Opinion ID: 547455
Heading Depth: 1
Heading Rank: 2

Heading: the wire fraud and itpof instructions

Text: 40 The appellants contend that their wire fraud and ITPOF convictions must be overturned because the district court's instructions allowed the jury to convict them for defrauding the Government of intangible rights, and without finding that the Government was defrauded of money or property, contrary to the Supreme Court's teaching in McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987). We reject this claim because we find that, as a whole, the indictment, the evidence, and the jury instructions leave no doubt that the defendants were convicted upon the basis of a proper legal theory. In light of this conclusion, we need not and do not decide whether McNally applies to an ITPOF offense. (We note that McNally has been overruled by legislation. In November 1988, after the events giving rise to the appellants' convictions, the Congress amended the wire fraud statute to provide that the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services. 18 U.S.C. Sec. 1346.) 41 The wire fraud and ITPOF counts of the indictment charged Steven Madeoy and Michael Friedman with devising 42 a scheme and artifice to defraud the FHA and the VA of their lawful right to conduct their business and affairs free from deceit, fraud, misrepresentation, and theft and to defraud and obtain money and property from the FHA by means of false and fraudulent pretenses, representations, and promises which defendants well knew were false when made.... (Emphasis added.) 43 The district court instructed the jury regarding these counts: 44 With respect to the first element, the Government must prove beyond a reasonable doubt the existence of a scheme or artifice to defraud, with the objective either of defrauding the FHA or the VA of their lawful right to conduct their business and affairs free from deceit, fraud, or misrepresentation, or of obtaining money and property from the FHA by means of false and fraudulent representations and promises which the defendant knew to be false. (Emphases added.) And: 45 In order to establish a scheme to defraud, the Government is not required to establish that a defendant himself originated the scheme. Nor is it necessary that a defendant realized any gain from the scheme nor that the intended victim suffered any loss as long as you find the existence of a scheme to defraud. 46 The wire fraud statute does not prohibit a person from participating in a scheme that is aimed solely at defrauding the citizens and government ... of certain 'intangible rights,' such as the right to have the [Government's] affairs conducted honestly. McNally, 483 U.S. at 352, 107 S.Ct. at 2877 (interpreting mail fraud statute); see Carpenter v. United States, 484 U.S. 19, 25-28, 108 S.Ct. 316, 320-21, 98 L.Ed.2d 275 (1987) (extending McNally to wire fraud statute). The statute does, however, protect intangible property, as well as the right to decide how to use that property--even if a defendant's actions do not cause the property owner any monetary loss. Id. 47 We reject the appellants' contention that the indictment did not charge a scheme or artifice to defraud a victim of property. An FHA insurance commitment, by which the Government promises to pay the lender if the borrower defaults on the loan, is a property interest, not an intangible right under McNally and Carpenter, because it involves the Government's control over how its money [is] spent. McNally, 483 U.S. at 360, 107 S.Ct. at 2882. Moreover, the indictment alleged that the appellants' scheme resulted in the Government's committing itself to pay back certain loans, which it would not otherwise have agreed to do, thereby causing it to lose money; the indictment also alleged that the appellants' object was to reap financial gain from the scheme. The indictment therefore alleged a scheme for which the jury could properly convict them of wire fraud and ITPOF. 48 Our decision does not conflict with those of courts that have held that a government's right to issue a license is not its property. See United States v. Kato, 878 F.2d 267, 268-69 (9th Cir.1989) (FAA's right to issue a private pilot license); United States v. Dadanian, 856 F.2d 1391, 1392 (9th Cir.1988) (state's right to issue gambling license); United States v. Murphy, 836 F.2d 248, 253-54 (6th Cir.1988) (state's right to issue bingo license). Under those decisions, wrongful issuance of a license infringes an intangible interest in responsible government, and thus conviction for bringing about such issuance is impermissible under McNally. In contrast, the FHA's commitment to guarantee a loan is a significant liability to the Government and the commitments obtained by the appellants have, in fact, cost the Government money. 49 We reject also the appellants' claim that the jury instruction on the wire fraud and ITPOF counts requires reversal of their convictions. The appellants did not object to the instructions at trial, and they are consequently barred from challenging them here except for plain errors or defects affecting substantial rights, under Rule 52(b). See United States v. Debango, 780 F.2d 81, 84 (D.C.Cir.1986). In this context, they would have to show either that an error in the charge was so substantial that, despite all of the instructions, arguments, and evidence properly before the jury, it affects the very integrity of the trial process, United States v. Blackwell, 694 F.2d 1325, 1341 (D.C.Cir.1982), or indicates that a serious injustice was done, United States v. Baker, 693 F.2d 183, 187 (D.C.Cir.1982). 50 We may assume that the disjunctive in the trial court's instruction to the jury was incorrect in light of McNally, because it suggested that the jury could still convict even if it concluded that the defendants sought only to defraud the Government of its lawful right to conduct [its] business and affairs free from deceit, fraud, or misrepresentation. This does not, however, amount to plain error; considered together, the jury instructions, the indictment, and the evidence compel the conclusion that the appellants were not convicted upon the basis of an improper legal theory. 51 The instructions as a whole fairly informed the jury that, in order to convict, it had to find more than a scheme to defraud the FHA of the right to conduct its business free from deceit. For example, immediately following the erroneous instruction, the court explained that [a] scheme or artifice includes any plan or course of action to deceive others and to obtain money or property from persons so deceived by false and fraudulent pretenses, representations or promises. The court also told the jury that the alleged scheme related to the issuance of Certificates of Reasonable Value, which were used by the Government to decide whether and for how much to guarantee the loans for the 23 properties, and that in order to find the intent needed to convict, it had to conclude that the appellants act[ed] knowingly and with the specific intent to deceive for the purpose of either causing some financial loss to another or bringing about a financial gain to [themselves]. 52 These instructions, along with the jury's conclusion beyond a reasonable doubt that the appellants engaged in the conspiracy with which they were charged, makes it simply impossible to imagine how the jury could have concluded that the scheme was not directed at defrauding the Government of a property interest. Thus, United States v. Slay, 858 F.2d 1310, 1314-17 (8th Cir.1988), and United States v. Ochs, 842 F.2d 515, 521-24 (1st Cir.1988), upon which the appellants rely, are not on point; in those cases the defendants could have committed all of the acts alleged and yet not have defrauded anyone of property. The only possible theory upon which the jury could have returned the guilty verdicts in this case is that the appellants participated in a scheme fraudulently to obtain FHA-insured loans, to their financial benefit or the Government's financial loss. Inasmuch as this theory involves fraudulently obtaining a property interest under McNally, we conclude that the erroneous instruction did not constitute plain error. 53 Contrary to the appellants' separate assertion, the district court was not required to instruct the jury that it must find that the Government actually lost any money as a result of the appellants' scheme. In Carpenter, a newspaper lost the exclusive ability to decide how to use its confidential information; that was sufficient, although no financial loss was involved, to satisfy the property requirement. 484 U.S. at 27-28, 108 S.Ct. at 321. There is no logical way to interpret the guilty verdicts here other than indicating that the jury concluded that the Government lost the ability to identify and avoid unworthy loan guarantee applications--something at least as substantial as the property in Carpenter--and of course it also lost money once the borrowers started defaulting. 54 Because we conclude that the Government properly alleged violations of the wire fraud and ITPOF statutes, and that the district court's instructions did not constitute plain error, we affirm the convictions on those counts. 55