Court Opinion

ID: 28326
Source: CourtListenerOpinion
Date Created: 2010-04-25 09:22:12+00
Date Added: 2024-06-11T14:55:09.670075
License: Public Domain

UNITED STATES COURT OF APPEALS
                        For the Fifth Circuit

                           No. 01-50724

                     UNITED STATES OF AMERICA,

                                                Plaintiff - Appellee,

                               VERSUS

                       BRIAN RUSSELL STEARNS,

                                               Defendant - Appellant.

            Appeal from the United States District Court
              For the Western District of Texas, Austin
                        (A-99-CR-230-All-JN)
                           July 23, 2002

Before WIENER and DENNIS, Circuit Judges, and DUPLANTIER,* District

Judge.

PER CURIAM:**

       Brian Russell Stearns was charged in an eighty-two count

superseding indictment with securities fraud, mail fraud, wire

  *
   District Judge of the Eastern District of Louisiana, sitting by
designation.
  **
    Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under
the limited circumstances set forth in 5TH CIR. R. 47.5.4.

                                 1
fraud, making false statements, Social Security Card fraud, money

laundering, and possessing a firearm as a felon.                 Stearns pleaded

not guilty, and the case was tried before a jury.                  During trial,

the government voluntarily dismissed counts sixteen and seventeen,

and the jury convicted Stearns on the remaining counts.                          The

district         court   sentenced     Stearns     to   an   aggregate    term    of

imprisonment of 360 months and to an aggregate term of supervised

release of five years.           The district court ordered Stearns to pay

$36,054,990        in    restitution   and    an   $8,000    special   assessment.

Stearns     appeals       his   conviction    on   count     fifty-five   and    his

sentence.        We AFFIRM.

I.       FACTS

         From February 1998 to February 2000, Stearns, then a resident

of Austin, Texas, operated a vast Ponzi scheme.1                   He made false

representations to investors and lenders concerning his background,

financial status, and occupation.              Stearns represented himself as

a “Master Trader” and purported to sell and trade securities,

medium-term notes, high-yield European bank debentures, and bonds.

He further represented that he owned $2.3 billion worth of Barclays

Bank bonds and $40 million worth of Federal Home Loan Bank bonds,

     1
     “Ponzi was the last name of the swindler in Cunningham v.
Brown, 265 U.S. 1 (1924). The term has come to be used to describe
a scheme whereby the swindler uses money from later victims to pay
earlier victims.” Guidry v. Bank of LaPlace, 954 F.2d 278, 280 n.1
(5th Cir. 1992).

                                          2
which would be used to secure and guarantee his investors’ funds.

Stearns forged documents to provide support for these and other

misrepresentations.

     Over the course of his scheme, Stearns had over 350 victims

who invested almost $60 million.     To promote his scheme, Stearns

used the help and services of several sophisticated individuals

such as Phillip Wylie, Stearns’s attorney, and Robert Caron, a

broker and manager of Peregrine Strategies investment fund.   Wylie

acted as a collateral agent on some loans and investments for

Stearns; received money from a number of Stearns’s investors; and,

at Stearns’s direction, wired the money to Stearns’s personal

accounts and purchased a $3 million Lear Jet for him.    Similarly,

Caron received payments from Stearns’s investors and wrote letters

on behalf of Stearns to prospective investors stating that he and

Stearns had done multimillion dollar deals together.    Both Wylie

and Caron accompanied Stearns to a meeting with a bank officer from

Bank of America regarding a $20 million loan, in which they

asserted that Stearns owned the $2.3 billion Barclay Bond free and

clear.

     Perhaps most importantly, Stearns employed the help of another

broker, Jerry Vosselman, to further facilitate his fraudulent

activity.   Vosselman was introduced to Stearns via a contact from

Stearns’s business associate, Anwar Heidary – a money manager with

whom Vosselman had also engaged in high-yield investment schemes at

the expense of unsuspecting investors.   In June of 1998, Vosselman

                                 3
and Stearns entered into a business arrangement, whereby Vosselman

agreed to act as Stearns’s agent and solicit investors, whose money

Stearns was supposed to place in medium term notes.          Vosselman was

to guarantee investors a forty percent monthly return, and he and

Stearns were to divide evenly the remaining profits.

       During the next two months, Vosselman secured $4.3 million

from four investors.       The investment funds were deposited into

Vosselman’s brokerage account and then wired directly to Stearns.

