f

ile a sui t, and i n c onne ct ionw iththi s, and this is in the bankr upt cy c ourt, in c onne ct ionw iththat M r. Me y er pr ovi de s an a ff

idavit in w hic h he is b ei ng s w or

n and h e ind ic at es vari ous fa ct s th at are in thi s a ff

idavit , an d th is i s G ove rn m en t’ s E xhi bit 1. 76. What is sign ificant about the representations that Mr. Me y er sw ears are tr

ue ? Inpara gr ap h 9 h e say s whe n F ir st C ap ita l m ad e loans w iththi rd

part ie s F ir st C onso lid at ed w as pa id a

c om m iss ion som et im es appr oa ch ing 20 p er ce nt o f the a m ount a dvanc ed
. F ro m ind ep en de nt e vid en ce in thi s c as e y ou knowthat the pe rs on be ne fi tti ng f

ro m tho se c om

m iss ion s th at

pa id s om et im es 20 p er ce nt o f the ABL ’ s was L arry

Schw artz. T he independent evidence has de m on st rat edto y ou in th is cas e . . . [S CH WA RT Z ’ S CO U

N SE L ] : I have an ob

j ec tio n a t this poi nt and would ask the Court to in struct the j ury that evidence again can onl y be c onsi de re d a s to Mr
. Me y er , not a s to Mr
. S ch w ar

tz or any o th e r d e f e n d an t . Th a t ’s ar g u men ti ns up p o rto f th e i r c o n s p i r a c y. THE COURT: Cer ta in ly as to th is affi da vi t, t ha t i s t he cas e. That a ffidavit wa s introdu ced only as to Mr. Mey er. [P RO SE CU T O R] : L et

m e m ove on. W ithr eg ar d to para gr ap h 13 , Mr
. Me y er c le ar ly kne w , ba se d on his sworn affidavit, that First Capital m ade loans and advanced m on ie s t o Van de rb il t Sq ua re an d t o M ic ha el ’s Int ern at io na l. He cl earl y kne wthat F ir st C ap ita l w as div er tin g in ve sto r funds to the se pur pose s whil e he w orke d a t F ir st C ap ita l. T ha t, la die s and ge ntl em en , sho w s y ou know ing part ic ipatio n and a idi ng and a be tti ngAfter the Gover

nment’s closingargument, Schwar tz’s attorney

moved the cour

t for a 55 mis tr ia l. H e argue d a s f

oll ow s: [The prosecutor ] pl ace d in front of the jury the af fidavit of Ed Meyer that the Gover nment has per sisted in telling you they clea ned up so it doesn’t impact on L arr y Schwar tz s o that they

can use it justag ainst Mr. Meyer, a nd in arguing c on sp ir a c y

a sp e c ts o f t

he c a se no t on ly

did he , n ot o nly

did he su g g e st that it transgresse d the rule, that the aff idavit only

ref ers to F irst Capital Services, he flat-out said that that a ffidavit wa s proof of guilt as to L arr y Schwar tz. He r e f e r r e d t o L ar r y S c h w art z d i r e c t l y. T h e c o urtd en i edth e m o t i o n , s t at i n g: 34 af r au dc o n s p i r a c y.

. . . . Co unt 20, Co unt

20 i s E dw ar d M ey er

sig nin g ac he ck

on the F ir st Capital acc ount during th is tim e period investor funds from U. S. Ca pit al are in that a cc ount , thi s is Apr il of 199 9, the c he ck

is fo r the am ount of $3, 495 an d th e pe rs on, the e nti ty to w hom thi s c he ck

is cu t is F ir st C onso lid at ed
. No w, F i rs tCo n s o l i d at ed , f ro m th e f ac e o f t h i s ch ec ky o uca n ’t te ll w ho tha t i s. Y ou d on’ t kn oww ho c ontro ls tha t. W e onl y kno wif y ou g o to the r ec or ds o f the S ta te of F lor ida or sub poe nathe a cc ount of F ir st C onso lid at ed

that i t’ s L ar

ry S ch w ar tz . I t’ s no t a

ppare nt f ro m thi s whe re the m one y

c am e fr om , or igi na lly

U
. S. Ca pit al inv es tor s, or wh o ’s b en ef

i t t i n g fr o m

th i s ch ec k . Th at ’s a c o n ce al m en tan dth at ’s Co unt 20.

. . . . W ithr eg ar ds t o C ount 22, sam e co m

m en ts a s be fo re w ith regards to First Consolidated. T his particular check is a c heck ap pare ntl y

sig ne d by

L ar ry S ch w ar tz him se lf on M ay 5thof ‘ 99 w ith Fi rs t C ap ita l. W e knowf ro m S te ve K el ly

m ost of the m one y

in the ac co unt dur ing thi s ti m e pe ri od h ad be enpr ovi de d by

U
. S. Ca pit al
. A nd a ga in a

c he ck to Fi rs t C onso lid at ed , y ou c annot te ll fr om the f ac e of the c he ck

w he re the m one y

c am e fr om

or igi na lly

or w ho co ntr ols the m one y

w he n th is c he ck

w as c as he d or

de posi te d. A nd again there’ s no Larr

y Schw artz e ndorsem ent on the back of that. It j ust say s, “ Fo r D ep osi t O nly , F ir st C onso lid at ed
. ” T ha t i s e vid en ce of co nc ea lm en t, la die s and g en tle m en . 55Ithink the context of the, of Mr. Carlton’s ar gument at that time was with re spect

to M r. Me y e r’ s k

no wl e dg e , a

nd so his argume nt w a s a

pp ro pr iate . I

at your r e qu e st ag ain g ave the instruction that the aff idavit could not be consider ed as to a ny other defe ndant. B ut Idon’t see a ny thing imprope r in the ar gument that he g ave. 35 C. Ac ri m ina l de fe ndant p ro se cu te d by the U nit ed

S ta te s e nj oy s th e Si xth A m en dm en t r igh t “ to b e co nf ro nte d w iththe w itn es se s a ga ins t hi m . ” U
. S. Co nst . am end. V I. O ne purpose of the right is to enable the accused to cross-exam ine,
an d t he reb y

tes t t he cred ib il it y

an d e vi de nt ia ry

for ce o f, th e wit ne ss es ag ai ns t h im
. Se e Br uto n, 391 U
. S. a t 13 6, 88 S
. Ct
. a t 16 28. InBr uto n, the S upr em e Co urt he ld tha t the a dm iss ionof “pow er fu lly inc ri m inatin g e xtr aj udi ci al state m en ts o f a co de fe ndant” vio la te s th e Si xth A m en dm en t’ s C onf

ro ntatio n C lause , e ve n if

the c ourt i ssu es an in str

uc tio n to the j ur y not to co nsi de r the state m en t a s e vid en ce a ga ins t the de fe ndant. I d. a t 13 5, 88 S. Ct . at 1 62 7. Th e Supr em e Co ur t re as on edth at“ in th e co nt ex t o f a joi nt tri al we cannot a cc ep t l im iti ng i nstru ct ion s a s an a de quate sub sti tut e fo r [the de fe ndant’ s]
co nst itu tio na l r igh t of

c ro ss- ex am inatio n, ” id. a t 13 7, 88 S
. Ct
. a t 16 28, the f ine st too l f or te sti ng the c re dib ili ty

of ac ode fe ndant’ s “ de va statin g” state m en t a ga ins t the de fe ndant, id. a t 13 6, 88 S
. Ct
. a t 16 28. S ee a lso id. a t 13 8, 88 S
. Ct
. a t 16 29 (“ Aba sic pr em ise of

the Co nf ro ntatio n C lause , it

se em s to m e, is that c er

ta in k ind sPe tit ion e r R ic ha rd so n w a s tr ie d jo int ly

wi th B e nja

min Willi ams f

or a ssa ult ingCy nth ia 56 Knig hton and murder ing two othe rs in the cour se of a robber y . A third coc onspirator, Ka ree m Martin, was at larg e at the time of their trial. At trial, Knighton testified that Richardson wa s pr e se nt t hr ou g ho ut t

he c ours e of

the ro bb e ry

but di d n ot p art ic ipate in t he sh oo tin g s. Th e State also introduced William’s confe ssion, which “wa s reda cted to omit all refe renc e to [Ri char dson] – indeed, to omit all indication that anyone other than Martin and Williams participated in the crime,” and “la

rg ely corr oborate d Knig hton’s acc ount of the ac tiviti es of pe rsons other than [R ichar dson].” Ri char dson v. Marsh, 481 U. S. 200, 203-04, 107 S. Ct. 1702, 1705, 95 L . Ed. 2d. 176 (1987). Williams’ confession stated that “ Kar eem [Martin] said he would have to take [t he victims] outafte r the robbe ry” while the two w ere on their wa y over to Knighton’s house. 36 of he ar say . . . are a t on ce so d am ag ing , so s uspe ct , and y et so d if fi cu lt to d isc ount , that j ur or s c annot

be tr ust ed to giv e suc h e vid en ce the m ini m al w ei ght it log ic al ly de se rv es , what ev er i ns tru ct io ns th e tr ia l ju dg e m ig ht gi ve .”) (St ewart , J.,
co nc ur ri ng)
. S til l, the Co urt a cknow le dge d th at “ [n ] ot e ve ry

a dm iss ionof ina dm iss ibl e he ar say

or oth er e vid en ce c anbe c onsi de re d to be r ev er sib le e rr or unavoi dable thr oughli m iti ng i nstru ct ion s. ” S ee id. a t 13 5, 88 S
. Ct
. a t 16 27. InRi ch ar dsonv. Mars h, 481 U
. S
. 200 , 107 S
. Ct
. 170 2, 95 L
. E d. 2d. 176 (1 987) , the S upr em e Co urt he ld tha t “ the Co nf ro ntatio n C lause is not

vio la te d by the a dm iss ionof

anon te sti fy ing c ode fe ndant’ s c onf es sio n w ithapr ope r lim iti ng ins tr uc tio n w he n, a s he re , the c onf es sio n is r ed ac te d to e lim inate not onl y the de fe ndant’ s nam e, but

any r ef er en ce to his or

he r ex ist en ce . ” I d. a t 21 1, 107 S
. Ct
. 1709
. T o c om e to i ts c onc lus ion , the Co ur t e xam ine d th e tot al ity

of the G ove rn m en t’ s c as e ag ai nst Ri ch ar dsonand the pr ec ise na tur e of the c ode fe ndant state m en t a lle ge dly

inc ulp at ing he r. I t no te d th at “ the c onf es sio n w as not 56I d. at 204 n.1, 107 S. Ct. at 1705 n.1. The trial court instructe d the jury not to consider the confe ssion as evidenc e ag ainst Richardson. Ric ha rd so n to ok

the sta nd in h e r c a se in c hie f. She te sti fi e d th at sh e wa s w ithWilli ams throug hout the robber

