Court Opinion

ID: 181722
Source: CourtListenerOpinion
Date Created: 2010-12-23 20:57:52+00
Date Added: 2024-06-11T17:25:56.656346
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                               No. 09-4417

UNITED STATES OF AMERICA,

                Plaintiff - Appellee,

           v.

TED JAMES JOHNSON, JR.,

                Defendant - Appellant.

Appeal from the United States District Court for the Western
District of Virginia, at Roanoke.  Samuel G. Wilson, District
Judge. (7:07-cr-00048-sgw-1)

Argued:   September 24, 2010                 Decided:   December 23, 2010

Before TRAXLER, Chief Judge, KING, Circuit Judge, and Jerome B.
FRIEDMAN, Senior United States District Judge for the Eastern
District of Virginia, sitting by designation.

Affirmed by unpublished per curiam opinion.

ARGUED: Brian Jay Grossman, CROWGEY & GROSSMAN, Richmond,
Virginia, for Appellant.    Thomas Ernest Booth, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.       ON
BRIEF: Timothy J. Heaphy, United States Attorney, Jennie L. M.
Waering, Assistant United States Attorney, OFFICE OF THE UNITED
STATES ATTORNEY, Roanoke, Virginia; Lanny A. Breuer, Assistant
Attorney General, Greg D. Andres, Acting Deputy Assistant
Attorney General, David A. Bybee, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.

                                2
PER CURIAM:

       Ted James Johnson, Jr. (“Johnson”) appeals his convictions

on various felony charges stemming from Johnson’s creation and

operation     of    a    Ponzi    scheme.         Johnson      does   not    dispute    his

involvement in such illegal scheme nor his guilt on numerous

mail    and   wire       fraud     counts,        but    instead      argues    that    his

convictions        on     certain     money       laundering       counts      should   be

reversed.     Additionally, Johnson seeks reversal of three counts

relating to the unlawful operation of a “commodity pool” based

on     Johnson’s         assertion     that        the    applicable         statute     of

limitations expired before he was indicted on such charges.                             For

the    reasons     set    forth     below,    we    affirm      the   judgment     of   the

district court on all counts.

                                             I.

       The facts of this case are largely undisputed.                            In 1992,

Johnson and his co-conspirator, Frank Farrier (“Farrier”) began

a partnership known as Mountain Investments Limited (“Mountain

Investments”).            Johnson    and     Farrier      portrayed      themselves      as

commodity pool operators that pooled and traded investor funds

in the commodities futures financial market.                          However, Johnson

and    Farrier     were    never     registered         with   the    U.S.     Commodities

Futures Trading Commission, as required by law.

                                              3
       The Mountain Investments office was located in Johnson’s

home and was outfitted with numerous computer monitors that were

used    as    a     prop   to     instill        confidence      in    the      company.

Additionally,        potential     investors           recognized     Johnson    as   an

upstanding member of the community due to his former employment

as the Giles County Circuit Court Clerk as well as Johnson’s

position     within    his      church.          Although    Johnson     and    Farrier

claimed to have a foolproof trading system and offered potential

investors     very    high      rates   of       return,    in   reality,       Mountain

Investments suffered a trading loss every year it operated.

       Johnson and Farrier began accepting investor funds in 1992,

and they commingled those funds in various personal and business

checking accounts.          Although commodity futures trading accounts

were set up in Mountain Investments’ name, little trading ever

took place.       In 1995, Johnson and Farrier established a second

company, Dogwood Farms Incorporated (“Dogwood Farms”) for the

purpose      of   buying,       selling,         and    developing     real     estate.

However, like Mountain Investments, Dogwood Farms was primarily

used in furtherance of the Ponzi scheme.

       Johnson’s Ponzi scheme initially created the illusion of

success, and several investors received full repayment of their

principal as well as interest at the rates promised.                         To placate

investors     and     sustain     the     subterfuge,        Mountain     Investments

                                             4
prepared false 1099s reflecting interest on investments that had

never been made.

