Court Opinion

ID: 4924632
Source: CourtListenerOpinion
Date Created: 2021-09-23 17:04:46.654101+00
Date Added: 2024-06-11T08:14:15.615777
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                               File Name: 21a0441n.06

                                         Case No. 20-5889

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT

                                                                                 FILED
UNITED STATES OF AMERICA,                            )                     Sep 23, 2021
                                                     )                 DEBORAH S. HUNT, Clerk
       Plaintiff-Appellee,                           )
                                                     )      ON APPEAL FROM THE UNITED
v.                                                   )      STATES DISTRICT COURT FOR
                                                     )      THE EASTERN DISTRICT OF
RODNEY SCOTT PHELPS,                                 )      KENTUCKY
                                                     )
       Defendant-Appellant.                          )

       BEFORE: SUTTON, Chief Judge; BATCHELDER and LARSEN, Circuit Judges.

       SUTTON, Chief Judge. A jury convicted Rodney Scott Phelps of wire fraud and wire-

fraud conspiracy after the government charged him with perpetrating a multi-million dollar, Ponzi-

like scheme that had several victims. The district court sentenced him to 108 months in prison.

We affirm his conviction and sentence.

                                                I.

       From 2012 to 2014, Phelps and Jason Castenir ran Maverick Asset Management, a private

equity firm. According to the evidence submitted at trial, the duo induced victims to invest with

Maverick by claiming that Phelps was an experienced investor, an heir to the Morton Salt family,

and a trustee for the family’s fortune through the “Phelps Family Trust.” Each statement was

untrue, as were many others.
Case No. 20-5889, United States v. Phelps

          The investment ideas took different forms. Oil concessions in Belize. Unsecured debt

instruments called debenture offerings. A casino in Tunica, Mississippi. Each one had a common

thread.    Phelps and Castenir promised low-risk, high-return investments backed up by the

resources of Phelps’s vast trust. Several investors bought what they were selling. At times, the

promised returns looked like real returns based on misleading documents and statements sent by

the tandem to their investors. But the documents and statements were all invented. The alleged

investments had one other thing in common: They did not pan out. Instead of investing the funds

as promised, Phelps and Castenir moved the money around to backfill other investment accounts

and expenses, all while enriching themselves.

          The Ponzi-like scheme eventually unraveled. Investors lost money. Federal officials

caught wind. Castenir pleaded guilty to counts of conspiracy to commit wire fraud, commodities

fraud, and transactional money laundering, and he agreed to cooperate. A federal grand jury

indicted Phelps on 12 wire fraud counts and one conspiracy to commit wire fraud count. 18 U.S.C.

§§ 1343, 1349.

          Phelps went to trial and testified on his own behalf. The jury convicted him on all counts.

The district court sentenced Phelps to 108 months and required him to pay $2,437,875.30 in

restitution.

                                                  II.

          Sufficiency of the evidence. To convict someone of wire fraud, the government must

establish that he willfully participated in a scheme with the intent to obtain money by false

pretenses and used interstate wire communications to further it. 18 U.S.C. § 1343; United States

v. Rogers, 769 F.3d 372, 377 (6th Cir. 2014). To convict someone of conspiring to commit wire

fraud, the government must establish a knowing agreement to further the fraud. 18 U.S.C. § 1349;

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Case No. 20-5889, United States v. Phelps

Rogers, 769 F.3d at 377. At this stage in the case, we ask only whether, after construing all

evidence in favor of the jury verdict, “any rational trier of fact could have found the essential

elements” of these crimes “beyond a reasonable doubt.” Jackson v. Virginia, 443 U.S. 307, 319

(1979).