y but not during the shootings, cor roborating the te stimony

of Knig hton. To sh owsh e did

no t kn owthat th e ro bb e ry wo uld e nd in a sh oo tin g , s he te sti fi e d th at sh e c ou ld no t ov e rh e ar t

he c onve rs atio n b e tw e e n Wil liams a nd Ma rt in a s th e thr e e tr ave le d to Kn ig hto n’ s. In the prosec utor’s closingargument, he initially reminded the jury

not to consider Wil liams’ confe ssion ag ainst Richardson. L ater , though, he “linked re spondent to the portion of Wil liams’ confe ssion describing[W illiams’] conver sation with Martin in the car ,” and Richardson did not object. The court re iterate d the prohibition on consideringthe conf ession ag ainst Richardson bef

ore the jury

retire d. I d. at 205, 107 S. Ct. at 1706. As stated in the text, supra, the Supreme Court c oncluded that the r edac tion of any ref ere nce to Richa

rdson’s existence, c oupled with a limiting instruction, immuniz ed the admission of the confe ssion from a Confrontation Cl ause violation. The Court noted, how ever , that on re mand the tr ia l c ourt

sh ou ld c on sid e r whe the r t he fa ilure of

Ric ha rd so n’ s atto rn e y

to ob je c t to the pr os e c uto r’ s st ate me nts at c los ingargume nt whic h, dir e c tly linkin gRic ha

rd so n to Wil liams’ confe ssion, constitut ed an e rror on which a pe tition for a writ of ha beas c orpus may

be g rante d. I d. at 211, 107 S. Ct. at 1702. Th e Ric ha

rd so n Co ur

t r e a ff ir me d th e pr a g matic va lue of pr e sumin gthat a

jur y wi ll 57 follow the cour

t’s limit ing instruc tion, 481 U.S. at 211, 107 S. C t. at 1709, explaining that Br uton was a “ narr ow exception” to that rule, id. at 207, 107 S. C t. at 1707. 37 incrim inating on its face, and becam e so onlywhen linked with evidence introdu ced later

at trial ( the defendant’ s own testim ony ). ” Id. at 208, 107 S. C t. at 1707
. Ther efore, unlik e in Bruton, the trial c ourt’ s lim iting instruction im m unized the pot en tia lly

inc ri m inatin g st at em en t a ga ins t a Co nf ro ntatio n C lause vio la tio n. 57 The C ourt “ express[ed] no opi nion ,” however, “ on the adm issib ility of a
co nf es sio n inw hic h th e de fe ndant’ s nam e ha s be enr ep la ce d w ithasy m bol or ne utr al pr onoun. ” I d. at 21 1 n. 5, 107 S
. Ct
. a t 17 09 n
. 5. InG ray v. Mary land, 523 U
. S. 185 , 118 S
. Ct
. 115 1, 140 L
. E d. 2d 2 94 ( 1 9 9 8 ) , th e S up r e me C o u rth e l dth a ta“r e d a c t i o nth a tr e p l a c e s ad e f e n d an t ’s n a mePer the trial c ourt’s instruction, the Gove rnment had r edac ted a c onfession by Gra y ’s 58 only codef endant. The reda ction repla ced Gray ’s name a nd the name of

a coc onspirator (who died bef ore tria l) with a blank spac e or the word “ deleted.” A police de tective r ead the reda cted statement in court a

nd said “de leted” or

“dele tion” ever

y time he came upon a blank spa ce or the word “ deleted.” In addition, “[i] mmediately afte r the police detec tive rea d the re dacte d confe ssion to the jury , the prosec utor asked, ‘ afte r he g ave you that information, you subsequently

wer e able to arre st Mr. Kevin Gra y ; is that corre ct? ’ The of fice r re sponded ‘That’s corr ect.’ ” Gr ay

v. Maryland, 523 U.S. 185, 188-89, 118 S. Ct. 1151, 1153, 140 L . Ed. 2d 294 (1998). The State submitt ed a c opy of the re dacte d statement into evidenc e and pr oduced othe r witnesses who testified that a g roup of six people, including G ray , participated in the beating. Gra y took the stand and de nied his involvement in the crime. Th e Court

no te d th at a llo wi nga ll s tate me nts tha t in c ri min ate by

inf e re nc e “ wo uld

a lso 59 place outside Br

uton’s scope c onfessions that use shorte ned first names, nickname s, descr iptions as unique a s the ‘re d-haire d, bear ded, one- eyed man- with-a-limp,’ a nd perha ps even f ull names of def endants who a

re a lway s known by

a nickname.” Gr ay , 523 U.S. at 195, 118 S. Ct . at 1156 (citation omitted). 38 wit h a n o bv io us in di cat io n o f de le ti on , su ch as abl an k s pa ce, t he word‘ de le te d,’
or asim ilar sym

bol ” vio la te s th e ru le announc ed in Br uto n. I d. a t 19 2, 118 S
. Ct
. at 1155. Just lik e in Richardson, the Court re counted th e other evidence adm itted ag ai nst the de fe ndant, the na tur e of the c ode fe ndant s ta te m en t a ga ins t hi m , and howthe pr ose cutio n us ed that st at em en t at tri al
. 58 T he Co urt c onc ed ed

that R ic hard son “ lim ite d B ru ton ’ s sc ope , ” id. a t 18 9, 118 S. Ct
. a t 11 54, pla ci ng o uts ide of it “ tho se state m en ts tha t i nc ri m inate inf er en tia lly
. ” I d. a t 19 5, 118 S
. Ct
. a t 11 56. “ Bu t i nf er en ce pur e an d si m

ple cannot m ake the cr itical differ ence, ” id., the Court added, explaining that 59

“ Richardson m

ust dependin sign ificant part upon the kin d of, not the sim ple factAlthough the Court describe d its majority opinion as of a piec e with Richardson, the 60 dissent char acte rized Gray as “c hang [i ng ]” “the line dra wn in Richardson,” 523 U.S. at 200, 118 S. Ct . at 1159, which did not “e x tend B ruton to confe ssions that incriminate only by infere nce from other

evidenc e,” id. at 201, 118 S. C t. at 1159. 39 of , inf er en ce , ” id. a t 19 6, 118 S
. Ct
. a t 11 57. 60 The infe rence required in Richardson was of a differ ent kindthan the one required to link th e defe ndant to the codefendant’ s statem ent in Gray . In Richardson, the statem ent “ did no t refe r directly to the defendant him self, ” id. at 196, 118 S
. Ct
. a t 11 57, and a llo w ed an in fe re nc e of

gui lt “ ‘ onl y

w he n li nke d w ith
ev ide nc e intro duc ed

late r at tr ia l, ’ ” id. ( quot ing Ri ch ar dson , 481 U
. S. a t 20 8, 107 S. Ct. at 1707). In c ontrast, the codefendant statem ent in Gray “ obvi ouslyref

er directly to som eone, ofte n obv iousl y the defendant, and which invo lve inference s that a j ury

ordinarily

could m ake im

m ediately , e ven wer e the confession the very first item introduced at trial.” Id. “ Moreover, ” the Court noted, “ the redacted
co nf es sio n w iththe blank p ro m ine nt o n it s f ac e, in Ri ch ar dson ’ s w or ds, ‘ fa ci al ly incrim inates’ the [defe ndant], ” id. ( quot ing Richardson, 481 U.S. at 209, 107 S. C t . a t1 7 0 9 ) , e v e n w i th o u tn a mi n g h i m. In199 9, the y ear fo llo w ing G ray , w e ev al ua te d th re e dif fe re nt Br uto n c la im s, non e of

w hic h w as f

ac tua lly ide nti ca l t o B ru ton , Ri ch ar dson , or G ray . I n U nit ed

S ta te s v. T ay lor , 186 F
. 3d 1 332 (1 1thCi r. 199 9) , w e ad dr es se d a40

co de fen da nt st at em en t t ha t re pl aced th e d efen da nt ’s nam e wit h n eu tra l p ro no un s. W e w rote: A lth oughthe S upr em e Co urt di d no t e xpr es s any opi nio n in Richardson about the adm issio n of a statem ent that includ es neutral pr onouns, the E le ve nthCi rc uit ha s de al t w iththe iss ue . U nde r our pr ec ed en t, the a dm iss ionof ac o- de fe ndant’ s st at em en t tha t c ont ai ns neutral pronoun s does no t violate the Confrontation Clause so long as th e s t at emen td o es n o tco m p el a d i re ct i m

p l i ca t i o no f t h e d ef

en d an t ’s gui lt. Id
. a t 13 36 ( ci tin g U nit ed S ta te s v. V as que z, 847 F
. 2d 1 515, 151 8 ( 11th C ir
. 198 9) (p er c ur iam ))
. T he c ourt c onc lud ed that the c ode fe ndant s ta te m en t di d no t
ne ce ssari ly

im pli cate the de fe ndant. I d. W e ad dr es se d ac ode fe ndant s ta te m en t tha t r ef er re d to the de fe ndant b y na tio na lity

and a phy sic al de sc ri pti on i n U nit ed S ta te s v. G onz al ez , 183 F
. 3d 1 315 (1 1t h C ir. 1 99 9) . Becau se “ [f]rom ot he r ev id en ce, i nc lu di ng Bu it rag o’s o wn confession, it becam e obviou s at trial that the Colom bian was Buitrago, ” id. at 1322 , w e he ld tha t the tr ia l c ourt vi olate d B ru tonby a dm itt ing the state m en t (though the m istake am ount ed to harm less error)
. Id. at 1323
. Another codefendant statem ent introdu ced in Gonzalez replace d the defendants’ nam es with neutral nouns, such as “ a couple of people” and “ the people.” W e held thatTh at vi olatio n w a s n ot h arm le ss b e c a us e the c od e fe nd ant s tate me nt w a s th e on ly 61 evidenc e linking the implicated def endants to the c rime. Gonzalez, 183 F.3d at 1323 (11th Cir. 1999). 41 th e r e d a c t e ds t a t e men ti mp l i c a t e dth e d e f e n d an t s i nv i o l a t i o no f

