Source: https://www.justice.gov/osg/brief/tyrrell-v-united-states-opposition
Timestamp: 2019-04-21 11:01:53+00:00

Document:
Whether petitioner's convictions for conspiring to commit money laundering, in violation of 18 U.S.C. 1956(h), and for money laundering, in violation of 18 U.S.C. 1956(a)(1)(A), should be set aside based on an alleged failure by the government to establish that the "proceeds" involved in the laundering transactions were "profits" of the underlying unlawful activity.
The opinion of the court of appeals (Pet. App. 1-42) is not published in the Federal Reporter but is available at 269 Fed. Appx. 922.
The judgment of the court of appeals was entered on March 17, 2008. A petition for rehearing was denied on June 9, 2008 (Pet. App. 43-44). The petition for a writ of certiorari was filed on September 4, 2008. The jurisdic tion of this Court is invoked under 28 U.S.C. 1254(1).
Following a jury trial in the United States District Court for the Middle District of Florida, petitioner was convicted of conspiracy to commit fraud, in viola tion of 18 U.S.C. 371, seven counts of mail fraud, in violation of 18 U.S.C. 1341, conspiracy to commit money laundering, in violation of 18 U.S.C. 1956(h), and seven counts of money laundering, in violation of 18 U.S.C. 1956(a)(1)(A). He was sentenced to 136 months of im prisonment. The court of appeals affirmed. Pet. App. 1- 42; see Gov't C.A. Br. 4.
1. Danny Wey and Gregory Schultz created a com pany named Millennium Investment, Inc., and a related entity Millennium Investment, Inc. Trust (MIIT), which marketed and sold unregistered securities to raise capi tal for Millennium. The MIIT notes falsely claimed that they were guaranteed by the Bank of Bermuda Limited, and MIIT's disclosure documents neglected to mention Wey's prior felony fraud conviction. Dean Sinibaldi marketed many of these notes for MIIT. Pet. App. 4-6.
When MIIT began defaulting on its obligations, its owners and Joseph Cuciniello incorporated a group of 15 Florida and New York entities known as The Stone hedge Group (Stonehedge). Stonehedge's marketing materials advised that its funds would be invested in Millennium and falsely claimed that Millennium's principals had 40 years of experience in providing funds to companies about to make initial public stock offer ings. Between March 1998 and November 2000, victims turned over more than $12.5 million to Stonehedge. Al though petitioner represented that 85% of that money would be invested, only approximately 20% was actually invested, and 33% was paid in commissions to petitioner and others who sold the Stonehedge securities. Pet. App. 6-8; see Presentence Investigation Report 4 (PSR).
Petitioner began marketing Stonehedge securities in the fall of 1998. He created a training manual and in structed new salesmen at seminars. After petitioner and the sales organization that he headed became involved, the monthly funds invested in Stonehedge increased from less than $100,000 to approximately $1 million. Pe titioner also became the president and sole shareholder of one of the Stonehedge entities. In that capacity, he signed and issued $491,000 worth of stock shares to in vestors, most of which they ultimately lost. Pet. App. 9- 10; Gov't C.A. Br. 11-12.
In October 1999, Florida officials sought an injunc tion to shut down MIIT and Stonehedge, naming Schultz, Wey, Cuciniello, and Sinibaldi as relief defen dants. Petitioner and his co-conspirators then began marketing their securities through Stonehedge entities based in New York and processing sales through peti tioner's Arizona-based company. At the same time, peti tioner directed that his Stonehedge commissions be paid to an entity recently registered by his wife, which then remitted the commissions to an entity he controlled. Even after the state court injunction, petitioner and his co-conspirators collected $3.2 million from investors. In total, Stonehedge investors lost $11.4 million. Pet. App. 10-12.
