Court Opinion

ID: 2994818
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:16:47.698422+00
Date Added: 2024-06-11T11:45:22.349062
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

No. 99-3070

United States of America,

Plaintiff-Appellee,

v.

Surya Prasad L. Davuluri,

Defendant-Appellant.

Appeal from the United States District Court
for the Northern District of Illinois, Western Division.
No. 98 CR 50033--Philip G. Reinhard, Judge.

Argued January 16, 2001--Decided February 7, 2001

      Before Flaum, Chief Judge, and Posner and Coffey,
Circuit Judges.

      Flaum, Chief Judge. Surya Prasad L. Davuluri
appeals his convictions for wire fraud, mail
fraud, and interstate transportation of a
security taken by fraud, as well as his sentence.
He claims that the evidence was insufficient to
demonstrate his intent to defraud, that he
obtained the security by fraud, or that the
security was worth the minimum statutory
requirement. He appeals his sentence on the
grounds that he does not qualify for an abuse of
a position of trust enhancement. For the reasons
stated herein, we affirm the defendant’s
convictions and sentence.

I.   Background

      Davuluri, burdened by loans and promises to
repay people whose money he had previously lost
investing in the markets, approached Dr. Namburu
Ramanajaru ("Dr. Raju"), a cardiologist living in
Illinois, with an offer to engage in commodities
trading on the doctor’s behalf. Dr. Raju
initially rebuffed this proposal, but accepted
after Davuluri stressed his commodities expertise
(including falsely claiming to have studied
"financial engineering" at the University of
Michigan) and emphasized that no more than ten
percent of the $50,000 he was urging Dr. Raju to
invest would be at risk. In his testimony, other
factors that Dr. Raju listed that induced him to
agree to Davuluri’s proposal were their shared
cultural heritage (both are from the Andrha
Pradesh region of India) and Davuluri’s claim
that a Hindu priest had recommended that he talk
to the cardiologist. Dr. Raju agreed to provide
$50,000 for Davuluri to begin trading on the
doctor’s behalf. What Davuluri was to receive for
his services was a disputed issue at trial. Dr.
Raju testified that the two had an agreement to
split any profits fifty-fifty and additionally
that Davuluri could obtain a loan from the
doctor’s fifty percent. Davuluri claims that the
only agreement was that he could obtain a loan
from the profits, all of which would go to Dr.
Raju.

      Davuluri opened an account at the Detroit,
Michigan office of Merrill Lynch and impersonated
Dr. Raju without the latter’s knowledge in all of
Davuluri’s dealings with Merrill Lynch employees.
By claiming to be Dr. Raju, Davuluri instructed
Merrill Lynch to increase the net worth and risk
capital amounts listed on the doctor’s financial
forms without the real Dr. Raju’s consent or
knowledge, eventually reaching numbers twenty-
five to thirty times greater than those that the
cardiologist had actually written. Such
adjustments permitted Davuluri to trade a larger
number of contracts. Davuluri also forged Dr.
Raju’s signature on one of these forms.

     Davuluri’s first day of trading exposed Dr.
Raju to a risk of losing $21,000, far greater
than $5,000, the maximum amount Davuluri had told
Dr. Raju that he could lose. The trading went
well at first, with the account increasing in
value to over $200,000. During these times, Dr.
Raju received statements from both Davuluri and
Merrill Lynch, which he did not fully understand.
Davuluri and the doctor also talked over the
phone about the profits being generated and
Davuluri’s family back in India. Dr. Raju
apparently exercised no control over Davuluri’s
activities and had no input in the latter’s
trading decisions.

      The account began to sour when Davuluri began
selling Japanese Yen contracts. Unfortunately for
Davuluri, the value of the Yen started to
increase to unprecedented highs. Because of the
inflated numbers on Dr. Raju’s financial forms,
Davuluri had been able to sell a large number of
these contracts. Thus, he took a huge hit with
the Yen climbing upward, and the account went
$400,000 into the negative. Davuluri initially
hid these losses from Dr. Raju and continued to
tell him that his account was performing
excellently. However, when Merrill Lynch issued
a margin call, Davuluri returned to Dr. Raju,
told him about the losses, and informed the
doctor that if he did not transfer $400,000 to
Merrill Lynch the account would be liquidated. By
emphasizing that the additional funds would be
safe and not at risk, Davuluri cajoled Dr. Raju
into writing a $400,000 check on an account at
Fidelity Investments ("Fidelity") that was in the
name of the cardiologist’s wife. The check had
two signature lines but Dr. Raju signed only one.
The doctor testified that others had previously
accepted checks with only his signature and that
Fidelity always honored such checks. Davuluri
took the check from the doctor in Illinois and
hand-delivered it to Detroit, but Merrill Lynch,
which had already liquidated the account without
informing Davuluri or Dr. Raju, refused the
doctor’s check. The account sustained a loss of
$785,907, which was apportioned between Merrill
Lynch and Dr. Raju in arbitration.