B r u t o nan dGr ay. 61 Inthe dr ug c onsp ir ac y

c as e U nit ed

S ta te s v. Ram ir ez -P er ez , 166 F
. 3d 1 106 (11th Cir. 1999), w e addressed a c odefendant statem ent even m ore vague than tho se de sc ri be d a

bove
. AG ove rn m en t a ge nt t es tif ie d r eg ar din g apos t- ar

re st state m en t by

the c ode fe ndant. “ H e sa id the pis tol be lon ge d to him , ” as ke d to have the pis tol br ough t t o th e dr ug transa ct iona t i ssu e, and “ state d he w an te d th e pis tol atth e lo cat io n fo r pr ot ect io n i n c as e [t he un de rco ve r ag en t] tri edto rip hi m off .” Id
. a t 11 09. O the r ev ide nc e sugg es te d th at the de fe ndant b ro ught

apis tol to the
co de fe ndant. T he G ove rn m en t c onc ed ed that a dm itt ing the c ode fe ndant s ta te m en t that pa ssi ve ly

r ef er re d to som e ac tor

w ho b ro ught

a pis tol to the c ode fe ndant inc ulp at ed

the de fe ndant i n vi olatio n of Br uto n. W e va lid at ed

that c onc es sio n by hol din g th at

the Br uto n vi olatio n w as not

aharm le ss e rr or

be ca use it w as the onl y evidence showing the defendant had kn owledge that the transaction at issue was fo r dr ugs. I d. a t 11 10- 11. W e thi nk the pr ope r Br

uto n st an dard

is cl ear fr om

ac los e re ad ing of

Br uto n, Ri ch ar d s o n , Gr ay, a n do u r s ub s eq u en tBru t o nd ec i s i o n s : a d ef en d an t ’s
co nf ro ntatio n r igh t i s vi olate d w he n th e co urt a dm its ac ode fe ndant s ta te m en t tha t,We l oo k at e ve ry thi ngthe Go ve rnme nt p re se nte d to the jur y , n ot j us t a dmi ssi ble 62 evidenc e, bec ause a

statement violatingBr

uton by definition is inadmissi ble as e vidence , and a lim iti ngins tr

uc tio n d oe s n ot c ur e it. 42 in ligh t of the Governm ent’ s whole case, com pels a rea sonable person to infer 62 the de fe ndant’ s gu ilt
. D. Inthi s c as e, Me y er ’ s a ff

idavit “pow er fu lly

inc ri m inat[ ed ] ” Sc hw ar

tz by
summ arizing the loans FCS m ade to other com panies Schwartz controlled. S ee Bruton, 391 U. S. at 135, 88 S. Ct. at 1627. E ven thou gh Mey er’ s statem ent “ wa s not in crim inating on its face, and becam e so onlywhen linked” with other
ev ide nc e, Ri ch ar dson , 481 U
. S. a t 20 8, 107 S
. Ct
. at 17 07, w e thi nk tha t the state m en t c om

pe lle d an in fe re nc e that S ch w ar tz dir ec te d F CS to use inv es tor
m oni es to lin e the c of

fe rs of his pe rs ona l bu sin es s e nte rp ri se s. A ny doubt tha t the lim iti ng i nstru ct ion s w er e ine ff ec tiv e w as e ra se d w he n th e pr ose cu tor , in his cl o s i n g ar g u m en t , e x p re s s l y l i n k edSc h wa rt z t o th e c o m p an i es n amedi nMe yer’s state m en t. T he tr ia l e vid en ce be sid es the a ff idavit w as suf fi ci en t t o li nk S ch w ar

tz to FC S an d hi s othe r co rp or at ion s. A lth oughthe tr ia l w as le ngthy and the Governm ent called forty -two w itnesses, the evidence showing Schwartz controlled FC S an d th at

he pe rs ona lly

be ne fi te d f

ro m F CS loans t o c om

panie s li ke F ir st43

Consol idated, Florida R estaurant Managem ent, S eahaw k, and V anderbilt Square
w oul d no t have be en

los t onthe j ur

y . F CS ’ s a tto rn ey s L ee S um m er s and N ic ki Ne dbor, and FCS ’ s Chief O perating Off icer- turned-bankrupt cy

trustee A lan Goldberg, w ere in m any

way s star w itnesses. E ach had wor ked for Schw artz at FC S, kne wF CS ’ s c or

por at e str uc tur e an d it s tr an sa ct ion s, and t oge the r the ir testim ony took th e equivalent of about five trial day s out of a total of onlyfiftee n in the Governm ent’ s case in chief. T he e vid en ce sho w ed

that S ch w ar

tz c ontro lle d th e day -t o- day ope ratio ns o f FC S, m ad e al l hi ri ng and f ir ing de ci sio ns, and r eg ularl y ove rr ode the inv es tm en t
co m m it te e’s reco m

m en da ti on s, ef

fect iv el y di rect in g F CS’s i nv es tm en t s tra te gi es . In de ed , the f

ac t tha t c or

por at ion s owne d or

c ontro lle d by

S ch w ar tz r ec ei ve d lo an s from FCS presents circum stantial evidence that he had sub stantial, if not unilateral po wer o ve r ho w FCS u se d i nv es to r fu nd s. Moreover, the Governm ent presented sufficient evidence to show that Sch wart z o wne d o r co nt ro ll eda nu m be r of co rp or at io ns rece iv in g l oa ns fro m FCS. Mon ey w as c onst an tly

slo shi ng b ac k and f

orth f ro m F CS and F ir st C onso lid at ed , ow ne d by S ch w ar tz . F CS loane d m one y

to N ic k’ s I ta lian F ish er

y and the n F lor ida Res ta ur an t M an ag em en t, cr eat edforSch wart z as a ve hi cl e to pu rch as e Nic k’s. FC S al so i ssu ed

loans t o num er ous co rp or at ion s, inc lud ing S ch w ar tz ’ s V an de rb iltOf c ours e , me re ly

namin ga c or po ra tio n o wn e d o r c ontr oll e d b y the de fe nd ant i s n ot a 63 per se Br uton violation. W e addr essed a simil ar sc enario in United States v. W illiamson, 339 F.3d 1295 ( 11th Cir. 2003). In that case , the cour t admitted a re dacte d codef endant state ment namingthe def

endant’ s corpor ation. I d. at 1302. The pa nel deter mined that the ca se wa s “cove red by

Richardson” beca

use it was not “obviously reda cted” as in Gra

y . I d. at 1303 (quotation omitted). We think thi s case is differe nt from Will iamson beca use her e the pr osecutor linked Sc hw art z to the c od e fe nd ant s tate me nt b y name . We a lso thi nk

tha t Will iamso n, to t

he de g re e it limit s Gray ’s log ic to “obviously reda cted” statements, does not comport with our pr ior dec isions such as Ta

ylor, Gonzalez, and Ramirez-Pere z, by which we are bound. See United States v. Turn e r, 47 4 F .3 d 1 26 5 ( 11 th C ir . 2 00 7) ; U nit e d St ate s v . T ho ma s, 27 1 F e d. Ap px. 8 18 (1 1th Cir.); Scott v. Upton, 208 Fed. Appx. 774 (11th Cir. 2006). 44 Square , to pur ch as e the D ry T ortug as c oll ec tio n. T he tr ea sur e w as ult im at el y fo u n dd i v i d edb et we en Sc h wa rt z’s d es katwo rk , h i s ap ar t m en t , a n dh i s m o th er ’s
co nd om in iu m . FCS al so m ad e lo an s t o B ig Su n, o wne d b y Sch wart z. Inli ght of the f or eg oin g, Me y er ’ s a ff

idavit “ obvi ousl y

r ef er r[ ed ] ” to Schw artz, Gr ay , 523 U. S. at 196, 118 S. C t. at 1157 , w ithou t nam ing hi m . See G onz al ez , 183 F
. 3d at 13 22 ( “ [F ro m oth er e vid en ce , inc lud ing [ the de fe ndant’ s]
own co nf es si on , itbe cam e o bv io us at t ria l t ha t t he Co lo m bi an was B ui tra go .”). By nam ing S ch w ar

tz ’ s c or por at ion s a ft er

the j ur y ha d he ar d le ngthy

te sti m ony re gard ing the e xte nt o f Sc hw ar tz ’ s owne rs hip and c ontro l of the m , the c ode fe ndant state m en ts c om

pe lle d an in fe re nc e ag ai nst S ch w ar tz e ve n m or e fo rc ef

ull y than a statem ent could th at replac es a defe ndant’s nam e w ith a neutral pronoun
. See United States v. Tay lor, 186 F. 3d 13 32, 1336 (11t h Cir. 1999 ). 63 T he a ff idavit w as part ic ularl y

dam ag ing be ca

use it sum m ar iz ed in oneAlthough our focus is on the post-re dacte d version of the statement, the fa ct that the 64 Gover nment swappe d “F irst Consoli dated” for “ Mr. Schwar tz” sugg ests that the Gover nment thought the two w ere intercha ng eable . Doubtless the jury conclude d the same. This dilemma highlig hts the prac tical difficulties of r edac ting a codef endant state ment without drainingits meaning . A re daction is not a mag ic cha rm, an amulet ag ainst constitutional violation. Nor is it si mple arithmetic. I f done too libera lly , reda ction risks inacc urac y by eliminating wor ds that play ed an integral role in establishing the statement’s mea ning. T his idea i s m e m o r i a l i z e d

i nth e i n t e r

p r e t i v e c an o no f

n o s c i tur a s s o c i atu s . If

p e r f o r m e d t o o s p ar i n g l y, though, r edac tion jeopardizes the conf rontation rig hts of the nonconf essingcodef

endant. See Gr ay v. Ma ry land , 5 23 U. S. 1 85 , 1 18 S. Ct . 1 15 1, 14 0 L . E d. 2d 29 4 ( 19 98 ). Of

c ours e , “ via

ble alternatives do exi st,” Br

uton, 391 U.S. at 133, 88 S. C t. at 1626, when r edac ting a defe ndant’s statement prove s unsatisfactor y : a prosec utor ca

n either try

the def endants sepa

rate ly and use the c o n f e s s in gd e f

e n d an t’ s c o n f

e s s io na g a in s t h im

in to to , o r d o w it h o u t t h e c o n f e s s io n . We rec og nize the effic iency

of joint trials and their ec onomic benef its for the justice sy stem, but economy without constitut ional fairne ss is justa sy stem, not our justice sy stem. See I d. at 135, 88 S. Ct . 1627. 45 str eam lin ed

and art ic ulate state m en t a ll of the G ove rn m en t’ s e vid en ce of S c h w art z ’s s e l f