          Ample evidence supports the convictions. Multiple victims testified that Phelps lied to

them about his wealth, his ties to the Morton Salt fortune, his investing experience, the ongoing

success of the investments, and the backstop of the family trust for the investments. Castenir

helped propagate those lies and added a few of his own. Those lies, in turn, encouraged the victims

to trust Phelps’s company with their money. Documentary evidence told the same story, including

emails from Phelps and Castenir to investors; dishonest marketing materials on Maverick’s

website; and extensive bank records demonstrating that Phelps used most of the newly invested

funds to pay earlier investors, to cover Maverick’s operating expenses, and to line the co-

conspirators’ pockets. Evidence that Phelps covertly instructed Castenir to avoid detection iced

the evidence in support of the convictions.

          Phelps nonetheless insists that it was all Castenir’s fault—that Castenir was the mastermind

behind the scheme, that Phelps merely fell “asleep at the wheel,” and that Phelps did not actively

participate in the fraud. Appellant Br. at 38. But plenty of evidence implicates Phelps directly,

including lies he, not just Castenir, told several investors. Plus, Castenir corroborated the victims’

testimony and detailed Phelps’s knowing involvement in the conspiracy.

          Phelps resists the relevance of this last feature of the trial, arguing that Castenir’s testimony

lacked credibility. But when assessing a sufficiency claim, we do not evaluate witness credibility

or “substitute our judgment for” the jury’s. United States v. Wright, 16 F.3d 1429, 1440 (6th Cir.

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Case No. 20-5889, United States v. Phelps

1994). To the contrary, we construe the evidence in favor of the jury’s verdict, not in favor of the

defendant’s view of what the jury should have done. Jackson, 443 U.S. at 319.

         It makes no difference that Phelps intended, he says, to obtain real profits for his investors.

For one, there was plenty of evidence that would have allowed the jury to discredit that theory.

For another, even if the jury believed this testimony, the evidence still showed that he lied to

individuals to garner additional investments, which suffices to support a wire-fraud conviction

under § 1343. See United States v. Daniel, 329 F.3d 480, 488 (6th Cir. 2003).

         Motion for new trial. After the trial ended, the government discovered that the FBI had

been investigating Castenir for a securities-fraud conspiracy unrelated to this case. It promptly

informed Phelps, who promptly sought a new trial based on this information. Fed. R. Crim. P. 33.

The district court rejected the request. Only if the district court’s decision amounted to an abuse

of discretion will we require a new trial. United States v. Kettles, 970 F.3d 637, 649 (6th Cir.

2020).

         No abuse of discretion occurred.         As the district court observed, the additional

impeachment evidence was largely “cumulative of evidence the jury already heard about Castenir

during trial.” R.196 at 5. Phelps’s counsel cross-examined Castenir extensively about his

propensity for fraudulent behavior: his involvement in making the fake website and his knowingly

criminal decision to help “rob[] Peter to pay Paul” in this case. R.175 at 230–31. On top of that,

the jury did not need to rely on Castenir’s testimony alone to convict, as there was plenty of other

evidence to support the convictions. See United States v. Barlow, 693 F.2d 954, 966 (6th Cir.

1982) (holding that new evidence must “likely produce an acquittal” to warrant a new trial). In

fact, there was a witness for each act of wire fraud: Dion Garnett for the oil concessions, Rebecca

Winemiller for the debenture program and casino.

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       Prior acts evidence. Phelps adds that the district court wrongly permitted prior-acts

evidence under Evidence Rule 404(b). The rule prohibits admission of other bad acts when used

to prove only that a person acted “in accordance with the character” demonstrated by the past acts.

Fed. R. Evid. 404(b)(1). But the rule expressly permits other acts when used for “another purpose,”

such as “motive,” “intent,” or “identity.” Id. 404(b)(2).

       The district court permissibly allowed this testimony. Some of the evidence, for example,

was directly relevant to the charged offense. Id. 401, 402. Start with the evidence that Phelps

rented a home under Maverick’s name and paid for it using a Maverick account. It showed

Phelps’s ties to Maverick and that he comingled Maverick funds for his own purposes. The same

goes for evidence that Phelps presented a falsified Maverick account statement to his landlord to

prove that Maverick could pay the rent.