2. Petitioner, along with Schultz, Sinibaldi, Cucin iello, and others, was first indicted in December 2002 and charged again in a second superseding indict ment in November 2004. See Pet. C.A. Br. 2-3. As rele vant here, that indictment charged petitioner in Count 23 with conspiracy to commit money laundering, in viola tion of 18 U.S.C. 1956(h), and in Counts 32 through 38 with money laundering, in violation of 18 U.S.C. 1956(a)(1)(A). Second Superseding Indict. 25-32, 35-36.
Each of the substantive money laundering counts alleged that petitioner and the other conspirators had conducted a financial transaction involving the "proceeds of specified unlawful activity, that is mail fraud, * * * with the intent to promote the carrying on of specified unlawful activity." Second Superseding In dict. 35. Each of those counts involved lulling payments made to earlier investors using funds fraudulently ob tained from later investors. For example, Count 32 in volved a "dividend" payment sent to an investor in Janu ary 1999 accompanied by a letter advising that Stone hedge was "looking forward to fantastic growth in the coming year." Gov't Exhs. 217B, 217C. The conspiracy count was likewise predicated in part on an agreement by petitioner and his co-defendant to withdraw "pro ceeds of victim checks" and to use those "new investor funds to make principal and interest payments to prior investors." Second Superseding Indict. 26-27.
3. On appeal, petitioner (together with Sinibaldi and Cuciniello) argued that a mistrial should have been de clared when co-defendant Schultz was severed from the case mid-trial and that the government had failed to prove scienter. Pet. App. 2 n.1, 41. At no point did peti tioner argue to either the district court or the court of appeals that the funds involved in the money laundering counts were not "proceeds." See Pet. 10 (petitioner's concession that he made no such argument in the courts below).
The court of appeals affirmed petitioner's convic tions. It concluded that no evidence admissible only against Schultz had been admitted and that the court's instructions eliminated any risk of prejudice from the failure to sever Schultz until the middle of the trial. Pet. App. 13-16. The court further found that "an abundance of evidence adduced at trial proved [petitioner's] know ing and voluntary participation in the charged conspira cies." Id. at 41.
4. Petitioner and his co-defendants filed petitions for rehearing. On June 2, 2008, while those petitions were pending, this Court held in United States v. San tos, 128 S. Ct. 2020 (2008), that, to establish promotional money laundering in violation of Section 1956(a)(1)(A)(i) based on transactions involving the "proceeds" of an il legal gambling business, in violation of 18 U.S.C. 1955, the government must prove that the transactions in volved the profits, rather than the gross receipts, of the business.
Thereafter, Sinibaldi filed a motion for rehearing or in the alternative to file a supplemental brief pursuant to United States v. Santos. Petitioner did not file any motion based on Santos. The court of appeals denied the petitions for rehearing and denied Sinibaldi leave to supplement his petition to raise a new issue.
Petitioner contends (Pet. 5-20) that this Court should grant the petition for a writ of certiorari, vacate the de cision of the court of appeals, and remand the case for further consideration in light of United States v. Santos, 128 S. Ct. 2020 (2008). Petitioner further contends that his money laundering convictions are invalid because the government failed to prove that the "proceeds" involved in the laundering transactions were "profits" of the un derlying fraud. Pet. 15-16. Those challenges are not properly before this Court, and they lack merit in any event. Accordingly, the Court should deny the petition for a writ of certiorari.
1. Petitioner did not properly preserve for this Court's review any challenge to his convictions based on the meaning of "proceeds" in 18 U.S.C. 1956(a)(1), which was at issue in this Court's decision in Santos. Peti tioner argued in the courts below only that he did not knowingly participate in a conspiracy to defraud inves tors. He made no argument based on the meaning of the term "proceeds" in Section 1956(a)(1), and the court of appeals did not address that issue. Unlike his co-defen dant Sinibaldi, petitioner did not even attempt to raise a Santos argument while his petition for rehearing was pending before the court of appeals. Indeed, petitioner concedes that he failed to raise any Santos argument in the courts below. See Pet. 10. That default should pre clude review here. If petitioner believes that his con duct did not amount to money laundering in light of Santos, then his proper recourse is to file a motion for collateral relief under 28 U.S.C. 2255, where he could attempt to make the factual showing of actual in nocence necessary for him to overcome his procedural default. Cf. Bousley v. United States, 523 U.S. 614, 623- 624 (1998).