- d e a l i n g w i th i n v e s t o r

mo n e y, a l l w i th o u te x p r e s s l y n a mi n g h i m. 64 If the a ff idavit w as ins uf

fi ci en t t o c om

pe l an in fe re nc e of

gui lt ba se d onthe trial testim ony

alone, the infe rence wa s m ade inevitable – and therefore

“ de va statin g” – whe n th e pr ose cu tor e xpr es sly

m ad e that c onne ct ionf

or the j ur y in his c los ing arg um en t. S ee Br uto n, 391 U
. S. a t 13 6, 88 S
. Ct
. a t 16 28. H e fi rs t
rem inded th e j ury

that “ it is und isput ed that [Schw artz] , during the relevant y ears after Mr. Horw in left, that he owned and controll ed First Capital, ” and that “ Mr. Schw artz w as responsibl e in large m easure f or the AB L diversions” to com panies
suc h a s N ic k’ s I ta lian F ish er y , Bi g S un I nve stm en ts, S eahaw k, and V an de rb ilt Square , se ve ra l of

w hic h w er e ow ne d by

S ch w ar tz . H e the n e xpr es sly

r ef er re d toAlthough the transcr ipt it s ilent on the issue, we c an only assume that the pr osecutor 65 wa s h old ingthe a ff

ida vit in i s h and s and

sh ow ingit t o th e jur

y wh e n h e state d “ thi s is Gover nment Ex hibit 1.76.” 46 Me y er ’ s bankr

upt cy a ff idavit , statin g “ thi s is G ove rn m en t’ s E xhi bit 1. 76” and

65
re m ind ed the j ur y that “ [f ] ro m ind ep en de nt e vid en ce in thi s c as e y ou knowthat the pe rs on b en ef

itt ing f ro m tho se c om

m iss ion s [ to F ir st C onso lid at ed ] that pa id
som etim es 20 percent of the [a sset based loans] w as L arry Schw artz. ” A fter Schw artz’ s sustain ed objec tion at thi s poin t, the prosecutor took anoth er a pproach to e quate S ch w ar

tz w ithF ir st C onso lid at ed , by r em ind ing the j ur

y that F ir st Co ns ol id at ed ’s in co rp or at io n p ap ers li st edSch wart z as th e o wne r. I n sum , the G ove rn m en t w as r el y ing on the j ur y to equa te S ch w ar

tz w ith the c or por at ion s nam ed

in the c ode fe ndant s ta te m en t, and w e ag re e that, by the tim e the j ur

y r et ir ed to its de lib er at ion s, it s r ea sona ble m em be rs w oul d have inf er re d f ro m the state m en t tha t S ch w ar tz – i n vi olatio n of

his r ep re se ntatio ns t o inv es tor s – d ir ec te d F CS to iss ue uns ec ur ed a sse t- ba se d lo an s, f

re que ntl y to his
ow n c om panie s. E. ABr uto n vi olatio n r equir es ane wtr ia l un le ss the e rr or w as harm le ss be y ond a re as ona

ble doubt. S ch ne ble v. F lor ida , 405 U
. S. 427 , 432 , 92 S
. Ct
. 1056 , 106 0, 31 L
. E d. 2d 3 40 ( 1972 ) (n oti ng tha t a ne wtr ia l i s r equir ed

if “ the re is47

a re as ona ble pos sib ili ty

that the im

pr ope rl y a dm itt ed e vid en ce c ontri but ed

to the
co nvi ct ion ”) ; H ar

ri ngt on v . Ca lif

or nia , 395 U
. S. 250 , 254 , 89 S
. Ct
. 172 6, 172 8, 23 L
. E d. 2d 2 84 ( 1969 ) (“ O ur j udgm en t m

ust be ba se d onour

ow n r ea din g of

the
re co rd and o n w ha t se em s to us t o have be enthe pr oba ble im pa ct of the [c ode fe ndant s ta te m en ts] on the m ind s of an ave ra ge j ur

y . ”) ; U nit ed

S ta te s v. Gonzalez , 183 F. 3d 13 15, 1323 (11t h Cir. 1999 ). W e have explained this stan dard
as f oll ow s: “ [a ] Br

uto n e rr or

is harm le ss o nly

if the pr ope rl y

a dm itt ed e vid en ce of gui lt is s o ov er

w he lm ing , and the pr ej udi ci al e ff ec t of the c o- de fe ndant' s st at em en t so i nsi gni fi cant, that be y ond any r ea sona ble doubt the im

pr ope r use of

the state m en t w as harm le ss. ” U nit ed S ta te s v. D ohe rty , 233 F
. 3d 1 275, 128 2 ( 11th Cir. 2000 ). W e cannot

say that the a dm iss ionof

Me y er ’ s a ff

idavit , and the indis pensable role it play ed in the prosecutor’ s closing argum ent to the jury , w as harm le ss b ey ond a re as ona ble doubt. I ro nic al ly , it

is in p ar t the str en gthof

the te sti m ony of w itn es se s li ke S um

m er s, G old

be rg , and N ed

bor that transf

orm ed the affi da vi t’s re fere nc es to Sch wart z’s co rp or at io ns in to a Bru to n v io la ti on . Sti ll , we do n ot thin k th at

the w ei ght

of that e vid en ce is so g re at

a s to m ar gin al iz e the sig nif ic an tly pr ej udi ci al im

pa ct of the a ff idavit
. Although the disparate evidence against Schw artz w as sufficient to com pel48

aninf er en ce that S ch w ar

tz e qua le d hi s c or

por at ion s inthe c ont ex t de sc ri be d by the affidavit, that evidence – thou gh organized and su m m arize d in thi s opin ion – was pr es en te d to the j ur

y pie ce m ea l, ove r the c our se of num er ous hour s of

te sti m ony that m eande re d a cr oss vari ous subj ec ts and w as pun ct ua te d by obj ec tio ns, ar gum en t, r

uli ngs, and b re ak s inthe tr ia l. T he a ff idavit , by c ontra st, art ic ulate ly

sum m ar iz ed the e vid en ce pr ec ed ing it. I t w as a dm itt ed

int o e vid en ce a s aw ri tte n do cum en t and ava ila ble f or stu dy by the m em bers of the j ury

during its deliberation. It im pacted the j ury

like a pr ose cu tor ’ s c los ing arg um en t, e xc ep t i t w as a va ila ble to the j ur

y in its de lib er at ion s a s an a dm itt ed e xhi bit , and, a s aw ri tte n do cum en t, w as not sub j ec t t o th e v ag ari es of ju ro rs ’ m em or ie s. In addition , the statem ent’ s source lent it sing ular cre dibil ity ; Mey er w as FC S’ s c ontro lle r dur ing the c our se of the a lle ge d c onsp ir ac ie s and h is t es tim ony m ade under oath to the bankrup tcy court could reasonably

be perce ived as
unus ua lly r el ia ble , part ic ularl y

a s ac onf es sio n th at

c le ar ly did not he lp h im a voi d prosecution
. The prosec utor, re cognizing the uniqu e power of the statem ent as
ev ide nc e ag ai nst

S ch w ar tz , r es orte d to it

in his c los ing arg um en t de spi te the
we i g h to f t h e o th erev i d en ce ag ai n s th i m . We c an n o ts ay th at th e G o v ern m en t ’s
use of the state m en t w as harm le ss.Th e Jenc ks Ac t, 1 8 U .S. C. § 35 00 , s tate s: 66 (b) Af

ter a witness called by

the United States has testified on dir e c t e xami natio n, the c ourt sh a ll, on mot ion of the de fe nd ant, order the United States to produce any statement (a s here inafter define d) of the w itness in the possession of the United States which 49 III
. Mey er c hallenges the ind ictm ent on the grou nd that th e grand j ury returned i to n th e b a s i s o f

h i s i mm u n i z e ds t a t e men t s t o th e g r an d ju ry. A. On O ctober 5, 2002, an A ssistant United State s Attorney for the S outh ern D istri ct of F lor ida se nt a “pr of fe r le tte r” to E dw ar d M ey er ’ s a tto rn ey , gr an tin g Me y er li m ite d us e im

m uni ty in ex ch an ge f

or his c oope ratio n w ithinv es tig at ive int er vie w s. G ove rn m en t a ge nts the re af te r int er vie w ed Me y er f our ti m es in N ove m be r an d D ec em

be r 2002
. On Fe bruary

17, 2004, and then again on April 27, FBI Special A gent Gar y H el lm er , the c as e ag en t, te sti fi ed a s to the sub stanc e of

tho se f our int er vie w s to a grand jury , which ulti m ately returned the superceding indictm ent against Mey er an d th e oth er

de fe ndants . T he j ur y tr ia l be gan onO ct obe r 19, 200 4. A ft er H el lm er te sti fi ed on Novem ber 10, the G overnm ent turned over his grand jury statem ents to Mey er pursuant to the Jencks Act, 18 U. S. C. § 350 0. Mey er there by learned that 66relates to the subject matter as to which the w itness has testified.

. . . . (e ) T he te rm

“ state me nt” , a s u se d in

su bs e c tio n[]( b)
. . . me ans -

. . . . (3) a statement, howe ver taken or r ecor ded, or a transcr iption thereof, if a ny , made b y s a i d w i tn e s s t o a

g r an d j ur y. At no po int ha s Me y e r a lle g e d th at th e Go ve rnme nt v iol ate d o r atte mpt e d to vio late his 67 immunit y agree ment duringtrial. 50 He llm er had testified as to the substance of Mey er’ s im m unized statem ents before the gr an d j ur

y . Me y er be lie ve d hi s st at em en ts w er e im m une f ro m dir ec t us e by

the G ove rn m en t be fo re the gr an d j ur y . O n N ove m

be r 15, he f

ile d am oti on t o di sm iss the ind ic tm en t or , a lte rn at ive ly , f or am istri al on the gr ound

that the G ove rn m en t obtained th e indictm ent in vio lation of his Fifth A m endm ent right against selfincrim ination
. T he court stay ed consideration of the m otion until th e j ury

67
re tur ne d it s ve rd ic t. On D ecem

ber 1, the j ury

found Mey er guilty

of two c ount s of conspiracy
an d on e co unt

of m one y launde ri ng. T he c ourt he ld a he ar ing on M ey er ’ s m oti on on February

16, and entere d a w ritten order deny ing it o n March 14. The c ourt fo und that the a gr ee m en t w as a m big uous a s to w he the r Me y er ’ s pr of fe r state m en ts
we re im m une from direct use by

the Governm ent before the grand jury
. The c ourt the re fo re c onstru ed

the a gr ee m en t i n M ey er ’ s f av or and f ound that the G ove rn m en t vi olate d it

by m ak ing dir ec t us e of

Me y er ’ s st at em en ts b ef

or e theTo support its reasoning , the cour t quoted a Ninth Circuit case , Guam v. Muna, 999 68 F.2d 397 ( 9th Cir. 1993), which itself cites to the Supre me Court’s opinion in United States v. Mecha nik, 475 U.S. 66, 106 S. C t. 938, 89 L . Ed. 2d 50 (1986). Me chanik wa s a ca se about the Gover nment’s violation of Fe d. R. Crim. P . 6(d). B eca use we aff

irm the district court’s r

uling on another g round, we state no opinion about the propr iety of apply ing Me chanik’ s formula to an alleg ed F ifth Amendment violation. We reviewa cour

t’s denial of a

motion to di smiss an indictment for abuse of 69 discretion, United States v. Pielag o, 135 F.3d 703, 707 ( 11th Cir. 1998), but in determining whether the cour t abused its discretion, we resolve issues of law, includingthe meaningof Meyer’ s immuni ty

agree ment, de novo, see Taylor v. Singleta ry , 148 F.3d 1276, 1284 ( 11th Cir. 1998). 51 gr an d j ur y . T he c ourt c onc lud ed

that the e rr or

w as harm le ss, tho ugh, be ca use the
s t a t e me n t s i n qu e s t i o n w e r e n o ta d mi t t e da ttr i a l an dth e j u ry s t i l l c o n v i c t e dh i m. 68 Me y er appe al s, arg uin g th at

the G ove rn m en t vi olate d hi s im m uni ty a gr ee m en t, and the re by vio la te d hi s F if

th A m en dm en t pr ivi le ge a ga ins t se lf -i nc ri m inatio n. B. 1. Me y er ’ s arg um ent r equir es that w e fi rs t r ev ie wthe sc ope of his im m uni ty ag re em en t, w hic h w e int er pr et li ke ac ontra ct . S ee T ay lor v. S ing le tary , 148 F
. 3d 1276 , 128 4 ( 11th C ir
. 199 8)
. T ha t a gr ee m en t st at es : 69 1. T he United State s agrees that any statem ent m ade by