     In   January        of    2001,     the     Virginia   State     Corporation

Commission   (“SCC”)          began    investigating     Mountain     Investments

based on an anonymous tip.              The SCC thereafter advised Johnson

and Farrier that they appeared to be operating an unregistered

commodity pool.      Johnson and Farrier responded by advising the

SCC that Mountain Investments stopped taking new investments on

January 22, 2001.

     Notwithstanding           such     representation,     Johnson     continued

soliciting and accepting investments through Dogwood Farms using

what proved to be worthless Deeds of Trust as collateral.                    Once

such new investments were received by Dogwood Farms, the money

was simply transferred into Mountain Investments accounts.                  Once

transferred, such money was used to make payments to investors

in Mountain Investments in an effort to extend the life of the

fraudulent scheme.            Johnson solicited new investments through

Dogwood Farms in order to disguise the source of the money and

avoid SCC scrutiny.

     In   August    of    2001,       Mountain    Investments   entered   into   a

settlement agreement with the SCC and agreed that all investors

would be repaid within one year.                 Mountain Investments not only

failed to meet such deadline, but sought to disguise its failure

                                           5
by    sending      the    SCC    “statements       of    satisfaction”         for   several

accounts that were not repaid but were instead merely converted

into Dogwood Farms investments.                    Unbeknownst to the investors,

such       conversion      was     merely     an   exchange        of    one    fraudulent

investment         for    another.       In    late       2002,    at    the    same      time

Johnson’s ability to obtain new funds was dwindling, the demands

for    repayment         were    increasing.        The    Ponzi       scheme   inevitably

collapsed.

       Several      years       after   the    collapse      of    his    Ponzi      scheme,

Johnson was indicted in the United States District Court for the

Western      District       of    Virginia.        Following       a    trial    by    jury,

Johnson      was    convicted      of   eighteen        counts    of    mail    fraud,     two

counts of wire fraud, three securities frauds counts related to

operating a commodity pool, one count of conspiracy to commit

money laundering, four substantive money laundering counts, and

eight counts of engaging in monetary transactions in property

derived      from    specified       unlawful      activities. 1          Prior      to    his

sentencing, Johnson raised the same arguments asserted in the

instant appeal in a Rule 29 Motion for Judgment of Acquittal;

       1
       The convictions for conspiracy to commit money laundering,
money laundering, and engaging in monetary transaction in
property   derived  from   specified  unlawful   activities,  are
collectively referred to herein as “the money laundering
counts.”

                                              6
however,       such       motion      was    denied.           Johnson        was    thereafter

sentenced       to    a    term      of   imprisonment         of    two      hundred      months,

followed by three years of supervised release.

                                                 II.

      Although Johnson’s primary argument on appeal focuses on

the   interpretation            of    the    Supreme         Court’s      opinion     in    United

States v. Santos, 553 U.S. 507 (2008), he advances such legal

argument in an effort to establish that the government failed to

introduce      sufficient          evidence       to    prove       his    guilt     on    several

money    laundering         counts.          Additionally,           Johnson        argues      that

there    was    insufficient          evidence         to    prove     that    he    operated     a

commodity pool during the limitations period.

      We   review         challenges        to    the       sufficiency       of    evidence      de

novo.      United States v. Kelly, 510 F.3d 433, 440 (4th Cir.

2007).     “In doing so, our role is limited to considering whether

there is substantial evidence, taking the view most favorable to

the   Government,          to     support        the    conviction.”           Id.    (internal

quotation marks and citation omitted).                          Evidence is substantial

if “a reasonable fact-finder could accept [it] as adequate and

sufficient to establish a defendant’s guilt beyond a reasonable

doubt.”     United States v. Mehta,                     594 F.3d 277, 279 (4th Cir.

2010).         The    credibility           of   witnesses       and      conflicts        in   the

                                                  7
evidence      are    not    assessed,   as     we    instead      assume    that    any

discrepancies        were   resolved    by    the   jury     in    the   government’s

favor.      Kelly, 510 F.3d at 440.

