Court Opinion

ID: 2997206
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:34:35.552205+00
Date Added: 2024-06-11T11:45:32.803125
License: Public Domain

In the
 United States Court of Appeals
              For the Seventh Circuit
                       ____________

No. 02-1070
UNITED STATES OF AMERICA,
                                           Plaintiff-Appellee,
                             v.

ARLENE F. DIAMOND,
                                       Defendant-Appellant.

                       ____________
          Appeal from the United States District Court
                for the Central District of Illinois.
        No. 00 CR 20046—Michael P. McCuskey, Judge.
                       ____________
     ARGUED APRIL 9, 2004—DECIDED AUGUST 10, 2004
                      ____________

 Before BAUER, EASTERBROOK, and KANNE, Circuit Judges.
  BAUER, Circuit Judge. Arlene F. Diamond was convicted
of mail fraud, wire fraud, conspiracy to commit mail and
wire fraud, conspiracy to conduct monetary transactions
with the proceeds of illegal activities, and conducting
monetary transactions with proceeds of illegal activities.
She appeals; we reverse in part and affirm in part.
2                                                No. 02-1070

                      I. Backgound
  In 1994, Clyde Hood, a man who claimed to be one of only
eight people experienced enough to trade international
“Prime Bank Notes” announced that he had received a
message from God who told him to use his expertise in the
secretive and lucrative trading of Prime Bank Notes to
“help the little people.” Accordingly, Hood would allow in-
vestors to make as many hundred dollar loans as they liked
to Omega Trust and Trading, Ltd. The money would be
used to facilitate trades in Prime Bank Notes. Each unit, at
one hundred dollars a piece, was promised a fifty- to-one
return in less than a year. Furthermore, an investor could
roll over his or her profits by reinvesting them into Omega,
guaranteeing millions of dollars in return for a small initial
investment.
  That was the pitch. Like most things that sound too good
to be true, it was; it was a scam. Hood was actually a
retired electrician who had come up with the idea for a
Prime Bank Notes scam through his association with other
scam artists. Sad to relate, God had not spoken to Hood.
The whole thing was completely fabricated.
  Nevertheless, Hood worked hard in creating an image of
legitimacy. For example, he created a database of the in-
vestors to facilitate communication between the investors
(more properly, victims) and himself. Later, he set up a re-
corded message hotline to keep investors up to date on the
status of Omega. The status of Omega was always the same;
pay-out was just around the bend. Other written communi-
cations stated the same, often times including religious
references and biblical quotations.
  To accomplish this fraud, Hood enlisted the help of others.
These individuals would market the scam and explain to
potential investors that they could join Omega by sending
their monies to Clyde Hood in cash, money order, or cash-
ier’s check. The investor would then receive a “Private
No. 02-1070                                               3

Party Loan Agreement” that purported to represent his or
her interest in the Omega funds.
   One such marketeer was Michael Kodosky. Arlene F.
Diamond invested in Omega under Kodosky. She frequently
contacted the hotline and Kodosky to check on the status of
her investment. At some point between 1996 and 1999—
specifically when makes no difference to this opinion—
Diamond began marketing the Omega scam. In 1998 she
met with Hood and asked him about the ongoing investiga-
tion into Omega and told Hood that she knew it was an
illegal scam. She also told Hood that she knew a way to
circumvent the law. She had two additional meetings with
Hood which made it even clearer that she was aware that
the Omega Trust and Trading transactions were fraudulent.
  By the time she returned home from the first meeting
with Hood, Diamond was sending out her own Private Party
Loan Agreements, maintaining her own investor database
and telling investors to make their checks payable to her as
opposed to Hood.
  By late 1998 or early 1999, after Diamond’s third meeting
with Hood, she was involved in the Omega scam up to her
eyebrows. Various investors were told that they could
receive their Omega updates from Diamond and that she
was coordinating Omega activities for California. One such
individual was Reverend Jody Boyd. Boyd, a retired mini-
ster who was earning income by housecleaning and passing
out free supermarket samples, was informed that Diamond
and Hood were setting up another Omega-like fund in
Belize. Boyd declined to invest in that venture. When Boyd
called again in the summer or fall of 1999, Diamond told
Boyd that she had just attended a victory party for Omega.
She asserted that George W. Bush and one of the
Rockerfellers were in attendance, as they were on the
Omega board of trustees. Pay-out was again delayed—this
4                                              No. 02-1070

