Court Opinion

ID: 8914936
Source: CourtListenerOpinion
Date Created: 2022-11-27 04:36:46.715882+00
Date Added: 2024-06-11T17:08:53.401497
License: Public Domain

ROSS, Circuit Judge,
dissenting.
In my view, the government proved that an enterprise existed through “evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.” United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 2528, 69 L.Ed.2d 246 (U.S.1981). While the government must show that the enterprise “is an entity separate and apart from the pattern of [racketeering] activity, * * * proof used to establish these separate elements may in particular cases coalesce, [but] proof of one does not necessarily establish the other.” Id. 452 U.S. at 583, 101 S.Ct. at 2528.1
The facts in this case, construed in the light most favorable to the verdict, proved that under RICO these defendants and other persons charged in the indictment were “a group of persons associated together for a common purpose of engaging in a course of conduct.” Id. 452 U.S. at 583, 101 S.Ct. at 2528.
Congress in “[s]ection 904(a) of RICO, 84 Stat. 947, directed] that ‘the provisions of this Title shall be liberally construed to effectuate its remedial purposes.’ ” Id. 452 U.S. at 587, 101 S.Ct. at 2531. Thus, the RICO definition of an enterprise as includ*672ing “any union or group of individuals associated in fact,” 18 U.S.C. § 1961(4), must be liberally construed.
Initially, I would emphasize my view of this case. This view is that it would be next to impossible to engage in the massive2 sale of fraudulent securities to small investors through formation of seemingly legitimate businesses over a five year period without a “group of individuals associated in fact.”
Beyond the predicate acts of racketeering, there is considerable evidence of an enterprise although, as noted in Turkette, the proof of each may at times coalesce. But proof of the predicate acts of securities mail fraud was sufficiently separate from the proof the government made regarding the enterprise. While some trappings of “legitimacy” may be necessary to any securities or mail fraud, this group of individuals went to great lengths to develop seemingly legitimate businesses and maintain their legitimacy while draining the assets of the businesses through secret agreements.3 If RICO was primarily enacted to eliminate infiltration of organized crime into legitimate businesses, I fail to see why RICO is not just as appropriate a weapon against a group of individuals who form and then use “legitimate” businesses as their vehicle for racketeering activity.
Applying the Turkette standards set forth above for proof of an enterprise, I believe the evidence, both direct and circumstantial, met those standards. As noted in United States v. Elliott, 571 F.2d 880, 898 (5th Cir.), cert. denied, 439 U.S. 953, 99 S.Ct. 349, 58 L.Ed.2d 344 (1978), “[a] jury is entitled to infer the existence of an enterprise on the basis of largely or wholly circumstantial evidence.”
The following evidence satisfied the Turkette requirements that these defendants and others were an “ongoing organization, formal or informal” which “function[ed] as a continuing unit.”4 United *673States v. Turkette, supra, 452 U.S. at 583, 101 S.Ct. at 2528.
The leader of this “enterprise” was Phillips. Gibson was a “partner” with Phillips in the formation of UFA-Mo. and the Arkansas and Oklahoma cooperatives. There is evidence that Phillips was the “instigator” of these schemes and Gibson joined in at the suggestion of Phillips.
Judge Lay argues that the dissolution of the UFA-Mo. arrangement between Phillips and Gibson caused one association of individuals to split into two separate entities. While there may be no evidence of ongoing financial association between Gibson and Phillips, there is circumstantial and direct evidence that they continued to be associated, in fact, as leaders of the enterprise to protect the “legitimacy” of both UFA-Mo. and PFA so as to further their common purpose.
In April 1973 when Phillips left UFA-Mo. he remained in the same city, Springfield, Missouri, and started PFA. Charles Thrower who sold “estate builders” for UFA-Mo. joined with Phillips to recruit the PFA Board of Directors. In May 1973, Gibson, at the request of Phillips, signed the cover letter submitting the PFA Articles of Incorporation to the secretary of state and mailed them for Phillips. Also in May 1973, Moffitt joined UFA-Mo. as a salesman. Moffitt had previously sold “estate builders” with Phillips through Progressive Investors. In August 1973, there was a meeting between Gibson, Moffitt, Thrower and Phillips. Gibson arranged the meeting because he had found out that Thrower had been trying to sell PFA securities to his former UFA-Mo. customers. Phillips and Thrower agreed not to call on any of the UFA-Mo. investors.5 In the early fall of 1973, Moffitt and Gibson used a PFA “certificate of participation” [another fraudulent security] as the model for a UFA-Mo. “certificate of participation.” Sometime in the later part of 1973 Moffitt joined PFA as a salesman. In early 1974, Gibson and Phillips met and Gibson told Phillips that the SEC wanted Gibson to testify about “estate builders.” Phillips advised Gibson to invoke the fifth amendment, or at least not to refer to PFA’s sales of estate builders or to mention Phillips’ name. In March 1974, the Missouri Commissioner of Securities directed PFA to halt sales of estate builders until a disclosure letter was prepared. Phillips went to see Gibson and obtained a UFA-Mo. disclosure document from Gibson. The UFA-Mo. document was used substantially in drafting the PFA offering letter and Phillips was able to resume sales of estate builders in about one week. Finally, in early 1975, UFA-Mo. was in financial trouble and Gibson was ready to file bankruptcy. Phillips met with Gibson and convinced him to hold off until Phillips could look into the situation. About three weeks later, the Phillips/Gibson agreement to form cooperatives in other states was made and as a result of this agreement the Arkansas and Oklahoma cooperatives were eventually formed. Gibson agreed to secretly divide the profits with Phillips and Phillips agreed to provide travel and front money for the expansion and to deal with the local banks who were putting pressure on Gibson.