                                        III.

     Johnson’s        first   challenge       on    appeal    seeks      reversal   of

several, but not all, of his convictions on the money laundering

counts based on Johnson’s interpretation of United States v.

Santos. 2      The   government disagrees with Johnson’s reading of

Santos, highlighting the fractured nature of the Supreme Court’s

decision and arguing that Santos results in a limited rule of

law that does not extend to the instant case.                       As discussed in

detail below, we agree with the government’s position.

     In United States v. Santos, the Supreme Court held, in a

plurality opinion, that the term “proceeds” in the federal money

laundering statutes refers to “profits,” not “gross receipts.”

Santos, 553 U.S. at 514.             The underlying offense in Santos that

generated     the    funds    that    were    purportedly         laundered   was   an

illegal gambling operation.             Although an oversimplification of
     2
       Johnson concedes, as he must, that even were we to adopt
the legal theory that he espouses, seven of the money laundering
counts should be affirmed.      Additionally, Johnson does not
challenge his convictions on the twenty mail and wire fraud
counts that resulted in twenty concurrent sentences of 180
months.

                                          8
the     holding,     the     four   justice       plurality          concluded    that

“proceeds” always means profits based on the rule of lenity; one

concurring justice concluded that “proceeds” can mean profits in

some scenarios and gross receipts in others, but in Santos it

meant     profits,     and   four   dissenting      justices         concluded    that

“proceeds” always means gross receipts.

       In the short time since Santos was decided, circuit courts

have adopted widely divergent views on the precedential value of

such    splintered     decision.      Most      notably,       the    Fifth   Circuit

recently acknowledged the four-way circuit split in the wake of

Santos yet “[r]eluctantly . . . refrain[ed] from joining any of

these camps” and instead adopting a fifth different reading of

Santos.      Garland v. Roy, 615 F.3d 391, 402-03 (5th Cir. 2010).

This Court has not adopted a position via published opinion, but

did conclude in a recent unpublished opinion that Santos applies

only    to   illegal    gambling    operations.          See    United    States    v.

Howard, 309 Fed. Appx. 760, 771 (4th Cir. 2009) (“Because Santos

does not establish a binding precedent that the term ‘proceeds’

means ‘profits,’ except regarding an illegal gambling charge, we

are bound by this Court’s precedent establishing that ‘proceeds’

means ‘receipts.’”).         Although it has no bearing on our analysis

herein, Congress also acted in the wake of Santos and modified

the     federal    money     laundering       statutes    to    expressly        define

                                          9
“proceeds”        as    gross-receipts       in   all    cases,    effectively

superseding the rule of law established by the plurality and

concurrence in Santos. 3

       Prior to Santos, we have held that the word “proceeds” in

the federal money laundering statutes refers to gross receipts

of a criminal enterprise.          See United States v. Singh, 518 F.3d

236,       247   (4th   Cir.   2008)   (finding   that   money    received   by

prostitutes in payment for their services that is later used to

pay the cost of a motel room constitutes “proceeds”); United

States v. Stewart, 256 F.3d 231, 250 (4th Cir. 2001) (indicating

that “reinvestment” of money received from selling drugs into

the drug enterprise, including using money from drug sales to

purchase more drugs and to pay for courier services to ship

drugs, was sufficient to support money laundering convictions);

see also United States v. Caplinger, 339 F.3d 226, 233 (4th Cir.

2003) (indicating that circumstantial evidence can be sufficient

to establish that a defendant used unlawful proceeds to promote

and perpetuate a criminal scheme and that “records documenting
       3
       In 2009, the following definition was added to the federal
money laundering statutes: “the term ‘proceeds’ means any
property derived from or obtained or retained, directly or
indirectly, through some form of unlawful activity, including
the gross receipts of such activity.” 18 U.S.C. § 1956(c)(9);
see 18 U.S.C. § 1957(f)(3) (cross referencing § 1956(c)(9)). Ex
post   facto   concerns  obviously   prevent   this  Court   from
considering such statutory change in the context of this case.