time because George Bush, Senior wanted his son to get the
credit for the economic boom inherent in creating so many
millionaires.
  Another minister, Reverend Greg Bryant accepted a re-
quest from Diamond to assist in secretarial work involving
Omega. While assisting Diamond, Bryant saw large amounts
of correspondence which referred to money sent to Diamond.
The amounts were typically between one hundred and eight
hundred dollars. He also answered Diamond’s phone
approximately ten times. These phone calls were usually
from people asking about the time frame for Omega’s pay-
out. The callers were assured that pay-out was imminent.
  By September 1999, Reverend Bryant was duped into in-
vesting in Omega. Diamond informed him that she needed
the money quickly if it was to be invested. As per her in-
structions, Bryant sent Diamond two hundred dollars, payable
to Diamond’s account, New Hope Trust.
  In November 1999, Diamond sent Bryant documents to
open a trust for his Omega pay-out. The letter was marked,
“URGENT!!! RUSH!!! Must be returned immediately!!” The
sense of urgency led Bryant to believe that he must make
any additional contributions to Omega immediately and he
gave her an additional thousand dollars. When Bryant in-
quired about the status of Omega in early 2000, Diamond
told him that pay-out was delayed by satellite limitations
caused by sunspots and magnetism.
  Later still, possibly in early 2000, Reverend Boyd called
Diamond to get an Omega update. Boyd was told that
Diamond had just attended another Omega victory party in
San Francisco. Shortly after that conversation, Diamond
sent Boyd a power of attorney document giving Diamond
control over Boyd’s finances. Boyd balked at signing such a
document.
  Linda Stark, who was involved in Omega as an investor
since 1998 received the same message as everyone else; pay-
No. 02-1070                                               5

out was right around the corner. She received this message
a number of times in 1998, 1999, and 2000. By 2000, Stark
was instructed by Diamond that additional monies for
investment should be deposited into Diamond’s New Hope
Trust account. Diamond also instructed Stark to send the
money in cash via FedEx. The cash was to be wrapped in
aluminum foil. Stark did so. After repeated calls about the
status of Omega and consistently being told that pay-out
was coming soon, Stark concluded that she had been de-
frauded—she was, of course, right.
   One final individual’s experiences with Omega deserve
some attention because they show the depths of Diamond’s
exploitation. Neva McKibben met Diamond in 1999 while
they were both working in the Omega offices in Mattoon,
Illinois. McKibben was responsible for cleaning the offices,
for which she received one hundred dollars per week. It was
in this capacity that she overheard that Hood was involved
in “offshore trading.” McKibben asked Hood if she could
invest $25,000 from an IRA into Omega. Hood refused to
take her money but said that he would invest on her behalf.
Diamond, however, lacked such a fine-tuned conscience.
  In February 2000, Diamond asked McNibben about her
Omega investment and the return Hood told her to expect.
When McNibben said that Hood had promised a fifty-to-one
return, Diamond told McNibben that she could get two
hundred-to-one if she gave Diamond the money instead.
Diamond told McNibben not to tell Hood about the arrange-
ment. In less than six months, Diamond had swindled
McNibben out of her family’s entire retirement savings of
$57,600.
  By 2000 things were starting to go bad for the conspiracy.
That year, various peripheral actors were subpoenaed to
testify before a Grand Jury investigating Omega. Diamond
schemed to interfere in the investigation by encouraging the
witnesses not to testify. In one instance, she supplied a
6                                                No. 02-1070