In my view this evidence shows that Gibson and Phillips continued to associate together as leaders of the enterprise even during the time that Gibson ran UFA-Mo. and Phillips ran PFA. Their leadership roles went beyond the simple selling of fraudulent securities, their roles and efforts were to maintain the “legitimacy” of the cooperatives that had been formed. The evidence supports the fact that each assisted the other in maintaining the legitimacy of not only their own cooperative but the other’s cooperative. The evidence supports the inference that without the association between Gibson and Phillips in running two cooperatives in the same town, the common purpose of both may have been destroyed. Public financial ruin or public disclosure of *674securities violations of either of the cooperatives would very possibly have led to the downfall of the other cooperative. But this did not occur and later under their continuing leadership the affairs of the enterprise were expanded when Phillips and Gibson jointly formed the Arkansas and Oklahoma cooperatives.
Beyond the leadership of this enterprise is its ongoing organization in terms of management and operatives. Moffitt sold securities for both UFA-Mo. and later for PFA. Moffitt then became head of the UFA-Okla. sales force and later went on to sell “estate builders” for CFA-Ark.
Stafford signed a salesman contract with UFA-Mo. but did not sell for UFA-Mo. In late 1973, Stafford began selling for PFA and later in the spring of 1976 he sold for UFA-Okla. In midsummer of 1976, the Oklahoma Securities Commission filed a civil suit against UFA-Okla. and sales were halted. From late September 1976 until January 1977, Stafford sold his personal stock in PFA6 to 19 investors who paid a total of $85,925. Cloninger told Stafford to sell the stock in the name of Consolidated Mortgage Corporation to avoid any panic by PFA shareholders that would result from a top salesman selling his own stock. Stafford told the investors that he was selling the stock of a widow.
Cloninger was not financially involved in UFA-Mo., however, he was present at Gibson’s and Phillips’ initial meetings and prepared a possible draft promotional brochure during one of these meetings. Gibson later adapted the brochure for use by UFA-Mo. Phillips brought Cloninger into PFA shortly after its incorporation. During the summer of 1973 Phillips and Cloninger prepared promotional materials for “estate builder” sales and a “pitchbook” for use by the PFA salesmen. The “pitchbook” is a mass of fraudulent information and omitted material facts. Cloninger helped Phillips bring into PFA the management team of Burks and. Bledsoe. Each of the four took a 25% interest in the PFA-Progressive Investors “consulting agreement.” Large sums of money were channeled to the four under this “consulting agreement” and large payments were made upon “termination” of the agreement in November 1975. Cloning-er hired Stafford as a salesman. Cloninger was also involved in the decisions regarding the PFA-NBC merger. See footnote 6. Cloninger received payments from PFA that were channeled through five different corporations. He received payments through the Progressive Investors consulting agreement, through the PFA-NBC merger, through sale of PFA stock, and through a percentage of gross sales revenue from business operations. In early 1976, when a new type of “estate builder” was sold by PFA, Phillips’ payments were tunneled through one of Cloninger’s corporations. Cloninger also personally bought land with his mother’s PFA stock. In the last six months of PFA’s “life,” payments were still being made to Cloninger as an “assistant to the president” of PFA. Clo-ninger’s grand total of monies received from PFA was $456,068. During 1975 Clo-ninger made one visit with Phillips to the UFA-Okla. offices. The government’s evidence showed that Cloninger’s main involvement was with PFA-Mo.
The government’s evidence as to Bledsoe was that he was a management official of PFA-Mo. Bledsoe initially received a 25% interest in the Progressive Investors’ consulting agreement and was the head of the PFA-Mo. sales force. Bledsoe was involved in the PFA-NBC merger and received monies from the sale of PFA stock. The large *675checks to the secret partners upon termination of the Progressive Investors’ consulting agreement were drawn upon Bledsoe’s directions. In January 1976, Bledsoe became president of PFA and Bledsoe had PFA purchase the former president’s (Burks) corporation which had no business operation but merely held PFA stock and a PFA note. Bledsoe became president of FMA in October 1976 and resigned as president of PFA. However, agreements between PFA and FMA continued the flow of monies from PFA to FMA and on to Bledsoe and others. Bledsoe’s grand total for PFA involvement was $407,468 according to the government.
While these defendants were part of the enterprise, they were not the only persons involved. Other persons such as Elia and Canaday sold securities for UFA-Mo. and/or PFA-Mo. and later “graduated” to management roles in UFA-Okla. and CFA-Ark.
In my view the common purpose of this “ongoing organization,” to engage in securities fraud, continued nonstop until the demise of PFA in May 1977.7 The “continuing unit” which existed apart from the acts of securities fraud is exemplified by the activities of the “leadership” (Phillips- and Gibson), the “management” (Cloninger, Bledsoe and later Moffitt) and the “salesmen” (Moffitt and Stafford). The Turkette requirements of an “ongoing association” and a “continuing unit” were satisfied by the proof, both direct and circumstantial, of the defendants’ activities beyond the predicate acts.