                                        10
specific expenditures” are not necessary).                     Johnson’s primary

contention       on    appeal      is    that     Santos   overrules       our    prior

precedent.

     Because      the       plurality     opinion     in   Santos,     authored      by

Justice Scalia, depended on Justice Stevens’ concurrence to form

a majority, “the holding of the Court may be viewed as that

position taken by those Members who concurred in the judgments

on the narrowest grounds.”                 Marks v. United States, 430 U.S.

188, 193 (1977) (internal quotation marks and citation omitted).

According to dicta in the plurality opinion, the concurrence

rested on narrower grounds because the concurrence held “that

‘proceeds’ means ‘profits’ [only] when there is no legislative

history to the contrary.”               Santos, 553 U.S. at 523.        Although at

least one circuit has recognized such statement as defining the

precedential value of Santos, United States v. Yusuf, 536 F.3d

178, 186 n.12 (3d Cir. 2008), we decline to adopt such position

as   it     is        in    direct       conflict     with     Justice       Stevens’

characterization of his own written opinion.                  Tellingly, Justice

Stevens   not     only      labels      Justice    Scalia’s   statement      as   “the

purest    of      dicta,”         but    indicates     that    Justice       Scalia’s

interpretation         of   the    concurring      opinion    “is    not    correct.”

Santos, 553 U.S. at 528 n.7 (Stevens, J., concurring) (citation

omitted).

                                            11
     In explaining the correct interpretation of his own words,

Justice    Stevens     explains      that    his    concurrence    rests     on    his

“conviction that Congress could not have intended the perverse

result that the dissent’s rule would produce if its definition

of ‘proceeds’ were applied to the operation of an unlicensed

gambling business.”           Id.     Accordingly, Justice Stevens notes

that “[i]n other applications of the statute not involving such

a perverse result, I would presume that the legislative history

summarized by Justice Alito reflects the intent of the enacting

Congress.”       Id.     As    the    legislative       history    summarized      by

Justice    Alito’s     dissent      suggests     that   proceeds    always     means

gross receipts, Justice Stevens’ narrow concurrence carves out

an exception that appears to be limited only to illegal gambling

operations.      See United States v. Jennings, 599 F.3d 1241, 1252

(11th     Cir.   2010)    (treating         “Justice    Stevens’s        opinion   as

controlling in its narrowest form” and therefore declining to

extend it to a case involving mail and wire fraud).

     As    the   plurality     opinion      in     Santos   does   not    appear    to

extend beyond illegal gambling operations, 4 we are bound by this

     4
       Other circuits have adopted a broader reading of Justice
Stevens’ concurrence, holding that it extends beyond illegal
gambling cases to cases where the “merger problem” discussed in
Santos would result in a significantly higher sentence.     See
United States v. Kratt, 579 F.3d 558, 562 (6th Cir. 2009)

                                         12
Court’s precedent holding that “proceeds” means gross receipts.

Our precedent      on     this     issue   is   most   clearly    demonstrated   by

Singh, where we held that a conviction for money laundering can

be    based   on   the    use      of   funds   from   a   completed    crime,   or

completed stage of a crime, to pay “expenses” in furtherance of

the continuation of the criminal enterprise.                 More specifically,

in Singh, the head of a prostitution ring made arrangements with

two motels whereby prostitutes would not pay for a motel room

until after they had used it for the purpose of prostitution.

Singh, 518 F.3d at 247.             The payments to the motels “were made

with receipts from the [prostitutes’] first daily customers, and

allowed the prostitutes to service other customers thereafter.”

Id.   at   248.       Because      such    transactions    utilized    criminally

derived proceeds of a completed offense, or at a minimum, a

completed     stage      of   an   offense,     the    payments   to   the   motels

involved the use of “proceeds” within the meaning of the money

(indicating that proceeds means profits “only when the § 1956
predicate offense creates a merger problem that leads to a
radical increase in the statutory maximum sentence . . .”).
This court need not decide whether to adopt such broader
interpretation of Santos as doing so would not impact the
resolution of the instant case.     Tellingly, unlike in Santos
where the money laundering counts carried a statutory maximum
sentence four times greater than the maximum statutory penalty
for illegal gambling, here, the money laundering counts have the
same, or lessor, statutory maximums as the wire and mail fraud
counts.