During that period, Vosselman was in contact with Stearns by

telephone five or ten times a day.           One investor, Brent Butts,

unaware of Vosselman’s relationship with Stearns, invested $3.3

million with Vosselman between June 24 and September 25, 1998,

based in part on Vosselman’s representations that he had traded in

medium term notes for over three years and had been so successful

that he was thinking of retiring.         Although the first payment was

made on Butt’s investment, the second payment, due in September,

was not made.     Butts voiced concern to Vosselman and began calling

him on a daily basis.      Vosselman, attempting to reassure Butts,

told Butts not to worry and that “everything was . . . still

working.”

       Vosselman eventually began avoiding the calls.        When pressed,

Vosselman finally identified Stearns as the trader, but then

attempted to reassure Butts by telling him of Stearns’s credentials

and his experience trading medium term notes in Germany. Vosselman

also   provided   Butts   with   a   document   supposedly   generated   by

                                      4
Interpol showing Stearns’s qualifications and with a copy of a

printout of a Bloomberg screen supposedly showing that Butts’s

funds had been used to purchase a medium term note on the Abbey

National Bank in the United Kingdom.     In addition, Vosselman told

Butts that Stearns had an impressive home in Austin and that

Vosselman was thinking of buying a ranch outside of Austin to

facilitate their business dealings.    Vosselman finally resorted to

giving Butts a series of excuses: that the funds had been wired to

Stearns but the wire had been lost, that the wire was found but had

been sent to the wrong bank, and that the money had been wired back

to Morgan Stanley so that taxes could be withheld.             Finally,

Vosselman told Butts that he and Stearns operated a hedge fund and

that Butts’s funds would be invested in the hedge fund if the

problem with Morgan Stanley could not be resolved.

      In October 1998, when the second payment was two-to-three

weeks late, Butts insisted on speaking with Stearns.          Vosselman

discouraged this at first but finally agreed to set up a conference

call, which happened on October 23, 1998.          During this call,

Stearns was evasive and refused to tell Butts when the second

payment would be made.   Butts insisted on having a contact name and

number for future reference, but Stearns gave him a phony name and

number.2

      Vosselman also solicited funds from another investor, Barrett

  2
     Only after Butts’s     attorney   got   involved   was   the   money
recovered in April 1999.

                                  5
Morrison, without disclosing his relationship with Stearns and

under the pretenses that he was the trader.    Again, Vosselman made

various excuses when the first payment on the investment contract

was due in October 1998, including falsely telling Morrison of the

death of a close friend.     He also falsely told Morrison that the

money had been frozen because another investor had complained to

state authorities.

       During the course of all this misconduct, Vosselman received

a number of gifts and/or payments from Stearns.        In August or

September of 1998, Stearns gave Vosselman a $98,000 gift to help

him purchase a condominium.    Similarly, between June and the fall

of 1998, Stearns gave Vosselman $45,000 in gifts or salary.

III.        ANALYSIS

       A.   Sufficiency of the Evidence — Count Fifty-Five

       Stearns contends that the evidence was insufficient to sustain

his conviction on count fifty-five, which charged him with money

laundering to promote unlawful activity, in violation of 18 U.S.C.

§ 1956(a)(1)(A)(I).    Because Stearns timely moved for judgment of

acquittal at the close of the government’s case and again after

both sides rested, this court reviews a sufficiency of the evidence

challenge in the light most favorable to the verdict and upholds

the verdict if, but only if, a rational juror could have found each

element of the offense beyond a reasonable doubt. United States v.

                                  6
Brown, 186 F.3d 661, 664 (5th Cir. 1999); United States v. Pruneda-

Gonzalez, 953 F.2d 190, 193–94 (5th Cir. 1992); Fed. R. Crim P.

29(a).

       To   obtain    a   conviction    under   §     1956(a)(1)(A)(i),3       the

government must prove beyond a reasonable doubt that the defendant

“(1) conducted or attempted to conduct a financial transaction, (2)

which    the   defendant     knew    involved   the    proceeds     of    unlawful

activity, (3) with the intent to promote or further unlawful

activity.”     Brown, 186 F.3d at 668 (internal quotation omitted).