Joinder

In my view, joinder of these defendants was proper under the case law of this circuit interpreting Fed.R.Crim.P. 8(b). Additionally, there is a growing trend among the circuits to reject the theory that mis-joinder is “inherently prejudicial” and instead analyze whether there is “harmless error” under Fed.R.Crim.P. 52(a).
In United States v. Seidel, 620 F.2d 1006 (4th Cir. 1980) the Fourth Circuit allowed application of the “harmless error” rule to misjoinder questions.8 In Seidel, the court noted that those circuits which continue to reject the “harmless error” rule are, in fact, reaching a similar result by broadening the definition of “series” in rule 8(b). Id. at 1017. This broadening of our definition of “series” can be seen in Haggard v. United States, 369 F.2d 968 (8th Cir. 1966), cert. denied, 386 U.S. 1023, 87 S.Ct. 1379, 18 L.Ed.2d 461 (1967) when this court stated that “[i]f the indictment invites ‘joint proof’ * * * or infers a common pattern of action, prima facie joinder is shown.” Id. at 974. And in United States v. Wofford, 562 F.2d *676582, 585 (8th Cir. 1977), cert. denied, 435 U.S. 916, 98 S.Ct. 1471, 55 L.Ed.2d 507 (1978), and United States v. Anderson, 626 F.2d 1358, 1373 (8th Cir. 1980), cert. denied, 450 U.S. 912, 101 S.Ct. 1351, 67 L.Ed.2d 336 (1981), this court upheld joinder where the defendants participated “in a closely related series of acts or transactions.” (Emphasis supplied.) When a pretrial determination of the propriety of joinder is made it is “usually”9 and “ordinarily”10 made based on the face of the indictment. However, I do not believe there is a “rule” in this circuit that this court may only look to the indictment in determining the propriety of joinder. For example, in United States v. Wofford, supra, 562 F.2d at 585, this court went directly to the evidence to determine the propriety of joinder.
The face of the indictment in this case inferred a close relationship between Progressive Investors and PFA. As Judge Lay indicates the indictment alleges that Progressive Investors was the vehicle used (1) to recruit the “sham” board of directors for PFA; (2) to secretly channel PFA funds through Progressive Investors to Phillips, Burks, Bledsoe and Cloninger; (3) to transfer falsely appraised land from Progressive Investors to PFA for the purpose of inflating its assets (see footnote 6, supra). These allegations show that Phillips’ use of Progressive Investors for fraud was “closely related” to the enterprise’s fraudulent activity.
Additionally, the evidence showed that the sales of the Progressive Investors mortgage notes in counts 5 and 6 were made at Phillips’ direction by a PFA salesman. This salesman was “paid” by Phillips through an increase in his PFA sales percentage. The salesman used the same fraudulent appraisals on the “Table Rock” land to secure sales and he was told that the two buyers had previously been sold both Progressive Investors and PFA “estate builders.” Thus both the indictment and the evidence showed a “closely related series of acts or transactions” and satisfied this circuit’s standards for joinder as enunciated in United States v. Wofford, supra, and United States v. Anderson, supra.
Even if this joinder was technically improper, I believe the wisdom of the reasoning used by other circuits in adopting the “harmless error” rule must be examined. If the reason behind rule 8(b) is avoidance of mass trials, the “error” in joinder here had no effect on this trial. All of the defendants were properly joined under the RICO count.11 The evidence as to the “estate builder” scheme used by Progressive Investors and developed by Phillips12 was admissible to show plan and preparation under Rule 404(b) of the Federal Rules of Evidence.13 The use of Progressive Investors by Phillips and others in the enterprise was relevant to the RICO counts. And even if counts 5 and 6 had not been joined, the government could still have introduced evidence of these sales by Phillips as evidence of “similar acts” under Rule 404.14 My reasoning here is identical to that used by the Second Circuit in United States v. Turbide, 558 F.2d 1053, 1061 (2d Cir.), cert. denied, 434 U.S. 934, 98 S.Ct. 421, 54 *677L.Ed.2d 293 (1977). Perhaps the hour has come for some definitive guidance by the Supreme Court on the proper interpretation of rule 8(b) or an en banc consideration of the question by our court.
For these reasons I would affirm the convictions of all defendants.