                                           13
laundering      statutes.        Id.    Similarly,      here,   the    financial

transactions     that   supported      the   money     laundering     convictions

involved criminally derived proceeds of a completed offense, or

at a minimum, a completed stage of an offense, as the funds at

issue    were   obtained    by   Johnson     through    defrauding     individual

investors.      Furthermore, just as the payments to the motel in

Singh helped enable the prostitutes to promote and conceal their

illegal prostitution ring, here, Johnson’s payments to investors

helped Johnson promote and conceal his illegal Ponzi scheme.

Accordingly,      Johnson    fails      to    establish     that      there   was

insufficient evidence to sustain his convictions. 5

     5
        Although the accuracy of the jury instructions is not
squarely before the Court, we note that the instant case was
tried after Santos was decided and, in contrast to our ruling
above, the jury instructions reflect the limitation espoused by
the Santos plurality, i.e., that “proceeds” means “profits.”
(J.A. 1587, 1592, 1597).    Based on such statement of the law,
which our opinion today concludes is too restrictive, the jury
still convicted Johnson of all of the charged money laundering
counts.    Such finding may have been based on expert testimony
indicating that Johnson’s companies “profited” in 2002 as they
defrauded investors out of more money than they repaid.    (J.A.
557-59). We need not, however, consider the sufficiency of the
evidence regarding whether Johnson’s companies profited as the
law only requires that the disputed transactions involved “gross
receipts” of Johnson’s fraudulent activities.       Accordingly,
although the jury instructions needlessly restricted the term
“proceeds” to “profits,” such error was in Johnson’s favor and
does not result in any prejudice.      See Rowland v. American
General Finance, Inc., 340 F.3d 187, 191 (4th Cir. 2003) (“If we
find the instructions flawed, we will not reverse unless the

                                        14
                                               IV.

       Johnson’s second challenge alleges that his convictions on

three       counts    associated       with    operating       a     commodity         pool   are

barred by the statute of limitations. 6                       It is undisputed that a

five        year   limitations        period    is    applicable          to    the    disputed

counts and that, based on the date Johnson was indicted, the

evidence       must    prove    that      Johnson         engaged    in    illegal      conduct

after July 27, 2002.               Johnson argues in his brief that because

there is no evidence that he was pooling investments or trading

securities         after    such   date,       the    evidence       is    insufficient        to

establish that Johnson “operated” a commodity                              pool within the

limitations          period.       Upon    questioning         by    the       Court   at     oral

argument,          Johnson’s       counsel          had     little        choice       but     to

acknowledge:          (1)      that     Johnson’s           position       relies        on     an

exceedingly narrow interpretation of the concept of “operating”

a commodity pool; and (2) that to succeed on his claim, Johnson

must somehow overcome the fact that he solicited and received

new funds from investors after the limitations cut-off date.

error seriously prejudiced the challenging party’s                                      case.”)
(internal quotation marks and citation omitted).
        6
       Count 36 charges operation of a commodity pool without
being registered, Count 37 charges embezzlement by a commodity
pool operator, and Count 38 charges fraud by a commodity pool
operator.

                                               15
     The issue regarding the timing of Johnson’s operation of a

commodity pool was properly presented to the jury as the jury

instructions for the commodity pool counts expressly stated: “In

order for the government to sustain its burden of proof as to

[this count], you must find beyond a reasonable doubt that the

defendant     acted   as    a   commodity     pool    operator,   as    defined   by

these instructions, after July 27, 2002.”                     (J.A. 1606, 1612,

1617).        The   instructions     further         define   a   commodity    pool

operator as: “a person who, in connection with an investment

trust    or   similar      enterprise,    solicits,      accepts,      or   receives

funds, securities, or property for the purpose of trading in

commodity futures contracts.”            (J.A. 1607).