[Mey er] during th e proffe r w ill not b e used against him during th e U nited States’ case in chief

shoul d [Mey er] proceed to trial in any m atter being in vestigated in th e Southern District of Florida. 2. S houl d [ Me y er ] pr oc ee d to tr ia l i n any c as e that m ay

be ind ic te d in the S outhe rnD istri ct

of F lor ida and t es tif y on h is b eh al f
. . . the U nit ed S ta te s m ay

use any state m en ts m ad e by

[ Me y er ] dur ing the52

p ro ff ert o cr o s s -e x amin e [ M eyer ]. 3. T he U nit ed

S ta te s m ay

m ak e de ri va tiv e use of

the state m en ts [M ey er ] m ak es dur ing the pr of fe r an d m ay

pur sue inv es tig at ive le ad s therefr om , and would no t be required to prove an independent source at any K as tig ar or oth er he ar ing he ld the re on. B y sig nin g th is ag re em en t [ Me y er ] a gr ee s to w ai ve any r igh t t o aK as tig ar

he ar ing in the future. 4. S houl d [ Me y er ] int en tio na lly pr ovi de any

f al se , inc om

ple te or m isleading in form ation or testim ony , any statem ent m ade by

[Mey er] dur ing the pr of

fe r m ay be use d inthe pr ose cu tio n’ s di re ct c as e of any oth er c ri m ina l vi olatio ns, inc lud ing but not li m ite d to the of

fe nse s of pe rj ur y , obs tr uc tio n of j ust ic e an d f

al se state m en ts t o go ve rn m en t ag en ci es . In other wor ds, the U nited States is extendin g [Mey er] only lim ited “ use im m uni ty ” fo r nonv iol en t of

fe nse s duri ng the c our se of the proffer ; neither “ derivative use im m unity ” nor “ transactional im m unity ” is applicable to the proffer.

. . . . Finally , Mr . Me y er should un derstand that there are no agreem ents as to the num

be r or na tur e of any c harg es that m ay

be br ough t, or sentences recom

m ended in thi s or any

other District in the U nited St at es . I n othe r w or ds, thi s a gr ee m en t do es not guarante e that he w ill not be c harg ed

w ithac ri m e; the a gr ee m en t on ly guarante es that hi s state m en ts w ill not

be use d a ga ins t hi m

in the gov er

nm en t’ s c as e in chief. 2. W e not e at

the out se t tha t M ey er ’ s im m uni ty a gr ee m en t do es not

dir ec tly ad dr es s wh et he r th e Gov ern m en t m ay in tro du ce h is st at em en ts to a gr an d ju ry . T he f ir st p ar ag ra

ph p ro vid es that the G ove rn m en t m ay not use his state m en tsIn Kastig ar v. United States, 406 U.S. 441, 92 S. C t. 1653, 32 L . Ed. 2d 212 (1972), 70 the def endant wa s compelled by court orde r to testify

pursuant to a statutory

g rant of immunity
. In deter mining whe ther the c ompulsion amounted to a Fifth Amendme nt violation 53 directly against him

in its case in chief at tr ial. The f inal paragraph likewise states that “ the a gr ee m en t on ly

guarante es that hi s st at em en ts w ill not be use d a ga ins t him in the gov er

nm en t’ s c as e in c hie f. ” T hose a sse rt ion s, standi ng a lon e, se em to al lowthe G ove rn m en t t o us e his state m en ts i n any w ay e xc ep t a s e vid en ce in its
ca se in ch ie f. P ar ag ra

phs tw o, thr ee , and f

our of the a gr ee m en t, how ev er , li st spe ci fi c w ay s th at

the G ove rn m en t m ay

use Me y er ’ s st at em en ts. Abse nt f ro m the lis t i s di re ct

use of the state m en ts b ef

or e a gr an d j ur

y . Appl y ing the doc tr ine of expressio un ius est exclusio alterius, or “ the expression o f one excludes al te rn at ive s, ” the dis tr ic t c ourt c onc lud ed that the a gr ee m en t w as a m big uous a s to th a tt e rm. W e thi nk, how ev er , that the part ie s’ int en t a s to the sc ope of im m uni ty is expressed in the third paragraph. T he first sentence of that par agraph provides that the G ove rn m en t m ay m ak e “ de ri va tiv e use ” of Me y er ’ s st at em en ts; that i s, the Governm ent m ay

use his statem ents as a springbo ard to find evidence or other witnesses to testify

against him
. The sec ond sent ence in paragr aph three provides that “ [Mey er] agree s to waive any right to a Kastigar hearing in the future.” A

“ Ka stigar hearing” is a hearing to determ ine if the G overnm ent has introdu ced 70notwithstanding the statutory g rant of immunity , the Supreme Court he ld that a statute that provides “use and der ivative-use immunity is constituti onally

sufficie nt to compel testimony over a cla im of the [Fifth Amendment] privilege [aga inst self-incrimination].” I d. at 458, 92 S. Ct. at 1664. A def

endant may

seek a Kastig ar he aringon an alleg ed F ifth Amendment violation whether that alleg ed violation arises f rom court- compelled testimony , as in Kastig ar, or out of an alleg ed bre ach of

an immunity

agree ment, as in Meyer’ s case . See g ener ally United States v. Schmidga ll, 25 F.3d 1523 (11th Cir. 1994). “The followingpersons may be pre sent while the grand jury is in session: attorney s for 71 the g overnme nt, the witness beingquestioned, interpr eter s when ne eded, a nd a cour t reporte r or an oper ator of a

rec ordingdevice .” F ed. R. Crim. P. 6(d)(1). Once the def

endant shows that his statements we re ma de pursua nt to a g rant of 72 immunit y , the Gover

nment bear s the “he avy

burden of

provingthat all of the e vidence it [ used or ] pr op os e s to us e wa s d e ri ve d f ro m le g iti mate ind e pe nd e nt s ourc e s. ” Ka sti g ar v . Unit e d St ate s, 406 U.S. 441, 461-62, 92 S. Ct. 1653, 1665. 54 testim ony before the grand jury , or plans to in troduce testim ony at trial, that violates the defendant’s im m unityand Fifth Am endm ent privilege against selfin cri m in at io n. Un it edSta te s v . Harv ey , 86 9 F .2d14 39 , 14 41 (11 th Cir . 19 89 ). Purs uant t o F ed
. R. Cr im
. P
. 6( d) (1 ), ade fe ndant i s no t pr es en t at hi s own gr an d 71 jury heari ng to ob

ject t o t he Gov ern m en t’s t es ti m on y du rin g t he pro ceed in gs . T hus, the onl y

w ay f or ac ri m ina l de fe ndant t o c ha lle nge an in dic tm en t onthe gr ound that the G ove rn m en t ob ta ine d it in vio la tio n of

his F if th A m en dm en t pr ivi le ge a ga ins t se lf

-i nc ri m inatio n is via

aK as tig ar

he ar ing
. S ee Unit ed

S ta te s v. Schm idgall, 25 F.3d 1523, 1527 -29 (11th Cir. 1994). 72 3. Although the agree m ent does no t state explicitly that the Governm ent m ay55

use Me y er ’ s st at em en t di re ct ly be fo re the gr an d j ur

y , w e thi nk i t i s no ne the le ss cl ear w he n r ea d ho lis tic al ly
. Me y er w ai ve d hi s r igh t t o aK as tig ar he ar ing
. P ut dif fe re ntl y , he w ai ve d hi s r igh t t o c ha lle nge the G ove rn m en t’ s us e of his state m en ts b ef

or e the gr an d j ur

y . W e cannot

c onc lud e that he le ft

him se lf vul ne ra ble to w ha t he c hara ct er iz es a s aF if th A m en dm en t vi olatio n bu t
vo lu nt ari ly w ai ve d h is rig ht to lea rn ab ou t an d s eeka rem ed y forth atvi ol at io n. T he onl y r ea sona ble inf er en ce is that M ey er

int en de d to w ai ve his F if th A men d men tp r i v i l e g e a g a i n s tu s e o f h i s s t a t e men t s b e f

o r e th e g r an dju ry. T ha t i nf er en ce is str en gth en ed

by an a ppl ic at ionof

the int er pr et ive doc tr ine of nos ci tur asoc iis , or

aphr as e is “ known by

it s a sso ci at es . ” I n para gr ap h th re e of the a gr ee m en t M ey er

f ir st v oluntari ly

w ai ve s hi s F if

th A m en dm en t pr ivi le ge ag ai nst de ri va tiv e use of

his state m en t a ga ins t hi m a t tri al
. I n th e ne xt s en te nc e he
w ai ve s hi s r igh t t o aK as tig ar he ar ing
. W e thi nk the part ie s in te nde d para gr ap h thr ee to lis t w ay s th e G ove rn m en t c oul d us e Me y er ’ s st at em en ts n otw ith standi ng the F if th A m en dm en t. W e conclude that Mey er c learly wa ived his p rivilege against selfinc ri m inatio n be fo re agr an d j ur y by w ai vin g hi s r igh t t o c ha lle nge the Governm ent’ s introdu ction of his st atem ents before the grand j ury . W e theref ore af fi rm the c ourt’ s de nia l of