. The Supreme Court’s total statement regarding an “enterprise” in United States v. Turk-ette, 452 U.S. 576, 101 S.Ct. 2524, 69 L.Ed.2d 246 (U.S.1981) is as follows:
In order to secure a conviction under RICO, the Government must prove both the existence of an “enterprise” and the connected “pattern of racketeering activity.” The enterprise is an entity, for present purposes of a group of persons associated together for a common purpose of engaging in a course of conduct. The pattern of racketeering activity is, on the other hand, a series of criminal acts as defined by the statute. 18 U.S.C. § 1961(1). The former is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit. The latter is proved by evidence of the requisite number of acts of racketeering committed by the participants in the enterprise. While the proof used to establish these separate elements may in particular cases coalesce, proof of one does not necessarily establish the other. The “enterprise” is not the “pattern of racketeering activity”; it is an entity separate and apart from the pattern of activity in which it engages. The existence of an enterprise at all times remains a separate element which must be proved by the Government.

. The government indicates that when PFA was declared bankrupt on May 13, 1977, over eleven million dollars had been raised from sales of PFA “estate builders,” bonds and stock. After liquidation of PFA’s assets only about $200,000 remained.

. The enterprise formed “legitimate” cooperatives, set up “sham” boards of directors, fraudulently inflated the businesses’ assets through numerous schemes to provide an appearance of prosperity, used individual and multimember “shell” consulting corporations to drain the assets of the cooperatives without the knowledge of the boards of directors or investors, carried on “promotional” activities to appear to be undertaking legitimate business development, and arranged for their accountants to treat “estate builder” sales as “income” rather than “liabilities.” On the other hand, the predicate acts relied upon were all specific instances of using the mail in furtherance of a scheme to defraud or fraud in the sale of securities.

. When the RICO enterprise is not a “legal entity,” which may automatically provide an organization and continuity, then the proof of organization and continuity must of necessity be largely circumstantial. The jury must be allowed to look at the activities of the defendants which surround the predicate acts and draw reasonable inferences from that activity to determine whether a single enterprise exists. I believe that the Supreme Court’s views regarding proof of a single “conspiracy” in Blumenthal v. United States, 332 U.S. 539, 68 S.Ct. 248, 92 L.Ed. 154 (1947) are helpful when considering proof of a single “enterprise.” In Blumenthal the Court stated:
[Conspiracies involving * * * elaborate arrangements generally are not born full-grown. Rather they mature by successive stages which are necessary to bring in the essential parties. And not all of those joining in the earlier ones make known their participation to others later coming in.
The law does not demand proof of so much. For it is most often true, especially in broad schemes calling for the aid of many persons, that after discovery of enough to show clearly the essence of the scheme and the identity of a number participating, the identity and the fact of participation of others remain undiscovered and undiscoverable. Secrecy and concealment are essential features of successful conspiracy. The more completely they are achieved the more successful the crime. Hence the law rightly gives room for allowing the conviction of those discovered upon showing sufficiently the essential nature of the plan and their connections with it, without requiring evidence of knowledge of all its details or of the participation of others. Otherwise the difficulties, not only of discovery, but of certainty in proof and of correlating proof with pleading would become insuperable, and conspirators would go free by their very ingenuity.
Id. at 556-57, 68 S.Ct. at 256.