     As highlighted by the government, the statutory definition

of a commodity pool operator does not require the operator to

engage in actual trading.             See 7 U.S.C. § 1a(5) (defining a

commodity pool operator as “any person engaged in a business

that is of the nature of an investment trust, syndicate, or

similar form of enterprise, and who, in connection therewith,

solicits, accepts, or receives from others, funds, securities,

or property . . . for the purpose of trading in any commodity

. . . .) (emphasis added); Commodity Futures Trading Comm’n v.

Equity Financial Group LLC, 572 F.3d 150, 158 (3d Cir. 2009)

(“If an entity is engaged in a business in the nature of an

                                         16
investment trust, syndicate, or similar form of enterprise, and

it    solicits,    accepts,     or   receives     funds    for      the     purpose   of

trading, it is a commodity pool operator.                  The actual trading of

commodity    futures     is    not   required.”).          Based      on    such   legal

standard, the evidence, viewed in a light most favorable to the

government, prevents Johnson’s counsel from making a compelling

argument on appeal.          Specifically, the evidence presented to the

jury reveals that, after July 27, 2002, Johnson: (1) continued

soliciting funds from investors; (2) continued representing to

investors that he was still trading their invested funds; and

(3) continued noting in his journal that he was actively seeking

out money to trade.           See (J.A. 735) (testimony indicating that

Johnson    obtained     money    from      an   investor       in   August    of   2002

because “he had some deal to work on” and that the investor

thought Johnson was trading with his money); (J.A. 348, 738)

(excerpt from Johnson’s journal indicating that on August 17,

2002, Johnson “[w]orked all day on and off trying to come with

something to trade ”); (J.A. 1065-66) (testimony indicating that

an investor loaned Johnson $30,000 in September of 2002 and that

the   purpose     of   the    loan   was   the   same     as    all    of    his   prior

investments, that is, “for Mr. Johnson to use to trade, to make

money, to make profits, and to pay [the investor] interest”);

(J.A. 348, 1063) (excerpt from Johnson’s journal indicating that

                                           17
on September 26, 2002, Johnson was “[t]rying to come up with

something to trade.              Working on something to trade until 10:00

p.m.”;          (J.A.    168-72)   (testimony     indicating      that     after   an

investor repeatedly contacted Johnson trying to find out why her

money was not being repaid she received a letter from Johnson in

October 2002 stating, inter alia, “I’m trading now”). 7

       Based on the above, viewing the evidence in a light most

favorable         to    the   government,   it   is   plain   that   the   jury    had

sufficient evidence on which to find that Johnson continued to

solicit and receive funds for the purpose of trading after July

27, 2002.          Tellingly, although increasing demands on Johnson for

repayment appear to have led to his inability to obtain enough

“new” money to actually trade, his own journal entries confirm

that       he    was    actively   soliciting    funds    after   the    limitations

period          for     the    purpose      of   making       additional     trades.

       7
       The evidence further established that as late as December
of 2002, Johnson convinced existing investors to transfer
investments from Mountain Investments to Dogwood Farms.      The
accounts being transferred were part of the Mountain Investments
commodity pool and the exchange of such investments may alone be
sufficient to establish that Johnson was still “operating” a
commodity pool in December of 2002, albeit a failing one.    See
United States    v. United Med. and Surgical Supply Corp., 989
F.2d 1390, 1398 (4th Cir. 1993) (citing United States v.
Andreas, 458 F.2d 491, 491 (8th Cir. 1971)) (“[P]rosecution for
a scheme to defraud devised outside limitations period but
continued into limitations period is permissible.”).

                                            18
Accordingly, Johnson fails to establish that the jury’s verdict

on the disputed counts should be reversed.

                               V.

     For the aforementioned reasons, we affirm the judgment of

the district court.

                                                       AFFIRMED

                               19