      One of Dr. Raju’s friends urged him to notify
law enforcement authorities about Davuluri’s
conduct. He did and the ensuing FBI investigation
led to a five count indictment against Davuluri.
Count I alleged mail fraud, 18 U.S.C. sec. 1341,
Counts II-IV alleged wire fraud, 18 U.S.C. sec.
1343, and Count V alleged transporting in
interstate commerce a fraudulently taken security
worth $5,000 or more, 18 U.S.C. sec. 2314. The
prosecution presented the evidence described
above, and the jury found Davuluri guilty of all
five counts. At sentencing, the district court
imposed a two level enhancement for abuse of a
position of trust. The district court cited
Davuluri’s discretionary authority over Dr.
Raju’s account, Davuluri’s claims of financial
expertise, and Davuluri’s exploitation of
cultural ties to Dr. Raju to justify the
enhancement.

II.    Discussion

      Davuluri appeals both his convictions and his
sentence. He attacks Counts I-IV by claiming that
the evidence was insufficient to prove that he
formed the specific intent to defraud Dr. Raju.
He contends that the Count V conviction is
invalid because he did not obtain Dr. Raju’s
check by fraud and the check was valueless. In
the alternative, Davuluri claims the district
court erred in imposing the abuse of a position
of trust sentencing enhancement because he did
not have a formal position of trust, like a
broker, nor did he form close personal ties with
Dr. Raju.

A.    Intent to Defraud

      Under the standard formulation of the elements
of wire or mail fraud, the government must prove:
(1) the defendant’s participation in a scheme to
defraud; (2) the defendant’s intent to defraud;
and (3) the defendant’s use of the mail (for 18
U.S.C. sec. 1341) or wires (for 18 U.S.C. sec.
1343) in furtherance of the fraudulent scheme.
See United States v. Ross, 77 F.3d 1525, 1542
(7th Cir. 1996). Davuluri argues that the
government failed to prove the second element,
intent to defraud, beyond a reasonable doubt. In
evaluating his claim, we view the evidence in the
light most favorable to the prosecution and
vacate the conviction only if no rational trier
of fact could have found the elements of the
crime beyond a reasonable doubt. See United
States v. Swan, 224 F.3d 632, 636 (7th Cir.
2000).

      This circuit’s cases have defined intent to
defraud as "acting willfully and with specific
intent to deceive or cheat, usually for the
purpose of getting financial gain for one’s self
or causing financial loss to another." United
States v. Moede, 48 F.3d 238, 241 (7th Cir.
1995), quoted in, e.g., United States v. Paneras,
222 F.3d 406, 410 (7th Cir. 2000). Davuluri
argues that the evidence is uncontested that he
always intended only to earn profits for Dr.
Raju, rather than imposing any kind of loss on
him. He also claims that he sought no benefit for
himself, contending that Dr. Raju’s testimony
regarding the fifty-fifty split of profits is
inherently unbelievable and that their only
agreement was that Davuluri could obtain a
temporary loan from the profits.