Like petitioner, Sinibaldi filed a petition for a writ of certiorari with this Court, arguing in part that his money laundering convictions were precluded by San tos. Pet. at 16-17, Sinibaldi v. United States (No. 08- 590). This Court denied Sinibaldi's petition for a writ of certiorari. Sinibaldi v. United States, 129 S. Ct. 663 (2008). The Court should deny the instant petition as well.
2. Even if petitioner's claim based on Santos were properly presented, it would not warrant relief at this time. Contrary to petitioner's suggestion (Pet. 4), San tos did not hold that "proceeds" universally means "profits" in Section 1956. No opinion in Santos spoke for the majority of the Court. The result in Santos was that, in order to establish a violation of 18 U.S.C. 1956(a)(1)(A)(i) in which the government alleges that the defendant laundered the "proceeds" of an illegal gam bling business in violation of 18 U.S.C. 1955, the govern ment must prove that the alleged laundering transac tions involved the profits, rather than the gross receipts, of the business. See Santos, 128 S. Ct. at 2026 (plurality opinion); id. at 2033 (Stevens, J., concurring in the judg ment). Because of the fractured nature of the decision, however, Santos does not resolve the meaning of "pro ceeds" as applied to other forms of "specified unlawful activity" (SUA). Because petitioner's convictions rest on a different predicate SUA than the one involved in Santos (mail fraud rather than operating an illegal gam bling business), Santos is not controlling here.
The general rule for ascertaining the holding of a case in which there is no majority opinion is that "the holding of the Court may be viewed as that position tak en by those Members who concurred in the judgment on the narrowest grounds." Marks v. United States, 430 U.S. 188, 193 (1977) (quoting Gregg v. Georgia, 428 U.S. 153, 169 n.15 (1976)). As this Court has recognized, how ever, the Marks test is frequently "more easily stated than applied." Grutter v. Bollinger, 539 U.S. 306, 325 (2003); Nichols v. United States, 511 U.S. 738, 745-746 (1994). In some cases, there may be "no lowest common denominator or 'narrowest grounds' that represents the Court's holding." Ibid. (concluding that it was "not use ful to pursue the Marks inquiry").
Where there is no "one opinion [that] can meaning fully be regarded as 'narrower' than another" in the sense that it is a "logical subset of other, broader opin ions," the traditional Marks analysis does not apply. United States v. Alcan Aluminum Corp., 315 F.3d 179, 189 (2d Cir. 2003) (quoting King v. Palmer, 950 F.2d 771, 781 (D.C. Cir. 1991) (en banc), cert. denied, 505 U.S. 1229 (1992)), cert. denied, 540 U.S. 1103 (2004); e.g., United States v. Johnson, 467 F.3d 56, 63-64 (1st Cir. 2006), cert. denied, 128 S. Ct. 375 (2007); Anker Energy Corp. v. Consolidated Coal Co., 177 F.3d 161, 169-170 (3d Cir.), cert. denied, 528 U.S. 1003 (1999). In such a case, it may be possible to find a legal theory shared by a majority of the Justices by looking to a combination of the plurality or concurring opinions and the dissent. See, e.g., Johnson, 467 F.3d at 64-66. But where that in quiry also proves unavailing, then "the only binding as pect of [the] splintered decision is its specific result." Anker Energy Corp., 177 F.3d at 170.