       The government used the other challenged testimony to show that Phelps used a signature

false story to perpetrate the fraud—that he was a rich heir to the Morton Salt family and that the

family trust would back up the investments. The government may use such “distinctive” evidence

to identify the defendant under Evidence Rule 404(b)(2). United States v. Ramer, 883 F.3d 659,

670 (6th Cir. 2018) (quotation omitted). It did not use this evidence to show criminal propensity;

it used it to show his distinctive way of committing the fraud. To make sure that was the case, the

district court issued limiting instructions to prevent the jury from considering the evidence for

impermissible purposes.

       Phelps suggests that the evidence was unduly prejudicial and should have been discarded

under Evidence Rule 403. But the district court did not abuse its considerable discretion in making

these rulings. United States v. Bell, 516 F.3d 432, 445 (6th Cir. 2008). Any error would be

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Case No. 20-5889, United States v. Phelps

harmless anyway given the extensive evidence that directly implicated Phelps. See United States

v. LaVictor, 848 F.3d 428, 448 (6th Cir. 2017).

       Phelps mentions other testimony—concerning his other business ventures, his treatment of

business associates, his prior use of the relevant email account, his threats to Castenir as the scheme

was unraveling—on this score. But he never objected to the admission of this other evidence at

trial, meaning plain-error review applies. Fed. R. Crim. P. 52(b); United States v. Kelly, 204 F.3d

652, 655 (6th Cir. 2000). We look only for a “clear or obvious” error affecting the defendant’s

substantial rights. Puckett v. United States, 556 U.S. 129, 135 (2009).

       No plain error occurred. In truth, Phelps’s counsel elicited much of this testimony—

regarding some of his other business ventures and his threats to Castenir—on cross-examination.

And the rest of it was either relevant to this crime or fell within the safe harbor for evidence that

shows a distinct manner of committing the crime.

       Writing testimony. Phelps next argues that the district court erred by allowing nonexperts

to connect Phelps to various documents based on his signature and writing style. Having failed to

raise the argument at trial, Phelps must establish plain error on appeal. Kelly, 204 F.3d at 655.

       Two Rules of Evidence set the framework. Rule 701 generally permits lay opinion

testimony for nontechnical issues within the witness’s perception. Fed. R. Evid. 701. Rule 901

generally permits lay witnesses to identify someone else’s handwriting and other types of

evidence. Fed. R. Evid. 901(b)(2). Taken together, the two Rules create considerable latitude

when it comes to allowing nonexperts to testify about handwriting and the like. See United States

v. Harris, 786 F.3d 443, 446–47 (6th Cir. 2015).

       The relevant witnesses had ample knowledge to offer this testimony. They linked Phelps

to various documents and emails based on their prior personal observations: McCracken, Holskey,

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Case No. 20-5889, United States v. Phelps

and Hubbuch based on their examination of other authenticated documents signed by Phelps;

Hollis based on Phelps’s unique email greetings to her; and Castenir based on his familiarity with

Phelps’s writing style and email address. None of the witnesses feigned expertise in writing

identification. That suffices for plain error review. Harris, 786 F.3d at 446–47.

       Phelps responds that two of the FBI agents—McCracken and Holskey—obtained

background knowledge only by reviewing documents during the investigation for this case.

Evidence Rule 901(b)(2), it is true, excludes lay handwriting testimony based on knowledge

“acquired for the current litigation.” Fed. R. Evid. 901(b)(2). But a preliminary investigation does

not count as “for the current litigation.” Familiarity gained by law enforcement officers during an

investigation offers a permissible basis for identifying writing. Harris, 786 F.3d at 447–48; United

States v. Iriele, 977 F.3d 1155, 1166 (11th Cir. 2020) (collecting cases). Phelps never argues that

these agents gained familiarity only after the investigation ended. No error, let alone a plain error,

occurred.