      Davuluri’s arguments are unavailing, since a
rational jury could find beyond a reasonable
doubt that he imposed a large risk of loss on Dr.
Raju. Exposing the victim to a substantial risk
of loss of which the victim is unaware can
satisfy the intent requirement. See United States
v. Catalfo, 64 F.3d 1070, 1077 (7th Cir. 1995);
Moede, 48 F.3d at 242. That Davuluri sincerely
intended his scheme to generate a profit is
irrelevant. See United States v. Masquelier, 210
F.3d 756, 759 (7th Cir. 2000); United States v.
Cosentino, 869 F.2d 301, 307 (7th Cir. 1989). The
evidence shows that Davuluri told Dr. Raju that
no more than $5,000 of the money in the account
would ever be at risk, yet Davuluri’s trading
immediately put Dr. Raju at risk of losing over
$21,000 and the total loss caused by Davuluri was
over $785,000. Davuluri was a knowledgeable
trader and the jury could have inferred that he
knew the high levels of risk to which he was
subjecting the account. On this basis, a
reasonable jury could infer that Davuluri
deceived Dr. Raju and exposed Dr. Raju to a much
greater risk than what he had promised the
cardiologist.
      Davuluri also relies on United States v.
Walters, 997 F.2d 1219 (7th Cir. 1993), but this
argument is similarly unconvincing. The section
of Walters on which Davuluri relies stands for
the proposition that the government must prove
that money or property was transferred from the
victim to the defendant as part of a fraudulent
scheme in order to convict under the mail or wire
fraud statutes. Id. at 1227. In the instant case,
a transfer occurred when Davuluri fraudulently
obtained $50,000 of Dr. Raju’s funds by promising
him that this money would not be exposed to the
level of risk that Davuluri’s trading entailed;
thus, Walters does not bar Davuluri’s conviction.

      A reasonable jury could have found that
Davuluri subjected Dr. Raju to a substantial risk
of potential loss. When combined with the
voluminous evidence regarding Davuluri’s
deception and impersonation of Dr. Raju, a
reasonable jury could have found beyond a
reasonable doubt that Davuluri possessed the
intent to defraud required to support a
conviction under the mail and wire fraud
statutes. Therefore, we affirm Davuluri’s
convictions on Counts I-IV.

B.   18 U.S.C. sec. 2314

      In order to convict a defendant of an offense
relating to a security under 18 U.S.C. sec. 2314,
the government must prove that: (1) the defendant
caused the security to be transported in
interstate commerce; (2) the value of the
security exceeded $5,000; (3) the security was
taken by fraud; and (4) the defendant knew the
security had been obtained by fraud. See United
States v. Bond, 231 F.3d 1075, 1077 (7th Cir.
2000). Davuluri argues that he did not obtain the
security by fraud and also claims that the
security did not have a value of $5,000. These
are challenges to the sufficiency of the
evidence, and so we again view the evidence in
the light most favorable to the government and
reverse only if no reasonable jury could have
found the elements beyond a reasonable doubt. See
Swan, 224 F.3d at 636. Because we reject
Davuluri’s arguments, we affirm his Count V
conviction.

       1.   Obtained by fraud.

      Davuluri claims that he did not take Dr. Raju’s
$400,000 check drawn on his account at Fidelity
by fraud. Davuluri told Dr. Raju that the money
was collateral that would never be touched. He
claims that all of the witnesses agree that if
the Yen had taken a sharp turn downward, this
statement would have been correct. Unfortunately
for Davuluri, he did not include this
qualification when he spoke to Dr. Raju. He told
Dr. Raju only that the collateral would be
completely safe; this kind of absolute statement
indicates that the $400,000 would be returned to
Dr. Raju regardless of any contingencies. This
was, of course, incorrect, since the Yen
continued to move upward and Dr. Raju’s account
was liquidated by Merrill Lynch, causing a loss
of the $400,000 and more. A reasonable jury could
have concluded that Davuluri knew that his
unconditional statement to Dr. Raju was false
because of the defendant’s previous trading
experiences and thus Davuluri obtained the
$400,000 check by fraud.

      2.   Value of the security.

      Davuluri claims that Dr. Raju’s check was
worthless because of the absence of Dr. Raju’s
wife’s signature. He cites United States v.
Jackson, 576 F.2d 749, 755-56 (8th Cir. 1978) and
United States v. Teresa, 420 F.2d 13, 17-18 (4th
Cir. 1969) which hold that facially invalid
securities cannot be the basis for a conviction
under 18 U.S.C. sec. 2314. He also argues that
the value of stolen items is measured by the
price a willing buyer would pay and that the only
relevant buyer here, Merrill Lynch, was not
willing to pay anything for Dr. Raju’s check. The
government counters with cases from the Ninth
Circuit, United States v. Taylor, 802 F.2d 1108,
1114 (9th Cir. 1986) and United States v.
Urciuoli, 575 F.2d 768, 769 (9th Cir. 1978),
which hold that an actually invalid instrument is
still a security for purposes of 18 U.S.C. sec.
2314 as long as it appears to be valid, or could
be made to appear valid with minor additions. The
government claims that with the minor addition of
Dr. Raju’s wife’s signature, the check would have
appeared to be valid and thus is a security
sufficient to support a conviction under 18
U.S.C. sec. 2314.