Me y er ’ s m oti on t o di sm iss the ind ic tm en t ontheBoth we re c onvicted of ma il fraud ( Counts 2-5), interstate tra nsportation of stolen 73 proper ty (Counts 6-7), and va

rious permutations of money laundering ( L evy

for Counts 9, 13, 15- 19, 21, and 24 and O rlick for Counts 19, 21, and 24). Orlick wa s convicted of eng ag ing in a monetary transac tion in criminally

derive d proper

ty (Count 25). L evy and Or lick also cha lleng e their c onvictions of the substantive cr imes that were 74 the object of

the conspira cy

on the g round that the unde rlying sc heme wa s not fraudule nt, and they there fore lacke d the re quisite mens rea to commit mail fraud, money launder ing, a

nd int e rs tate tr ans po rt atio n o f s tol e n p ro pe rt y . B e c a us e we ho ld t

he re wa s su ff

ic ie nt e vid e nc e to su pp or t th e jur y ’s c on sp ir a c y

ve rd ic ts, we dis mis s th e ir c la ims a s to the oth e r c ri me s. 56 groundthat the Governm ent did no t violate its imm unityagree m ent with Mey er. IV. L ev y and O rl ic k w er e co nvi ct ed on C ount 1 of the sup er ce din g in dic tm en t,
w hic h c harg ed

that the y and the oth er

de fe ndants “ did

kno w ing ly

and w ill fu lly
com bine, conspire, c onfederate, agree and reac h a tacit understanding with ea ch oth er ” to c om

m it m ai l f ra ud ( 18 U
. S. C. § 13 41) and i nte rs ta te tr an spor ta tio n of sto le n pr ope rty

( 18 U
. S. C. § 23 14) , in vio la tio n of 18 U
. S. C. § 37 1. L ev y

w as a lso
co nv ic te d o f co ns pi racy to c omm itm on ey lau nd eri ng in vi ol at io n o f 18 U.S.C. § 1956 (h ) unde r Co unt

8. 73 Le vy and Or lick argue that there w as insufficient evidence to prove that th ey kn owi ng ly andwil lfu ll y

ag reedan d p art ic ip at edin th e al le ge d c on sp ira cy . Their theory is that FCS m isused in vestor funds withou t their knowledge and that U
. S. Ca pit al did not m isu se inv es tor

f unds
. W e co nsi de r L ev y ’ s arg um en t f ir st. 74 A
. L ev y57 1.
a. T he c re at ionof

U
. S. Ca pit al
. In 1997, Levy

sold FCS senior capital notes throug h his com panies A m er ic anBe ne fi ts and A sse t B as ed Mana ge m en t. I n sp ite of aD ep ar tm en t inv es tig at ionint o th e not e pr ogr am , and j ust af ewday s be fo re F CS r ep re se nte d to the D ep ar tm en t tha t i t w oul d no lon ge r se ll or r en ewse nio r ca

pit al not es , L ev y fo rm ed U
. S. Ca pit al in D ec em

be r 1997 f

or the pur pose of se lli ng e ff

ec tiv el y ide nti ca l se nio r ca

pit al not es to ind ivi dua l i nve sto rs . L ev y ow ne d U
. S. Ca

pit al , w as it s pr es ide nt unti l O rl ic k to ok o ve r that r ole , and w as it s di re ct or thr ough out th e a l l e g e dc o n s p i r a c y. b. L ev y ’ s r ep re se ntatio ns t o br oke rs and i nve sto rs . U. S. Capital furnished brokers and invest ors with sales brochures
r e p r e s e n t i n g th a tth e i r

mo n e y w o u l db e u s e dt o i n v e s ti nF C S ’s f a c t o r i n g p r o g r a m, to b e inv es te d stri ct ly

in ins ur ed

c or por at e an d go ve rn m en t r ec ei vable s. T he br oc hur es a lso r ep re se nte d th at inv es tor f unds w oul d be se gr eg at ed and tha t the not es w er e liquid

upo n w ri tte n no tic e, sub

j ec t t o af ee of one m onth’ s in te re st f

or earl y li qui da tio n. A cc or din g to Z en de ll K at z, abr oke r, “ [L ev y ] w as r es pons ibl e f o r p r i n t i n g an dmark e t i n g an da d v e rt i s i n g ” th e n o t e s p r o g r a m. Additionally , L evy

and Schw artz together m et w ith brokers on severalJ ohn Pennington, a Charter house insuranc e broke r fr om Ly nchburg , Virg inia, testified 75 that in 1997 L evy

went to Roanoke, V irg inia, to pitch viatical settlements to the insuranc e and investment broker s with Charterhouse Group. In the fa ll of 1997, L evy sent FCS senior ca

pital note broc hures to the Char terhouse br okers f

or their c onsideration. Sometime in 1998, L evy and Schwar tz flew in a private je t, believed by Pennington to belongto Schwartz, to Virg inia for a meetingto expl ain the senior c apital note program to the Char terhouse br okers. The meeting lasted about two a

nd a half hours. Schwar

tz di d most of the talking; he echoe d the broc hure’ s repr esentations that investor money would be spent strictly

on insured cor

porate and g overnme nt acc ounts rece ivable and w alked through a blank note w ith the brokers. L evy did not contradict him. Accor ding to Penning ton, it looked like L evy and Schwa

rtz were w orkingtoge ther a nd that L evy raised mone y

for Schwa

rtz in a “close business re lationship.” In Jun e 19 99 , B ri an K

re ide r, an in de pe nd e nt b ro ke r f ro m V ir g ini a

wh o w or ke d w ith Charter house, spoke on a

confe renc e ca ll with S chwa rtz, L evy , Pennington, a

nd potential invester James Hurd re g ardingthe senior c apital note program. Ag ain Schwar tz reiterated the familiar r epre sentations of the sale s brochur e and L evy backe d him up. Hurd, an e x perie nced investor, was he sitant. He made sug g estions to Schwartz and L evy that would make the pr og ram “foolproof

,” including , acc ordingto Kreide r, that F CS and U.S. Capital shoul d set up two c or po rate ba nk a c c ounts , o ne op e ratin ga c c ount f or c omm iss ion s a

nd on e bo nd e d tr

us t a c c ount t o pr ote c t inve sto rs fr om e mbe zzle me nt o r f ra ud . Sc hw art z tol d H ur d th at F CS w ou ld c re ate a tr us t acc ount for his funds if he inve sted at lea st $500,000, but Hurd declined to invest that much at once. H urd ultimately , though, inve sted about $750,000 in U.S. Capital notes signe d by Orlick. In ear ly 2000 or so, Kre ider be g an trying to c ontact L evy with conce rns about the note pr og ram. L evy admitted that there wer e proble ms paying ba ck investors a nd stated that U.S. Capital had put inve sto r f

un ds int o o the r f

a c tor ingc omp anie s, c iti ngpr ob le ms w ithF CS. In May 1999, J ohn Pennington tra velled to Flor ida to meet with L evy reg ardingL evy ’s viatical program, into which Penning ton had place d some of his clients. Schwar tz, L evy , and Pe nn ington

we nt t o d inn e r. L e vy

state d th at he “ wa s in

tr ou ble , w ou ld b e in m or e , a

nd wo uld have a hard time pa

ying ba ck investors.” Z enon Rawle y , partne r in the broke rag e firm of RHC Financia l Group (“ RHC”), testified that L evy called he r firm in 1998 to pitch U.S. Capital’s note program. The three partne rs and L evy went to West Palm Beac h for lunch a nd L evy explained the prog ram a

nd g ave the m sales brochur es. The pa

rtners c ontacted Schw artz and set up a me etingat FCS, which L evy attended, in an ef fort to per form due dilig ence . RHC wound up putting a number of investors into the p r o g r am , m any o f

w h o ml o s ta

s i g n i f i c an tam o un to f

m o n e y. In Marc h 1999, broker

Gar y Fox met with S chwa

rtz and L evy

to discuss the notes prog ram; they

ate lunch a

t Nick’s Italian Fishe ry , which they indicated they

owned. 58 oc ca sio ns t o e xpl ai n th e not es pr ogr am . T he y e ch oe d th e re pr es en ta tio ns i n th e br oc hur es and o n th e fa ce of the not es . 75
c. F CS ’ s a sse t ba se d lo an s.59

Inlate 199 8, S ch w ar

tz a ske d L ee S um

m er s, F CS ’ s a tto rn ey , to fo rm F lor ida Re sta ur an t M an ag em en t. S um m er s te sti fi ed

that F CS , S ch w ar

tz ( thr oughhis
co m pany F ir st C onso lid at ed ), L ev y , and N ic k’ s m ai tr e d’ A le x a ll loane d m one y to Florida Restaurant Managem ent for the purchase of N ick’ s Italian Fishery
. Gary Fox, U .S . C apital’ s exclusive brok er in W est Vir ginia, testified that he had lunch with L evy

and Schw artz at Nick’ s in March 1999, and they indicated that they
ow ne d th e re sta

ur an t. S te phe n K el le y , w ho i n 20 01 p re pare d F CS ’ s ba ck ta xe s f or the y ears 199 6- 2000 , te sti fi ed that F CS loane d N ic k’ s atot al of $1, 027, 062. Z en de ll K at z te sti fi ed

that L ev y

and S ch w ar

tz c o- ow ne d vari ous pr ope rty b es i d es Ni ck ’s , i n cl u d i n g ai rp l an es an dh el i co p t er s . Al an Go l db er g , F CS ’s bankr upt cy tr ust ee , te sti fi ed

that F CS loane d $2
. 7 m ill ionto So uth w es t F lor ida Aviation for the purchase of a helicopter, a lthou gh he didnot say whether Schw artz or Le vy

owned an interest in that helicopter. So m et im e be fo re S ep te m be r 1999 , L ev y ’ s a tto rn ey , Je ff re y P ai ne , se nt a dr af t se curi ty a gr ee m en t t o F CS
. T he a gr ee m en t st ipu la te d th at F CS w oul d us e U.S . C ap i t al m o n ey o n l y fo r f ac t o ri n g ac co u n t s re ce i v ab l e. Ni kk i Ne db o r, FC S’s attor ne y a t the ti m e, a dvi se d S ch w ar tz that F CS c oul d no t tru thf ull y e xe cu te the agreem ent without sub stantial revision ; Schw artz a greed. A fter N edbor relay ed FCS’ s posi tion to Paine, he set up a lunch m eeting to dis cuss the issu e. Schw artz,60

N ed bor , L ev y , and P ai ne a te a t N ic k’ s so m et im e be fo re S ep te m be r. A cc or din g to Ne dbor, the issue of how FCS wa s usin g investo r funds was not broached at lunch and neither Le vy

nor Paine ever

m entioned it again. FCS continu ed to m ake asset based loans un til som etim e in Septem ber. L awre nc e Nune z, U
. S. Ca pit al ’ s data -e ntr

y guy , c al le d F CS tw ic e in l at e 19 99 be cau se in ve st or s wer e cal li ng U.S. Cap it al , in qu iri ng ab ou t t he ir m on ey . T he f ir st t im e Sc hw ar

tz state d “ I’ ve de al t w ithit w ithRay [ L ev y ] , ” an d th e se co nd tim e he tol d N une z to m ind his ow n bu sin es s. d. F CS’ s lack of insurance. FCS did no t adequately

insure the accounts receivable it bought
. Ther e w as a $2 m ill ionannua l l im it on i ts C ont ine nta l I nsur an ce pol ic y . O n January 27, 1999 , N icholas Diacou, of Continental’s Chica go office, sent U. S. Capital a letter tit le d “ U nauth or iz ed

use of Co nti ne nta l I nsur an ce Co m pany ’ s nam e an d unauth orized ref

erence to CNA/Contin ental Insurance G roup in prom otion al br oc hur es . ” T he le tte r state s: Gen tl em en : Itrece nt ly cam e to ou r at te nt io n t ha t U.S. Cap it al
. . . w i th o u to u r

c o n s e n t , i s u s i n g C o n t i n e n t a l I n s u r an c e C o mp an y’ s n a me and refe rring to CNA/Contin ental Insurance G roup in brochu res used do [sic] solicit inv estors for financing instrum ents, so-called c apital not es , of fe re d by U
. S. Ca pit al
.