witness with a legal-looking document which purported to
excuse him from testifying. Another incident involved
Diamond telling a subpoenaed witness that she was an
attorney and advised the witness not to testify. When that
witness failed to appear before the Grand Jury, she was
summoned for a hearing before the Chief Judge of the
Central District of Illinois. Diamond met with the witness
after the hearing and asked for and obtained a written report
on the hearing. Diamond then informed the witness that
she would not need to appear before the Grand Jury again.
   On August 28, 2000, the same month Diamond was ar-
rested, a search warrant was executed on Diamond’s Mattoon,
Illinois apartment. Among the items seized were Omega-
related documents, a notebook computer, and Diamond’s
passport. The passport indicated trips to Belize, Canada, and
the United Arab Emirates. Among the documents were
various Cease and Desist Orders from Hawaii and Missouri.
Also included were documents prepared by Diamond that
purported to make financial claims against governmental
officials—judges, prosecutors, investigators, and such. Various
e-mails were recovered. These messages were complaints
from investors averring fraud on the part of Omega. Other
e-mails from Diamond were responses to inquiries about
investing in Omega. In those messages, Diamond told in-
vestors to send cashier’s checks to New Hope Trust or to
send cash wrapped in aluminum foil. There were also Private
Party Loan Agreements and copies of checks written to
Omega or Diamond. These loan agreements indicated a to-
tal dollar figure of just over $1.5 million. The warrant also
turned up a fake Mexican Certificate of Deposit and a fake
$100 million United States Federal Reserve Note.
  When Diamond’s notebook computer was analyzed, inves-
tigators found databases of Omega investors. The informa-
tion went back as far as 1998. Another database purported
to track the Omega investment amounts. Digging further,
investigators found files on Diamond’s Palm Pilot which
No. 02-1070                                                7

named bank information for banks in Belize, Dubai, the
Cayman Islands, and Antigua. Also included on the Palm
Pilot was a list of book titles, including How to Hide Your
Assets and Disappear and The Law of Fraudulent
Transactions.
   Of the numerous bank accounts probably used by Diamond
in perpetrating this scam, IRS agents analyzed three. The
first of these was a Bank of America account in Diamond’s
own name. This account showed little activity—$3,100 went
in and $3,100 went out during the thirteen month life-span
of the account. Another Bank of America account, the New
Hope International Trust account, with Diamond as general
manager, showed deposits totaling $50,000. This money
was deposited and withdrawn in three to four months. The
final Bank of America account, the New Hope Trust account,
with Diamond again acting as general manager, showed
activity for three years. The deposits, which totaled some
$1.8 million, were in the form of cash, checks, money orders,
cashier’s checks, and wire transfers in one hundred dollar
increments. The bulk of these deposits were checks made
payable to Arlene Diamond and New Hope Trust; others
were payable to Omega. $1.5 million had been withdrawn
from this account, of which $240,000 was definitively traced
to Hood. The whereabouts of the remaining $1.25 million is
still unknown.
   Some months later, while incarcerated and awaiting trial,
Diamond struck up a conversation with another inmate,
Nelani Jackson. After failing to convince Jackson to invest
in Omega, Diamond confided in Jackson that she was a con
artist and that Omega was a scam. Digging the hole deeper,
Diamond explained to her new “friend” that during the
course of the scam, she would never use her own name
when dealing with real estate, personal property, or util-
ities. She also explained that she would meet prospective
investors in public places to keep her residence hidden.
Deeper still—in relation to one of the more creative yarns—
8                                              No. 02-1070