      We need not decide into which line of cases Dr.
Raju’s check would fall because the evidence
produced at the trial permits a different
approach. 18 U.S.C. sec. 2311 defines the word
"value" as used in 18 U.S.C. sec. 2314 and
provides that value "means the face, par, or
market value, whichever is the greatest." Dr.
Raju testified that Fidelity had previously
honored checks with only his signature and that
others had accepted these checks as payment. From
this evidence, a reasonable jury could conclude
that the market value of the check was the amount
for which it was written, since similar checks
had been given that value by market participants.
      Davuluri’s argument that the check was worthless
because Merrill Lynch refused to accept it fails
because this circuit’s case law establishes that
the market value of fraudulently taken or stolen
goods is the price "a willing buyer will pay,"
United States v. Brookins, 52 F.3d 615, 619 (7th
Cir. 1995) (emphasis added), not what any
particular idiosyncratic buyer will pay. For
example, some businesses will not accept any
checks but demand to be paid only in cash, but
this hardly means that a check presented to and
rejected by such a business becomes worthless.
Likewise, the fact that Merrill Lynch’s
particular policies were apparently more
stringent than most other market participants Dr.
Raju dealt with does not mean that his check
becomes valueless because Merrill Lynch rejected
it.

C.   Abuse of a Position of Trust

      Davuluri’s final argument is that the district
court misinterpreted the statutory standard under
U.S.S.G. sec. 3B1.3 in imposing a two level
enhancement for abuse of a position of trust. In
order for this increase to be appropriate, the
government must show that (1) the defendant
occupied a position of trust; and (2) the
defendant’s abuse of the position of trust
significantly facilitated the commission of the
offense. United States v. Bailey, 227 F.3d 792,
801 (7th Cir. 2000). Davuluri admits the facts
regarding his trading on behalf of Dr. Raju, but
claims that his activities are not a position of
trust as that phrase is used in the Guidelines
and thus the first prong of the enhancement test
is not satisfied. We review the district court’s
interpretation of what constitutes a "position of
trust" de novo. See Paneras, 222 F.3d at 412 (7th
Cir. 2000).

      Davuluri claims that under this circuit’s case
law the enhancement applies only where the
defendant already occupied a formal position of
trust, such as being a licensed broker, or where
a close personal relationship exists between the
defendant and his victim which gives rise to a
position of trust. Davuluri argues that he did
not occupy any other formal position of trust and
that holding himself out as an experienced
commodities trader is not considered to be a
position of trust as a matter of law. He claims
that he had only a standard commercial
relationship with Dr. Raju, citing cases such as
United States v. Dorsey, 27 F.3d 285, 289 (7th
Cir. 1994). Thus, the first prong does not apply.
Regarding the second prong, he contends that his
conversations with Dr. Raju about their cultural
heritage do not rise to the level of close
personal attachment but simply indicate an
ordinary social relationship. For example, his
discussions with Dr. Raju about his family in
India were a much more distant connection than
the romantic involvement in United States v.
Strang, 80 F.3d 1214, 1220 (7th Cir. 1996).
Davuluri relies heavily on United States v.
Mullens, 65 F.3d 1560, 1566-67 (11th Cir. 1995),
which reversed an abuse of a position of trust
enhancement where the defendant developed
relationships with his victims at a country club
and had represented himself as a gifted investor,
and also cites United States v. Koehn, 74 F.3d
199, 201-02 (10th Cir. 1996), which holds that
sec. 3B1.3 applies only where an employee steals
from his employer or the defendant is a fiduciary
occupying or pretending to occupy a formal
position of trust. The government responds that
Davuluri held himself out as an experienced
investor and exploited his shared cultural
heritage to gain Dr. Raju’s trust.