. . . . We h av e c o n ce rn s ab o u tth e u s e o f o u r n ame i nth e b ro ch u re s . WeL e vy did , h ow e ve r, re c e ive a

le tte r f ro m F CS date d A

pr il 9 , 1 99 9, wh ic h s tate d: 76 This will confirm prior conve rsations with L arr y Schwar tz reg ardingthe status of cre dit insurance on a ccounts re ceiva ble fa ctore d by

First Capital. As you are awa re, CNA ha s ref

used to rene w its insurance policy with FCS as a re sult of the telephone c alls it rece ived from the Sec reta ry of State and nume rous potential inv e sto rs . CN A i s awa

re that c e rt a in b ro ke rs have ma de re pr e se ntatio ns to investors reg ardingthe insuranc e ca rried by FCS in connec tion with the factore d acc ounts rece ivable and that brochure s using CNA’ s name have bee n dis se min ate d b y

your c omp na

y to b ro ke rs and

to i nv e sto rs . F CS is e xtre me ly 61 ha ve rece iv edcal ls an d i nq ui rie s ab ou t t he pro m ot io na l b ro ch ur es . So m eo ne m ay

c ont en d th at , be ca

use our nam e is m en tio ne d inthe brochure, C IC or the C NA/Contin ental Insurance G roup guarantees i n v e s t me n t s i n th e c ap i t a l n o t e s o r i s o th e rw i s e a s s o c i a t e dw i th th e m. A s y ou know , CI C d oe s no t gu ar an te e suc h in ve stm en ts and h as no as soc ia tio n w iththe c ap ita l no te s. F urthe rm or e, CI C h as no as soc ia tio n w ithF ir st C ap ita l othe r than to a ct a s it s a cc ount s re ce iva ble c re dit ins ur er und er P oli cy N um be r N 4913 0. C IC ha s no as soc ia tio n w ha tso ev er

w ithU
. S. Ca

pit al
.

. . . . U
. S. Ca pit al ’ s us e of

Co nti ne nta l I nsur an ce Co m pany ’ s nam e an d re fe re nc e to C N A /C ont ine nta l I nsur an ce G ro up i n th e br oc hur e or in any of it s a dve rt isi ng, sa le s, pr om oti ona l or sol ic itatio n m at er ia ls i s unauth or iz ed

and i lle ga l. Y ou are he re by

ins tr uc te d to sto p su cha ct ivi ty im m ed ia te ly and to r ef ra in f ro m doi ng s o inthe f

uture . T his ins tr

uc tio n a lso appl ie s to y our affiliated c om

panies and any

entity with w hich y ou have a co ntr ac tua l r el at ion shi p. T hr ough out

the a lle ge d c onsp ir ac ie s, anum be r of inv es tor s and i nde pe nde nt brokers contacted Continent al Insurance to discover w hat sort of insurance FCS
carr ied on the accounts receivable. By contrast, L evy

presented no evidence that he inqui red into the nature and coverage of F CS’ s insu rance policy before Co nti ne nta l’ s de m an d le tte r to U
. S. Ca pit al
. F urthe r, L ev y

pr es en te d no dir ec t or 76disappointed that it has lost it s cre dit insurance c overa g e with CNA. F CS has

established a ve rbal c onfirmation from Ame rica n Credit Indemnity

to replac e that insurance . The name of the insura nce c ompany

is not to be disclosed to any employ ees, br okers, a g ents, investors or a nyone else for a

ny purpose whatsoever. And under

no circ umstances a

re a ny of your employees, a g ents or broke rs which you utiliz e to make a

ny repr esentations to i nvestors re g ardingcre dit insurance on acc ounts rece ivable. 62 ci rc um stanti al e vid en ce sug ge sti ng tha t S ch w ar tz pos iti ve ly

de ce ive d hi m reg ard in g t he na tu re o f FCS’s i ns ur an ce o r FCS’s u se of U.S. Capi ta l’s fu nd s. T he re w as no e vid en ce that U
. S. Ca pit al e ve r sto ppe d us ing abr oc hur e lis tin g Co nti ne nta l a s an in sur er to se ll not es . e. U
. S. Ca

pit al ’ s us e of

inv es tor f unds
. Korinne H arper, a G overnm ent investig ator, testified that in 19 98 U. S. Ca pit al tr an sf

er re d a bout $1. 2 m ill ionin inv es tor

f unds to A m er ic anBe ne fi ts Se rv ic es , L ev y ’ s vi at ic al br oke ra ge c om pany , and a lso inv es te d in ve sto r funds in Invoice Funding , anoth er f actoring com

pany . From

May to June of 199 9, U .S
. Capital spent over $4 m illion worth of senior note holders’ m oney on prom issory not es iss ue d by

f ac tor ing f ir m s li ke S un C ap ita l, I nc or por at ed , and M er ch an ts Ca pit al , ins te ad

of F CS
. T hose f

irm ’ s a cc ount s r ec ei vable w er e not ins ur ed by Co nti ne nta l, pe r the se nio r ca pit al not es sa le s br oc hur es . In Ma y o r J u n e 1 9 9 9 , t h e D ep ar t m en ti s s u eda s ub p o en a f o r U .S . C ap i t al ’s
co rp or at e re co rd s r eg ar din g th e sa le of se nio r ca pit al not es and p ur ch as e of63

corporate funding no tes. July 19, 1999 was the last date on which U .S . C apital purchased a six-m onth corporate note fr om FCS
. T he G ove rn m en t pr es en te d di re ct e vid en ce in the f

orm of sum m ar ie s of bank a cc ount

a ct ivi ty sho w ing that U
. S. Ca

pit al c om m ing le d in ve sto r funds w ith its own profits and paid comm issio ns out of the pool of inv estor funds. Se veral
w itn es se s te sti fi ed

that, start ing in 1999 , U
. S. Ca pit al did not f or w ar d a ll inv es tor funds to F CS , but

pa id i nte re st and s at isf

ie d li qui da tio n r eque sts out of it s po ol o f inv es tor f unds and f

or w ar de d th e re m ai nde r to F CS a lon g w itha“ ne wbus ine ss tr an sm itt al ” ind ic at ing howm uc h e ac h in ve sto r ha d pu t i nto the c ap ita l no te pr og ram . From Feb ru ary 19 , 19 98 to Ju ly 19, 1 99 9, U.S. Cap it al pu rch as ed$2 2.9
m ill ionin FC S co rp or at e not es . F ro m January 16, 199 8 to S ep te m

be r 1999 , it
re ce ive d on ly

$7. 25 i n r et

ur n f ro m F CS
. K or inn e H ar

pe r, aG ove rn m en t inv es tig at or , te sti fi ed

that “ [i ] f y ou l ook at

the e nti re li fe of

the [ U
. S. Ca

pit al ]
ac co unt , the re w as n’ t e noug h m one y r ec ei ve d or

e ar ne d inpr ep ai d in te re st o r any oth er w ay f ro m f ac tor ing c om

panie s to pay

the e xpe nse s inint er es t, c om m iss ion s, an d o th er b us in es s ex pe ns es of U.S. Capi ta l.” Num erous investo rs and brokers testified that, tow ard the end of the alleged fraud schem e, they

wr ote U. S. Capital to liquid ate their notes, w ith no response – or ane ga tiv e re spon se – f

ro m U
. S. Ca pit al
. Whe n A lan G old

be rg w as goi ngWe reviewthe evidenc e ag ainst L evy and then Or lick de novo, conside ringthe 77 evidenc e in the lig ht most favorable to the Gover nment and construingall rea sonable fa ctual infere nces – inc luding infe renc es about the c redibility of witnesses – to be c onsistent with the jury ’s ver dict. See United States v. Smith, 459 F.3d 1276, 1286 (11th Cir. 2006). 64 through FCS ’ s credits and debts as its liq uidatio n trustee in 200 0, he discovered that m any of U .S . C apital’ s loans to FCS we re not secured beca use U. S. Capital h a de i th e r n o tf i l e di t s UC C
- 1 f

o rms o r f i l e dth e m i n c o rr e c t l y. 2. An agre em ent to consp ire m ay “be proved by

circum stantial as well as direct evidence, ” U nited States v. H ernandez, 921 F.2d 1569 , 1575 (11th Cir. 1991 ), and m ay

be inf er re d f ro m the r el at ion shi p of

the part ie s, the ir

ove rt a ct s and
co nc er t of a ct ion , and the tot al ity

of the ir c ondu ct . U nit ed

S ta te s v. G ue rr a, 293 F. 3d 12 79, 1285 (11t h Cir. 2002 ). 77 W e th in k areas on ab le jury co ul d h av e co nc lu de d t he fol lo win g. (1 ) L ev y f orm ed U
. S. Ca pit al to he lp S ch w ar

tz and F CS e va de aG ove rn m en t inquir y int o th e le ga lity

of the not e pr ogr am . ( 2) L ev y j oin ed S ch w ar tz in pit ch ing the note program

– by brochures, a dvertisem ents, and personal assurances – as be ing dir ec te d stri ct ly

f or the sa le of

ins ur ed c or por at e an d go ve rn m en t
re ce i v ab l es , t h at i n v es t o rs ’ fu n d s wo u l db e s eg re g at ed , a n dth at U.S . C ap i t al ’s not es w oul d be ba ck ed

by U CC -1 f ili ngs se curi ng i ts i nte re st i n th e ac co unt s65

rece ivable purchased by

FCS
. (3) L evy

wa s on no tice that at least som e investors
w er e co nc er

ne d a bout the va lid ity

of tho se r ep re se ntatio ns, a s de m onstrate d by Jam es H ur d’ s su gge sti ons that i nve sto rs ’ f unds be se gr eg at ed

in a bond ed

tr ust
acco un t. (4 ) L ev y kne wabout

F CS ’ s lo an s be ca

use he pe rs ona lly

be ne fi te d f

ro m the m . H e an d S ch w ar

tz bou ght N ic k’ s inpart

w ithm one y

pr ovi de d by

F CS and FC S m ad e loans i n e xc es s of $1 m ill ionto N ic k’ s whil e he w as c o- ow ne r. T he j ur y c oul d have a lso inf

er re d th at he c o- ow ne d ahe lic opt er w ithS ch w ar

tz bou ght with m oney

loaned by

FCS
. (5) L evy knew F CS’ s rece ivables were underinsu red. U .S . C apital fo rw ar de d ov er