That is the situation with Santos. Although the plu rality opinion suggests that Justice Stevens's concurring opinion rests on a narrower ground, 128 S. Ct. at 2031, neither Justice Stevens's opinion nor the plurality opin ion is a "logical subset" of the other. The plurality opin ion rests on a rationale that "proceeds" has a single meaning for all SUAs, and that meaning is "profits." See id. at 2029-2030. Justice Stevens's opinion is based on the rationale that "proceeds" has a different meaning for different SUAs. Id. at 2033. Neither opinion is a logical subset of the other or can provide a common de nominator because the opinions rest on inconsistent pre mises. Similarly, neither opinion can be combined with the reasoning of the dissent to generate a controlling legal principle because the dissent concludes that "pro ceeds" always means "gross receipts." Id. at 2044. The dissent thus rejects both Justice Stevens's premise that "proceeds" has different meanings for different SUAs and the plurality's conclusion that "proceeds" means "profits." See ibid. Accordingly, the only binding as pect of the Santos decision is its specific result, which does not address the circumstances of petitioner's case. See United States v. Brown, 553 F.3d 768, 783 (5th Cir. 2008) ("The precedential value of Santos is unclear out side the narrow factual setting of the case.").
Because Santos does not clearly resolve the meaning of "proceeds" for petitioner's case, Santos would not en title petitioner to any relief even if his claim were prop erly presented. As noted above, petitioner did not raise a Santos claim in the district court. Accordingly, his claim would be subject (at most) to review for plain er ror, and he would be entitled to relief only if he could show, among other things, that the district court com mitted an "obvious" error. See United States v. Olano, 507 U.S. 725, 734 (1993). Given the uncertainty about whether the "profits" requirement applies to petitioner's offenses, petitioner could not make that showing.
3. Even if the "profits" requirement clearly applied in this case, the transactions in Santos are distinguish able from those involved here. In Santos, the charged financial transactions consisted of payments of winning bettors and runners' salaries using the proceeds of an illegal lottery operation. Members of the Court con cluded that the "profits" definition of "proceeds" was necessary to avoid treating the payment of such "nor mal" or "essential" expenses of a gambling business as money laundering. Santos, 128 S. Ct. at 2027 (plurality opinion); id. at 2033 (Stevens, J., concurring in the judg ment). Those Justices were concerned that, if the money laundering statute covered paying the essential expenses of the underlying crime, then the money laun dering charge would "merge" with the proceeds-gener ating crime (yet produce a higher penalty), id. at 2026- 2028 (plurality opinion), so that a separate conviction for money laundering would be tantamount to a second con viction for the same offense, id. at 2032-2033 (Stevens, J., concurring in the judgment).
This case does not present the merger problem that concerned the Court in Santos because the transactions underlying the money laundering charges against peti tioner did not involve the payment of "essential" ex penses of the fraudulent scheme. As noted above, the money laundering charges against petitioner alleged that the conspirators deposited the proceeds of victims' checks into bank accounts and then used those proceeds to make payments to earlier investors, lulling them into believing their funds had been invested and thus pro moting the continuation and expansion of the fraud. Such expenditures, unlike, for example, the cost of pro ducing and mailing the fraudulent notes and marketing materials, were not "essential" expenses of the fraud operation. Indeed, the vast majority of later investors never received any lulling payments, so those payments cannot be deemed essential to the scheme. Accordingly, petitioner errs in contending that his transactions, by definition, cannot qualify as transactions in "profits" under Santos.
Petitioner's related contention (Pet. 16) that the gov ernment failed to prove that the underlying fraud gener ated profits is belied by the record. Stonehedge raked in $12.5 million in approximately two years, and a third of those funds were paid out as commissions. Pet. App. 8. Sinibaldi received $465,234.47, and Cuciniello and his family received more than $850,000. Id. at 6, 8. Peti tioner too received sizable payments for selling the fraudulent Stonehedge securities. See PSR 4; Gov't C.A. Br. 14; Gov't Exh. 1S (detailing payments of more than $1.3 million to corporations controlled by petitioner and his wife). Those payments could not have been made if the scheme's receipts had been completely con sumed by its expenses. Accordingly, at this stage of the case, petitioner cannot establish that the charged trans actions involved only the gross receipts of fraud, rather than the profits.

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