. While this agreement might be seen as evidence of separate associations, I believe the jury could permissibly infer that this agreement furthered the activities of the enterprise by assuring that UFA-Mo. and PFA would not compete for buyers or “oversell” any one buyer.

. In early 1975, PFA converted from a non-stock to a stock cooperative. The conversion occurred as part of one of the many schemes involving inflation of PFA’s assets. PFA “merged” with National Business Corporation, a shell corporation involving Bledsoe, Phillips, Cloninger and Stafford. Stock and money were paid to NBC by PFA in the merger. NBC passed ail the money through to Progressive Investors. Supposedly, PFA through the merger had acquired two and one-quarter million dollars worth of real estate. The land acquired was only part of 372 acres Phillips, through PI, had bought in April of 1974 for $29,000 cash and a $71,000 promissory note from Progressive Investors. In the “merger,” PFA assumed Progressive Investors’ liability on the note.

. It is important to note that PFA continued to operate during the existence of both UFA-Okla. and CFA-Ark. Both Cloninger and Bled-soe were continuing “management” for PFA, while Moffitt and Stafford went to Arkansas and/or Oklahoma. In my view, the absence of some defendants from the Oklahoma and Arkansas ventures does not indicate “sporadic” involvement. Rather, there was a need to keep the most successful and long-running cooperative, PFA, alive and well. UFA-Okla. sold securities for about one year until the summer of 1976. CFA-Ark. sold securities for only about three months until April 1976. In both instances, the cooperatives were shut down by the state securities commissions.

. As noted in United States v. Seidel, 620 F.2d 1006 (4th Cir. 1980), the Fourth Circuit joined the Second, Sixth, Ninth and D.C. Circuits in adopting the applicability of the “harmless error” rule to misjoinder questions. If the 1896 case of McElroy v. United States, 164 U.S. 76, 17 S.Ct. 31, 41 L.Ed. 355 (1896) is contrary to the decisions of those circuit courts which apply the harmless error rule, then the Supreme Court has refused a number of invitations to address this error. See United States v. Turbide, 558 F.2d 1053, 1061 (2d Cir.), cert. denied, 434 U.S. 934, 98 S.Ct. 421, 54 L.Ed.2d 293 (1977); United States v. Franks, 511 F.2d 25, 29-30 (6th Cir.), cert. denied, 422 U.S. 1042, 95 S.Ct. 2654, 45 L.Ed.2d 693 (1975); United States v. Weiss, 491 F.2d 460, 466-67 (2d Cir.), cert. denied, 419 U.S. 833, 95 S.Ct. 58, 42 L.Ed.2d 49 (1974); United States v. Friedman, 445 F.2d 1076, 1083 (9th Cir.), cert. denied, 404 U.S. 958, 92 S.Ct. 326, 30 L.Ed.2d 275 (1971); United States v. Roselli, 432 F.2d 879, 901 (9th Cir. 1970), cert. denied, 401 U.S. 924, 91 S.Ct. 883, 27 L.Ed.2d 828 (1971); Baker v. United States, 401 F.2d 958, 973-74 (D.C.Cir.1968), cert. denied, 400 U.S. 965, 91 S.Ct. 367, 27 L.Ed.2d 384 (1970); United States v. Granello, 365 F.2d 990, 995 (2d Cir. 1966), cert. denied, 386 U.S. 1019, 87 S.Ct. 1367, 18 L.Ed.2d 458 (1967).

. United States v. Sanders, 563 F.2d 379, 382 (8th Cir. 1977), cert. denied, 434 U.S. 1020, 98 S.Ct. 744, 54 L.Ed.2d 767 (1978).

. 8 Moore’s Federal Practice ¶ 8.06[3], at 39 (2d ed. 1981).

. Obviously, unlike Judge Lay, I approach the joinder question from the perspective of a valid RICO count.

. Judge Urbom instructed the jury to limit all this evidence to Phillips alone.

. Phillips “intent” in issuing “estate builders” was directly relevant to sales of PI “estate builders.” And if, as Judge Lay states, the legitimacy of the estate builder turns on the issuer’s intent, the sales of PI securities were admissible to show “plan and preparation” by Phillips as the leader of the enterprise which issued numerous “estate builders.” The “taint” from evidence of Phillips’ intent is caused by Bledsoe’s and Cloninger’s participation in the enterprise.
I also wish to note that Bledsoe assigned the proceeds from his 25% of the Progressive Investors consulting agreement to his personal corporation.

. Judge Urbom limited the evidence of these other sales to Phillips alone.