$20 m ill ionto FC S in the c our se of thr ee y ears ; the j ur

y c oul d have r ea sona

bly inf er re d th at L ev y , ba se d onsuc h an in ve stm en t, ha d do ne his hom ew ork regarding the insurance that protected it. H is igno rance, if any , w as dispelled b y

Continental’s January

1999 dem and letter. A fter that, U. S. Capital
vo lu nt ari ly con ti nu edto us e th e o ldbro ch ur es na m in g C on ti ne nt al an d C NA ins ur an ce to se ll not es and c ont inu ed it s bu sin es s w ithF CS thr oughthe sum m er of 1999
. (6 ) L ev y

kne wU
. S. Ca

pit al w as m isu sin g in ve sto r funds an d di re ct ed it to do so. The j ury

could have inferred that L evy , a s the owner and director of U .S
.66

Capital, knewthat U. S. Capital w as not segregating in vestor funds from U. S. Ca pit al pr of its and the c om

m iss iondue ind ep en de nt b ro ke rs . A ddi tio na lly , in 1998 , U .S . C apital m ade loans usin g investo r funds to Levy ’ s com pany Am erican Benefits and used investo r funds to buyprom issory notes of com

panies other than FC S, in vio la tio n of

it s pr om ise in the sa le s br oc hur es and o n th e fa ce of the se nio r ca pit al not es . (7 ) T he j ur

y c oul d have inf

er re d th at L ev y kne wF CS w as los ing m one y and that i nve sto r funds w er e the re fo re not tr uly li qui d. A s U
. S. Ca

pit al ’ s owne r an d dir ec tor , he w oul d have kno w n a bout it s so -c al le d of

fs et a cc ount ing te ch nique of
se ndi ng n ewinv es tor

f unds – m inu s ol d in te re st, li qui da tio n, and c om m iss ion paym ents – to FCS. The j ury could have inferred that L evy directed U .S . C apital to use the accountin g techniqu e to hide FCS’ s losses, and thereby forestall the day that i nve sto rs ’ li qui da tio n r eque sts c oul d no t be m et . (8 ) As t o Lev y ’s con vi ct io n o f co ns pi racy to c omm itm on ey lau nd eri ng , a re as ona ble j ur y c oul d have inf

er re d th at U
. S. Ca pit al ’ s of fs et a cc ount ing w as a de lib er at e atte m

pt b y L ev y and S ch w ar

tz to de lay

the ine vit ab le day

of r ec koni ng by shi el din g F CS ’ s in dis cr et ion s f ro m inv es tor s: a s lo ng a s ne winv es tor f unds out pa ce d in te re st and l iqu idatio n paym en ts, U
. S. Ca pit al and F CS c oul d c ont inu eSe v e r a l w it n e s s e s te s ti f

ie d th at U
. S. Ca

p it a l’ s o f f s e t a c c o un ti n gamo un te d

to a Po n zi 78 sc he me . We no te that it

dif fe re d f ro m a c la ssi c Pon zi sc he me – in wh ic h o ld i nv e sto rs are pa id wi th n e w i nv e sto rs ’ f

un ds – in that F CS is su e d c or

po rate no te s to U. S. Ca

pit a l to ta lin gthe same amount that U.S. Capital had rec eived f rom investors. At least on the books, U.S. Capital had fo rw ard e d e no ugh mo ne y to F CS to re pr e se nt a de qu ate ly the amou nt i nv e sto rs ha d lo ane d to U. S. Capital. The off

set ac counting , howeve r, allowe d FCS to lose the money while U.S. Capital c ontin ue d to pa y of f i nv e sto rs . 67 to m isuse inv estor funds without risk of discovery
. In that w ay , the c onsp irators 78

“ hid ” the pr oc ee ds o f the ir f ra ud s ch em e in s om e ca se s by a ct ua lly pay ing the ir cl ie nts . I n a ddi tio n, U
. S. Ca pit al and F CS both m ad e loans w ithinv es tor f unds to
co rp or at ion s owne d and c ontro lle d by S ch w ar tz and L ev y , and wro te c he ck s to out sid e en tit ie s – b ro ke rs , bus ine ss p ar tne rs , e tc . – a ll to s ec re t aw ay the pr oc ee ds of the ir f ra ud. B. O rl ic k. Or lick joined U .S . C apital som etim e ear ly in 199 8. A t first O rlick wa s dir ec te d by

he r fathe r an d tr ai ne d by the out goi ng o ff

ic e m an ag er , L ind a Lundgren. H owever , L evy told Zendell Katz, a sales broker, that “ [O rlick] wa s go in g t o ru n t hi ng s an d [Le vy] was g oi ng to sh ow h er h ow t o d o i t.” By th e m id dl e o f 19 98 , Orli ckm an ag edU.S. Cap it al ’s off ic e d ay -to -d ay . Independent brok erage agents who worked on-site at U .S . C apital, like Richar d Porcelli, we re told to bring th eir paperw ork and questi ons to Or lick, who sig ned the ir c om m iss ionc he ck s. A cc or din g to P or ce lli , O rl ic k c oll ec te d pa pe rw ork f ro mCr ownin gwa s a se c re tary fr om a pp ro ximate ly

19 98 to 2 00 0 f

or Am e ri c an B e ne fi ts, 79 wh ic h w a s r

un out of the same of

fi c e a s U .S. Ca

pit a l. 68 ag en ts, pa id a ge nts ’ c om

m iss ion , iss ue d pa

pe rw ork to inv es tor s, and wro te
m onth ly checks to investo rs. She signed m any of the U .S . C apital senior capital not es . Whe n L ev y

w as out of the of fi ce , O rl ic k w as in ch ar ge . S he hir ed a t l ea st
one e m plo y ee , K el ly

Cr ow nin g, w ho t es tif

ie d th at L ev y w as in the of

fi ce onl y

“ [o ]nce i n awhi le .” 79 O rl ic k a lso m an ag ed

U
. S. Ca pit al ’ s op er at ing a cc ount , int o w hic h in ve sto r funds were deposited andout of which FCS corporate f undi ng no tes we re pur ch as ed

and i nve sto rs and b ro ke rs w er e pa id. S he r ev ie w ed the w ork of L awre nc e N une z, w ho w as r es pons ibl e fo r updatin g U
. S. Ca pit al ’ s e le ctro nic
acco un ti ng reco rd s wh en ne w in ve st or s s en t i n t he ir c he ck s an d p ai d l iq ui da ti on s. Ac cording to Nunez, O rlick knew that U .S . C apital was not sending all of the new inv es tor s’ m one y

to FC S, but

de duc tin g th e am ount

pa id i n c om

m iss ion s and int er es t. O ve r the c our se of

the c onsp ir ac y , O rl ic k si gne d c he ck s to F CS f or $22
m ill ionin inv es tor

m one y . S tart ing in Jul y

199 9, F CS be gan to de fa ult on i ts obl igatio ns t o U
. S. Ca

pit al
. O rl ic k ke pt s en din g in ve sto r funds to F CS , but pa id liquid at ionr eque sts out

of the m one y

c om ing in fr om

ne winv es tor s be ca

use69

m oney from FCS wa s not forthcom ing. By the end of the notes program , F CS had returne d o nl y

$7 m il li on to U.S. Cap it al
. A t so m e poi nt i n 19 99, U
. S. Ca pit al m ad e it m or e dif

fi cu lt fo r inv es tor s to liquid at e the ir

not es . O rl ic k im

ple m en te d th e ch an ge . S ev er al br oke rs and investo rs testified that, a fter m id-1999 , their liqui dation requests we re denied. Jay Long, an investo r, testified that when he ca lled about h is invest m ent in Septem ber 1999 , O rl ic k to ld h im

that U
. S. Ca

pit al w as havin g a dm ini str at ionpr obl em s. W e thi nk a

r ea sona ble j ur y c oul d have f

ound that O rl ic k, f

ro m he r posi tio n at U
. S. Ca pit al , kne wabout

and v oluntari ly

part ic ipate d inthe sc he m e to d ef ra ud ind ivi dua l i nve sto rs thr oughthe se nio r ca pit al not es pr ogr am . S he sig ne d th e not es and a cc om

pany ing li te ratur e re pr es en tin g th at inv es tor s’ f

unds w oul d be segregated, liqui d, and used onlyto invest in FCS , f or governm ent or insured
co rp or at e re ce iva

ble s. S he kne wthat U
. S. Ca pit al did not se gr eg at e inv es tor

f unds from U. S. Capital’ s corporate funds, and the j ury could have inferred f

rom her fo rmal p o s i t i o n , h erm an ag emen to f t h e o ff i ce , h ero v er s i g h to f U .S . C ap i t al ’s
ac co unt , and h er

r es pons ibi lity

f or sig nin g c he ck s ou t of

U
. S. Ca pit al ’ s c he ck ing accounts that she cons orted with her f ather to dictate how investor funds wer e use d. E ve n if

O rl ic k di d no t kn owhowF CS w as usi ng f unds , he r know le dge of U
. S. Ca pit al ’ s m isu se c oupl ed

w ithata ci t a gr ee m en t w ithL ev y to m isu se tho se70

funds lin ke d he r to the larg er c onsp ir ac y

be ca use L ev y kne wabout

F CS ’ s m isu se of fun ds
. W e thi nk, tho ugh, that a

r ea sona ble j ur y c oul d have c onc lud ed , ba se d on Or lick’ s posi tion andactivities at U. S. Capital and her per sonal relationsh ip to her fathe r, Ra pha el L ev y , w ho b en ef

ite d f ro m se ve ra l F CS loans, that sh e kne wand volu ntarily

participated in how FCS m isused in vestor funds as well. The j ury could have inferred that she m ust have inv estigated the nature of FCS ’ s activities be ca use she pe rs ona lly

r ep re se nte d th at

inv es tor f unds w oul d be use d inac er ta in
w ay . T he j ur

y c oul d have f

ound f ro m U
. S. Ca pit al ’ s de ci sio n to be ginsa tis fy ing interest and liqui dation p aym ents out o f newinvestors’ f unds that Or lick knew ab out and h el pe d di re ct

U
. S. Ca pit al to de lay

inv es tor sc ru tiny by ke ep ing up the
ap p e ar an c e s o f

s u c c e s s wh i l e F C S wa s l o s i n g mo n e y. V. We AF FI RM th e c o u rt ’s ju d g m en ti nal l re s p ec t s ex ce p tas t o Sc h wa rt z’s
co nv ic ti on s, wh ic h we VACATE. SO ORDERED.