Opinion ID: 3021054
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: In the summer of 1994 Thompson formed an organization he called GAILS, an acronym for Go American International Listing Services. Its announced purpose was to facilitate imports into and exports from the United States. Its members were to solicit manufacturers in this country to use GAILS to market their products abroad at a fee of $25,000. Thompson and Dugan recruited the members, informing them that GAILS already had a global network of over 1,200 established trade 1 The Honorable John T. Noonan, Jr., United States Circuit Judge, United States Court of Appeals for the Ninth Circuit, sitting by designation. -2- agents. The members were asked to pay the organization a total of $25,000 for territorial rights to represent GAILS and to pay $2,500 fully refundable as an initial fee to GAILS. Thompson and Dugan ran advertisements in newspapers around the country seeking members and informing potential members that they could make yearly incomes of as much as $200,000. GAILS was said by them to have its international headquarters on Old Bond Street, London, England and its national headquarters in the World Trade Center in New York City. Each of the defendants stated that the agents were known to them and in place. Each of the defendants stated that they had previous success in international marketing, and Thompson, in particular, referred to his success in marketing concrete docks, the so-called Rock Dock scheme. In the first six months of marketing Dugan placed ads and did telemarketing from Florida where he was in a halfway house serving time for his previous federal conviction in 1988 of mail fraud in connection with the Rock Dock. In February 1995 he came to Minneapolis where Thompson had been directing the operation and, in March 1995 he participated in a conference discussing what they should do as Thompson was being returned to prison for violation of his probation in connection with the Rock Dock. They agreed that members or potential members would be told that Thompson was going to Europe and Australia to visit the agents. -3- Dugan, when he was in Florida, had explained his presence there to potential members by saying it was a free trade zone, without mentioning his confinement in the halfway house. No network of 1,200 agents existed. No headquarters in London or New York existed. No manufacturers were ever persuaded to invest with GAILS. No member had a chance of earning money honestly from the scheme. No money paid by members was refunded. GAILS was an out and out scam run by two men who not only had practiced a similar scam in marketing the oxymoronic Rock Dock but had actually been incarcerated because of their earlier fraudulent venture. PROCEEDINGS On July 2, 1996 the two defendants were indicted along with Teo Stephan Leonard. Leonard subsequently pleaded guilty and became a witness against Thompson and Dugan. The indictment set out the scheme to defraud and then in specific counts charged Thompson and Dugan with aiding and abetting each other in specific acts of fraud directed against named individuals. Prior to trial the government gave notice of its intent to present evidence of the Rock Dock scheme and its consequences as evidence inextricably intertwined with the crimes for which the defendants were on trial and as Fed. R. Evid. 404(b) -4- evidence. The district court ruled in the government's favor. Thompson sought to introduce a tape recording, lasting 40 minutes, of the March meeting that discussed the action to be taken when he returned to prison. Thompson, Dugan and five others had participated at this meeting. Dugan and the government objected to admitting the whole recording on the grounds that much of it was hearsay. Thompson did not identify specific passages that should be admitted. The district court sustained the objections. At the government's request the court gave a willful blindness instruction as to Dugan, who had not testified at trial and whose defense essentially had been lack of guilty knowledge of Thompson's scheme, at least prior to Dugan's coming to Minnesota. During its deliberations the jury sent a note asking the judge to define agent and network. The court ruled that the jury did not need the definitions. The trial began on January 22, 1997 and ended on February 10, 1997 when the jury found them guilty on all counts. Thompson was sentenced to four years imprisonment and to payment of restitution in the amount of $321,455. Dugan was sentenced to 2½ years in prison and the payment of $75,000 in restitution. The restitution obligations were made joint and several. -5-