Mere evidence of promotion of an unlawful activity does not satisfy

the intent-to-promote element.          Id. at 670.          The government must

show    that   “a    dirty   money   transaction      that    in   fact   promoted

specified unlawful activity was conducted with the intent                       to

promote such activity.”        Id.    However, “[t]his does not mean that

there must always be direct evidence, such as a statement by the

defendant, of an intent to promote specified unlawful activity.”

Id.     In fact, “[d]irect evidence is seldom available.”                   United

  3
    18 U.S.C. § 1956(a)(1)(A)(i) makes it illegal for:
     (a)(1) Whoever, knowing that the property involved in a
     financial transaction represents the proceeds of some
     form of unlawful activity, conducts or attempts to
     conduct such a financial transaction which in fact
     involves the proceeds of specified unlawful activity
     (A)(i) with the intent to promote the carrying on of
     specified unlawful activity; . . . .
Subsequently, the money laundering statute defines “specified
unlawful activity” to include mail and wire fraud. See 18 U.S.C.
§§ 1956(c)(7)(A), 1961(1).

                                        7
States v. Johnson, 971 F.3d 562, 566 (10th Cir. 1992).            “In many

cases, the intent to promote criminal activity may be inferred from

the   particular   type   of   transaction”   or   from   the   surrounding

circumstances.     Brown, 186 F.3d at 670; Johnson, 971 F.3d at 566.

      Although an “intent to promote” cannot be inferred from the

conduct of a “defendant who . . . deposits proceeds of some

relatively minor fraudulent transactions into the operating account

of an otherwise legitimate business enterprise and then writes

checks out of that account for general business purposes,”           Brown,
186 F.3d at 671, “[w]hen the business as a whole is illegitimate,

even individual expenditures that are not intrinsically unlawful

can support a promotion money laundering charge.” United States v.

Peterson, 244 F.3d 385, 392 (5th Cir. 2001).              For example, in

United States v. Jackson, 935 F.2d 832, 840-42 (7th Cir. 1991), the

court inferred “intent to promote” from the defendant’s use of

illegal funds to purchase beepers because the beepers played an

important role in the defendant’s drug trafficking scheme.

      Count fifty-five alleged that Stearns used money obtained

through wire fraud to pay two past-due mortgage payments totaling

$36,368.39.   Stearns does not dispute either making the payment or

the source of the funds.       Instead, citing Brown, he contends that

the payment of the mortgage on his residence was a strictly

personal expenditure and that the government failed to prove that

the transaction was intended to promote unlawful activity.

                                     8
      We reject Stearns’s contention, as this case is unlike Brown,

in which an automobile dealership defrauded lenders by helping

unqualified buyers obtain financing and then used those proceeds to

satisfy ordinary business expenditures that bore no relation to the

fraud.    The court in Brown failed to find an “intent to promote”

because the ordinary business expenditures failed to “play[] an

important role” in the defendant’s criminal scheme.4          Instead, we

find persuasive the Tenth’s Circuit’s decision in United States v.

Johnson, 971 F.2d 562 (10th Cir. 1992), where the defendant, like

Stearns here, used the proceeds of a wire fraud scheme to pay off

the mortgage on his house.           In finding sufficient evidence to

support a money laundering conviction, the court stated:

      The evidence clearly showed that the defendant used the

      office in his home to carry out the fraudulent scheme.

      In addition, the defendant’s aura of legitimacy was

      bolstered   in   the   minds    of   investors   who   saw   the

      defendant’s house.     The circumstances give rise to an

      inference that the defendant paid the mortgage on the

      house so that he could continue using the office in

      furtherance of the fraudulent scheme.

Id. at 566.5

  4
      United States v. Brown, 186 F.3d 661, 670 (5th Cir. 1999).
  5
     Although there is, admittedly, language in Johnson which
suggests a distinction between paying off a mortgage and making a
regular monthly payment, we do not find this distinction to be a
meaningful one, as both courses of action protect the defendant’s

                                      9
       In relying on the Tenth Circuit’s case in Johnson, we are

mindful of    the     Sixth    Circuit’s     admonition   that   not    all    home

mortgage payments support the “intent to promote” prong merely

because the residence is used as a business office.              United States

v. McGahee, 257 F.3d 520 (6th Cir. 2001).               That is, the court in

McGahee    rejected    the    government’s     argument   because      there   the

defendant’s “home did not play an integral part in the embezzlement

scheme,” and “[p]aying for personal goods, alone, is not sufficient

to establish that funds were used to promote an illegal activity.”