Diamond explained that she and Kodosky had read an ar-
ticle about George Bush and a Rockerfeller meeting on the
West Coast to discuss investments. The conspirators decided
that it would make Omega look legitimate if they wove this
real meeting into the tangled web of the Omega scam. Thus,
we have the genesis of the Omega victory parties. She
continued, telling Jackson that she discouraged refunds by
telling investors that pay-out was just about to occur.
Finally, Diamond told Jackson that some of the Omega
money she had received went to Hood and some went to her
own foreign bank accounts.
  Obviously, with such large amounts of money flowing
through Omega, something had to be done to launder the
money. This process began in 1996 with Hood asking Chris
Engel, a co-conspirator, to deposit Omega monies into four-
teen various personal and business accounts controlled by
Engel. Engel would then withdraw the money in cash or
cashier’s checks at Hood’s direction. Often times, hundreds
of times, in fact, Engel would withdraw cashier’s checks to
purchase real estate. Some of the approximately $4.5 million
laundered by Engel was in the form of checks made out to
Diamond and endorsed over to Engel by Diamond, or checks
directly from Diamond.
  From April 1999 to September 1999, Engel’s sister, Susan
Hoehne, assisted in laundering Omega funds by depositing
them into her business account and then obtaining a cash-
ier’s check which she would then send to Engel.
  Further laundering involved Miller Hardwoods, a sawmill
started up with Omega money during the spring of 1998.
Hood supplied Raymond Miller with approximately $1.4
million to get the mill up and running. Hood estimated that
roughly $500,000 of the Miller Hardwoods start-up money
came from Diamond’s New Hope Trust account. The money
provided to Miller was often in the form of cashier’s checks
purchased by Diamond and Bank of America.
No. 02-1070                                                  9

  In yet another transaction, Hood flew to Dubai, United Arab
Emirates to purchase an oil refinery. Hood told Diamond
about his intentions and directed her to wire $80,000 from
her New Hope Trust account to his account at the Standard
Charter Bank in Dubai. Diamond transferred the money as
requested.
  Apparently, Diamond liked the bank in Dubai enough to
entrust $240,000 to it. She did this by transferring money
from her New Hope Trust bank account and wiring it to the
United Arab Emirates. A letter from Diamond to a bank
employee also indicates that she wanted to send more money
to her Dubai account.
  At trial, Diamond testified on her own behalf and essen-
tially denied all of the incriminating evidence presented
therein. She claimed that she did not know Omega was a
scam until Hood testified against her on June 11, 2001. She
further denied knowledge of the cashier’s checks that she
had obtained in relation to the Miller Hardwoods account.
  After the jury found her guilty of all the charges against
her, Diamond proceeded to sentencing. The court found that
Diamond was liable for the full amount of money involved
in the Omega scam, as that amount was reasonably fore-
seeable to her. She was ultimately sentenced to the lowest
possible sentence under the guidelines—two hundred ten
months imprisonment and three years of supervised
release.

                        II. Analysis
  A. Sentencing
  Diamond’s first argument is based on the fact that the
district court sentenced her based on the entirety of the
Omega proceeds. She argues that because she was not part
of the conspiracy from its outset, she cannot be held liable
for the entire loss. We review a district court’s determination
10                                               No. 02-1070

of the money attributable to a defendant for clear error and
its application and interpretation of the guidelines de novo.
United States v. Baker, 227 F.3d 955, 964 (7th Cir. 2000).
We will reverse for clear error when we are left with the
firm and definite conviction that a mistake has been made.
United States v. Irby, 240 F.3d 597, 599 (7th Cir. 2001).
  Section 1B1.3 of the sentencing guidelines controls the
determination of relevant conduct. That section allows a
sentence to be based upon “all reasonably foreseeable acts
and omissions of others in furtherance of the jointly under-
taken criminal activity.” U.S.S.G. § 1B1.3(a)(1)(B). However,
this section is tempered by application note 2(ii) which says,
“[a] defendant’s relevant conduct does not include the
conduct of members of a conspiracy prior to the defendant’s
joining the conspiracy, even if the defendant knows of that
conduct.” U.S.S.G. § 1B1.3, comment. (n.2(ii)). Failure to fol-
low the commentary may constitute an incorrect application
of the guidelines. U.S.S.G. § 1B1.7.
  It is undisputed that Diamond was not a part of the con-
spiracy at its conception. Since the guidelines clearly state
that a defendant is not liable for that conduct which takes
place before the defendant joins the conspiracy, we find that
the district court committed clear error when it sentenced
Diamond based on the entire Omega scheme. We therefore,
vacate Diamond’s sentence and remand for resentencing
based on her conduct after her becoming a co-conspirator.