      The district court properly applied the
enhancement. First, a formal position of trust is
not required for an increase under sec. 3B1.3.
The sentencing court must look beyond formal
labels to the relationship between the victim and
the defendant and the responsibility entrusted by
the victim to the defendant. See United States v.
Stewart, 33 F.3d 764, 768 (7th Cir. 1994); United
States v. Boyle, 10 F.3d 485, 489 (7th Cir.
1993). Particularly relevant to this case and
contrary to the defendant’s argument, Davuluri
can qualify for the enhancement on the basis of
his trading on behalf of Dr. Raju even though the
defendant was not a licensed broker. See Strang,
80 F.3d at 1219-20. To the extent that Koehn, 74
F.3d at 201-02, requires a formal position of
trust for the sec. 3B1.3 enhancement to apply, it
is in opposition to the law of this circuit and
we respectfully decline to follow it.

      Second, the discretion exercised by Davuluri
shows that he occupies a position of trust. While
the range of activities that may constitute a
position of trust under our prior precedents is
not entirely pellucid, we have frequently
emphasized that a defendant who has wide
discretion to act on behalf of his victim
satisfies the first prong of the enhancement
test. See United States v. Hernandez, 231 F.3d
1087, 1091 (7th Cir. 2000); United States v.
Hoogenboom, 209 F.3d 665, 671 (7th Cir. 2000);
United States v. Gellene, 182 F.3d 578, 596 (7th
Cir. 1999); see generally U.S.S.G. sec. 3B1.3,
Application Note 1 (A position of trust is
"characterized by professional or managerial
discretion (i.e., substantial discretionary
judgment that is ordinarily given considerable
deference)."). The evidence produced at trial
demonstrates that Davuluri was given complete
discretion in using the money given to him by Dr.
Raju to engage in commodities trading to earn a
profit for the cardiologist. Dr. Raju apparently
had little understanding of the investments and
did not supervise Davuluri or otherwise have
input regarding the trades. Dr. Raju’s conferring
of this unsupervised discretion to Davuluri in
the belief that Davuluri would act for Dr. Raju’s
benefit shows that Davuluri did in fact occupy a
position of trust. See, e.g., Gellene, 182 F.3d
at 596. To the extent that Mullens, 65 F.3d 1566-
67, holds that a financial advisor with total
control over investors’ funds does not occupy a
position of trust, we respectfully decline to
follow that decision as inconsistent with our own
case law. Because the abuse of this position
obviously aided Davuluri in committing the
offense, the district court did not err in
applying sec. 3B1.3./1

      Davuluri contends that applying the enhancement
to him would mean that sec. 3B1.3 automatically
applies to all defendants convicted of fraud
because the relationship between himself and Dr.
Raju was purely commercial and all frauds imply
a degree of trust. Davuluri’s slippery slope
argument fails because what distinguishes frauds
based on commercial relationships where sec.
3B1.3 should apply to those where it should not
is whether the defendant has broad discretion to
act on behalf of the victim and the victim
believes that the defendant will act in the
victim’s best interest. If not, then the
enhancement should not be applied solely on the
basis of a commercial arrangement (though the
increase might still be appropriate for some
other reason like a close personal relationship,
see, e.g., Strang, 80 F.3d at 1220). For example,
in Dorsey, the defendant and victim had only a
lender-borrower relationship, 27 F.3d at 287, and
there is no expectation in such an arrangement
that the borrower is using his or her discretion
to further the interests of the lender; thus,
because no other kind of relationship existed
between the parties, sec. 3B1.3 was inapplicable.
However, as explained above, Davuluri wielded
great discretion on behalf of Dr. Raju, making
enhancement under sec. 3B1.3 appropriate in his
case.

III.   Conclusion

      Sufficient evidence was presented for a
reasonable jury to conclude that Davuluri
intended to defraud Dr. Raju, that he obtained
Dr. Raju’s check by fraud, and that the check had
a value of more than $5,000. Davuluri’s
relationship with Dr. Raju involved a high degree
of discretion that Davuluri should have exercised
to benefit Dr. Raju, and thus an enhancement for
abuse of a position of trust is proper.
Therefore, Davuluri’s convictions and sentence
are Affirmed.

/1 Given that the discretion that Dr. Raju conferred
on Davuluri to act on the doctor’s behalf
justifies the abuse of a position of trust
enhancement, we need not decide whether the
exploitation of cultural ties or holding one’s
self out as an experienced trader standing alone
could be the basis for such an increase.