Id. at 527.      Because in McGahee defendant’s use of his home as his

business    office    was     “merely   a    convenience,”   “the      reasonable

conclusion [wa]s not that [the defendant] made the payment with the

intent to promote the embezzlement, but rather with the intent to

sustain his personal living quarters.”            Id.

       The record here, however, reveals that this case is more like

Johnson, than Brown and McGahee.               Here, Stearns maintained an

office at his home, where he operated portions of his scheme.                  When

he was arrested, agents searching the house found business records

and several documents used in the scheme, including forged letters

that Stearns used to tout his investment offerings as risk-free.

Some   victims    testified     to   fraudulent    activities    conducted      in

“right to continue using the office and the home.”     Thus, the
relevant teaching of Johnson is that a sufficient connection
between a defendant’s residence and his unlawful activity will
permit a jury to legitimately infer that the defendant made a
mortgage payment with “dirty money” with the intent to promote or
further the unlawful activity.

                                        10
Stearns’s   house.      He   held     meetings    there   with   investors   and

lenders, told potential investors that he traded bonds from home,

and received cash at home on at least one occasion.

      More importantly, Stearns used his expensive home to create an

aura of legitimacy6 for his investment scheme.               He displayed to

various potential investors either the house itself or his office

facilities.      One investor testified that the impressive nature of

the house gave him a sense of comfort in his dealings with Stearns,

and Vosselman mentioned the house when trying to comfort Butts

after he failed to receive the second payment on his investment.

Finally, when Stearns pursued the ill-fated Bank of America loan,

he included a picture of his house with the loan application.

      These facts distinguish this case from Brown, where the

proceeds    of    fraudulent    transactions       were   deposited   into    an

operating   account    and     then   used   to   satisfy   general   business

expenses unrelated to the fraud, and McGahee, where the court found

that the defendant’s home did not play a significant role in his

embezzlement scheme.         Instead, this case is closer to Johnson,

  6
    See United States v. Oberhauser, 284 F.3d 827 (8th Cir. 2002)
(concluding that transfers of illegal funds from a Ponzi scheme to
a charity were more than mere “benign expenditures” because the
transfers to charity promoted the continuation of the fraud, as the
corporation “induced investors to give them money by stating their
profits went to charity and by prominently displaying plaques
commemorating their contributions,” thus giving an aura of
legitimacy to the enterprise); United States v. Savage, 67 F.3d
1435, 1440 (9th Cir. 1994) (stating that “circumstantial evidence
of intent to promote a fraudulent scheme exists if the transfer
lends an ‘aura of legitimacy’ to the scheme”).

                                        11
where the government established a link between the defendant’s

residence and his fraudulent scheme.            Accordingly, because the

connection between Stearns’s house and his unlawful activities

supports a jury inference that he made the mortgage payment with

the intent to promote those activities, we affirm the jury’s

verdict on count fifty-five.

       B.   Sentence Enhancement

       Stearns further contends that the district court erred by

overruling his objection to the enhancement of his offense level

under U.S.S.G. § 3B1.1(a) for being an “organizer or leader” of an

extensive criminal activity.        “The district court’s determination

that a defendant is a U.S.S.G. § 3B1.1 organizer is a factual

finding which this court reviews for clear error.                  A factual

finding is not clearly erroneous if it is plausible in light of the

record read as a whole.         This court reviews a sentencing court’s

application of the guidelines de novo.”         United States v. Giraldo,

111 F.3d 21, 23 (5th Cir. 1997); see also United States v. Alfaro,

919 F.2d 962, 966 (5th Cir. 1990).

       Under U.S.S.G. § 3B1.1(a), a defendant’s sentence may be

enhanced if he “was an organizer or leader of a criminal activity

that    involved    five   or    more    participants   or   was   otherwise

extensive.”        U.S.S.G. § 3B1.1(a) (emphasis added).            Although

Stearns does not contend that he did not act as an “organizer or

                                        12
leader”7         or   that     the    criminal     activity     was    not    “otherwise

extensive,” he does argue that no one else involved in the scheme

qualified under the sentencing guidelines as a “participant” for

him to lead or organize.                  That is, even under the “otherwise

extensive” prong of § 3B1.1, “the defendant must have been the

organizer, leader, manager, or supervisor of [at least] one or more

other participants.”               Id. § 3B1.1, Application Note 2.           See United

States         v.   Ronning,    47 F.3d 710,    712    (5th   Cir.     1995).    “A

‘participant’ is a person who is criminally responsible for the

commission of the offense, but need not have been convicted."