  B. Insufficiency of the Evidence
  Diamond’s next argument attacks her convictions for con-
spiracy to commit money laundering, in violation of 18
U.S.C. § 1956(h), and conducting a monetary transaction
with the proceeds of an illegal activity, in violation of 18
U.S.C. § 1957(a), for insufficiency of the evidence. When
reviewing claims of insufficiency of the evidence, we view
the evidence in the light most favorable to government.
No. 02-1070                                                11

United States v. Reynolds, 64 F.3d 292, 297 (7th Cir. 1995).
The relevant question on appeal is whether any rational
trier of fact could have found the essential elements of the
crime beyond a reasonable doubt. Id. We reverse only when
the record contains no evidence, regardless of how it is
weighed, from which a jury could find guilt beyond a
reasonable doubt. Id.

    1.) Conspiracy to Commit Money Laundering
  To convict a defendant of conspiracy to commit money
laundering, the government must show the defendant was
involved with two or more people to launder money and
that the defendant knew the proceeds used to further the
scheme were derived from an illegal activity. United States
v. Gracia, 272 F.3d 866, 873 (7th Cir. 2001).
  As a housekeeping matter, we note that the evidence
clearly supports Diamond’s knowledge that the money in-
volved was derived from an illegal activity. The money
constituted proceeds from Omega. Diamond explicitly and
repeatedly said that she knew Omega was a scam. Beyond
this direct evidence of her knowledge, circumstantial evidence
exists which also shows her knowledge—asking investors to
send cash, which she knew to be untraceable; attempting to
impede the Grand Jury investigation of Omega; the title of
a book, The Law of Fraudulent Transactions, on her Palm
Pilot; meeting investors at public places so as to hide her
residence; and so on.
  Diamond’s first argument is based on the fact “money
laundering criminalizes a transaction in proceeds, not the
transaction that creates the proceeds.” United States v.
Mankarious, 151 F.3d 694, 704 (7th Cir. 1998). In other
words, the predicate offense must be separate from the
money laundering. Id. Diamond claims that the evidence at
trial merely showed that she collected money which she
sent to Kodosky or Hood and that she deposited Omega
12                                               No. 02-1070

funds into her New Hope Trust account. This is not enough,
she argues, to convict her of conspiracy to commit money
laundering.
  While we agree that the predicate offense and the con-
spiracy to launder money cannot be separated with surgical
precision, they are clearly distinct. Diamond did not simply
collect money from Omega investors and send it away to
Hood or, on the other hand, simply deposit that money into
her New Hope Trust Account. Looking at the evidence, it is
quite apparent that Diamond was actively involved with
others in engaging in financial transactions to conceal the
nature and source of the funds. The government rightly points
out five transactions, or types of transactions, that show
Diamond’s intent to do so: (1) she endorsed and transferred
Omega checks to Engel to deposit in his personal and
business accounts; (2) she repeatedly purchased cashier’s
checks with Omega funds—some of which were structured
to avoid Internal Revenue Service reporting requirements;
(3) she repeatedly withdrew Omega funds in cash—which
she knew to be untraceable and had discussed this property
of cash with Hood; (4) she wire transferred Omega funds to
a Dubai bank account to purchase an oil refinery; and (5)
she wire transferred Omega money to her own account in
Dubai.
  Diamond attempts to limit the effect of this evidence by
arguing that these transactions were all part of the predi-
cate offense. Thus, she puts each of these transactions in
the context of “[s]he collected money from Omega victims
who believed Mr. Hood’s pitch and sent that money where
Mr. Hood told her to send it—usually to him.” This is an over-
simplification and overly broad description of the scheme.
  Diamond did not simply send her investor’s check, cash-
ier’s checks, or cash to Hood. Nor did she simply deposit the
Omega funds in her New Hope Trust account. Instead, she
went far beyond those simple actions and engaged in
No. 02-1070                                                13

various transactions that were clearly designed to conceal
the nature and source of the funds. This concealment was
not part of the predicate offense. We find that such actions,
in the aggregate, are sufficiently distinct from the predicate
crime to support a conviction of conspiracy to commit money
laundering.
  Diamond next argues that the evidence was insufficient
to show an agreement to launder money. When a defendant
joins a conspiracy, she joins an agreement rather than a
group. United States v. Townsend, 924 F.2d 1385, 1390 (7th
Cir. 1991). An agreement need not be explicit; a tacit
agreement is sufficient to support a conspiracy conviction.
United States v. Clay, 37 F.3d 338, 341 (7th Cir. 1994).
There is no bar to using circumstantial evidence in proving
the agreement. Id. A conspiracy may be shown by evidence
which shows that the conspirator embraced the criminal
objective of the conspiracy. United States v. Severson, 3 F.3d
1005, 1010 (7th Cir. 1993).
   Numerous incidents support the finding of an agreement
between the co-conspirators to launder money. Diamond’s
involvement in purchasing an Arab oil refinery, structuring
transactions to avoid reporting requirements, the various
conversations about cash and its untraceable nature, send-
ing checks to Engel so that he could deposit them in per-
sonal and business bank accounts, and transferring money
out of the country to Dubai all show that Diamond embraced
the objective of the criminal conspiracy. While not dispos-
itive in itself, the book title How to Hide Your Assets and
Disappear was found on her Palm Pilot. Bank information
regarding banks in Belize, the Cayman Islands, the United
Arab Emirates, and Antigua were also found on her Palm
Pilot. Putting all of this evidence together, it is clear that
Diamond embraced the object of the conspiracy and we have
no doubt that a reasonable juror could have found the
conspiracy beyond a reasonable doubt.
14                                               No. 02-1070

     2.) Conducting a Monetary Transaction with Proceeds
         of an Illegal Activity
  Diamond’s final argument is that there was insufficient
evidence to support the conviction for conducting a mone-
tary transaction with the proceeds of an illegal activity. In
order to find Diamond guilty of this offense, the government
needed to prove that she “derived property from a specified
unlawful activity and that [s]he engaged in a monetary
transaction involving that property.” United States v. Seward,
272 F.3d 831, 836 (7th Cir. 2001); accord 18 U.S.C. § 1957.
  As we noted above, the evidence clearly supports a finding
that Diamond knew that Omega was a scam. Therefore,
Diamond knew that the money from Omega was derived
from an unlawful activity. The unlawful action falls within
those “specified” by 18 U.S.C. § 1957—a point which
Diamond does not argue.
  The evidence also supports a finding that Diamond en-
gaged in the monetary transaction. Bank records show that
Diamond purchased a $30,000 cashier’s check using her
New Hope Trust account funds. This money was ultimately
deposited in the Miller Hardwoods account. Hood testified
that he told Diamond about Miller Hardwoods and that
Omega money was being used for the sawmill. Under this
demanding standard of review, we find that a reasonable
jury could have found Diamond guilty as charged.

                     III. Conclusion
   Diamond was improperly sentenced based on the entire
amount of money involved in the scam. This was an error
because she was not a part of the conspiracy for its entire
life-span. We vacate her sentence and remand for resentenc-
ing. Her convictions, however, are affirmed.
       AFFIRMED in part, REVERSED and REMANDED in part
No. 02-1070                                         15

A true Copy:
      Teste:

                    ________________________________
                    Clerk of the United States Court of
                      Appeals for the Seventh Circuit

               USCA-02-C-0072—8-10-04