U.S.S.G. § 3B1.1, Application Note 1.                   In other words, to qualify

as       a    participant,     a     person   “need    not   have     been   charged   or

convicted” with the defendant but need “only have participated

knowingly in some part of the criminal enterprise.”                        United States

v. Boutte, 13 F.3d 855, 860 (5th Cir. 1994).8

             Stearns contends that the district court clearly erred in

finding that Vosselman, Caron, and Wylie were participants in

Stearns’s scheme because it found only that they were knowledgeable

of Stearns’s misconduct, not that they were criminally responsible

for the commission of the offense.                   Stearns relies on this court’s

     7
     “[A] leader or organizer must control or influence other
people.” Ronning, 47 F.3d at 712.
     8
    See also United States v. Alfaro, 919 F.2d 962, 967 (5th Cir.
1990) (“We do not require each ‘participant’ to have committed each
element of the offense; rather, we require each of the participants
to play some role in bringing about the specific offense
charged.”).

                                              13
opinion in United States v. Maloof, 205 F.3d 819, 830 (5th Cir.

2000), in which we vacated a defendant’s sentencing enhancement and

remanded for resentencing because the district court found only

that “other persons knew what was going on,” without “otherwise

indicat[ing] that it had determined that [the participants] had

intentionally or wilfully participated in the criminal conspiracy

or point[ing] to the evidence in the record that would support such

a finding.”   Id.   This court stated, “Willful participation is an

essential element of the crime of conspiracy; mere knowledge of a

conspiracy does not itself make a person a conspirator.”        Id.

(internal quotation omitted).

      Although Stearns’s argument has surface appeal, it is clear

from a review of the whole record and the entirety of the district

judge’s colloquy that the district judge did not clearly err in

finding at least one other participant in Stearns’s crime, and thus

enhancing Stearns’s sentence. 9   Unlike in Maloof, the evidence in

this record of the “willful participation” of others is clear.

There is no dispute that Vosselman, Caron, and Wylie acted as

intermediaries for Stearns, raising money from third parties for

investment purposes and passing the money on to Stearns.     It is

  9
    Even if we were to find that the district judge applied the
wrong legal standard in determining whether the individuals
involved were participants, such a finding would not merit reversal
here, as the district court’s finding that Stearns was a § 3B1.1(b)
organizer was not clearly erroneous. See United States v. Giraldo,
111 F.3d 21 (5th Cir. 1997) (affirming a district court’s
sentencing enhancement under § 3B1.1 based on the evidence in the
record, despite the district court’s legal error).

                                  14
equally clear that, at a minimum, Vosselman (who testified under a

grant of immunity) was so knowledgeable and intimately connected in

Stearns’s scheme that he unquestionably possessed the requisite

“criminal intent” to qualify as a participant under U.S.S.G. §

3B1.1.10    Vosselman knew that his investors had lost money in a

similar high-yield investment program with Stearns’s associate,

Heidary.    Nevertheless, Vosselman solicited investors on Stearns’s

behalf.     Vosselman also accepted nearly $145,000 in gifts from

Stearns,    some   of   it   even   after   Stearns   had   failed   to   pay

Vosselman’s investors.        Vosselman became evasive and gave false

explanations for Stearns’s failures to make payments to investors,

thus putting the investors’ money at risk for an additional period

of time.    Furthermore, Vosselman misrepresented his qualifications

and his role in the investment scheme to Butts and Morrison.          Thus,

it is clear that Vosselman “participated knowingly” in the scheme

and “play[ed] some role in bringing about the specific offense[s]

charged.”     Boutte, 13 F.3d at 860; Alfaro, 919 F.2d at 967.

Because the district judge’s factual findings are not implausible

in light of the record read as a whole, we affirm the district

court’s sentencing enhancement.

III. CONCLUSION

  10
      Because the enhancement guideline requires only one
participant, it is not necessary for us to consider whether Caron
and Wylie were also participants.

                                      15
     For the foregoing reasons, the district court’s judgment and

sentence are AFFIRMED.

                               16