       Substitution of counsel. Phelps protests that the district court did not permit him to

substitute new attorneys five days before trial or on the last day of trial. In reviewing this

discretion-filled decision, we look to the timeliness of the request, the court’s diligence in handling

the issue, the level of conflict between the attorney and client, and the public’s interest in the

efficient administration of justice. United States v. Steele, 919 F.3d 965, 973 (6th Cir. 2019).

       The district court did not abuse its discretion in rejecting either request. As to the first

request, it came late, just five days before the initial day of trial. And the court rejected it only

after holding a 90-minute hearing on the issue. Addressing each of Phelps’s arguments, the court

determined that communications between Phelps and his attorney remained intact and that his able

counsel would be more than adequately prepared for trial despite at least some communication

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Case No. 20-5889, United States v. Phelps

problems arising from Phelps’s own conduct. After two and a half years of preparation and six

continuances, the trial court could fairly conclude that the public administration of justice required

the trial to move forward.

        As to the second request, each of these points applies with even greater force. It would be

extraordinary at many levels to change counsel on the last day of trial. The court did not abuse its

discretion in either respect.

        Phelps resists this conclusion mainly on the ground that his communications with counsel

were worse than the court let on, noting several instances in which he and his attorney did not see

eye to eye on preparation strategy and tactical decisions. But differences like these do not

invariably create an irreconcilable conflict between attorney and client. In truth, they happen often.

United States v. Barrow, 287 F.3d 733, 738 (8th Cir. 2002) (noting that justifiable dissatisfaction

“does not include a defendant’s frustration with counsel who does not share defendant’s tactical

opinions but continues to provide zealous representation”). None of this, moreover, precludes the

defendant from bringing an ineffectiveness claim in a § 2255 motion.

        Competency to stand trial. Phelps argues that the district court should have ordered a

competency hearing due to his various physical ailments. A federal statute requires a district court

to order one if reasonable cause suggests that a defendant lacks the competence to stand trial.

18 U.S.C. § 4241(a). Incompetence to be tried occurs when a criminal defendant lacks “sufficient

present ability to consult with his lawyer with a reasonable degree of rational understanding” or if

he does not have “a rational as well as factual understanding of the proceedings against him.”

Drope v. Missouri, 420 U.S. 162, 172 (1975) (quotations omitted). That is not an everyday

occurrence, as the “bar for incompetency is high.” United States v. Miller, 531 F.3d 340, 350 (6th

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Case No. 20-5889, United States v. Phelps

Cir. 2008). And an abuse-of-discretion standard generally applies. United States v. Dubrule, 822

F.3d 866, 879 (6th Cir. 2016).

       Phelps’s circumstances do not clear this bar. No evidence shows that Phelps lacked a

rational understanding of the proceedings, whether due to physical or mental conditions. The

evidence in reality points the other way. When Phelps mentioned his medications before trial, the

district court observed that he was “fully coherent” and “fully capable of participating in trial.”

R.253 at 51. That observation followed a lengthy discussion between the district court and Phelps,

which followed a detailed letter from Phelps. The pattern persisted at trial. The court conducted

a colloquy that ensured Phelps understood his rights before he testified. And during his testimony,

he comprehensibly responded to questions. Phelps, to be sure, complained of physical pain and

occasional forgetfulness.    But that alone does not suffice.      The statute refers to “mental

incompetency,” not physical incompetency and not occasional forgetfulness. The evidence simply

does not show that he was incompetent to stand trial.

       Prosecutorial misconduct. Phelps seeks a new trial on the ground that the prosecutors

engaged in misconduct. To obtain relief, the prosecutors’ misbehavior must have “so infected the

trial with unfairness as to make the resulting conviction a denial of due process.” Donnelly v.

DeChristoforo, 416 U.S. 637, 643 (1974). No objection was made to the prosecutors’ behavior

during trial. That means plain-error review applies, requiring the conduct to be “exceptionally

flagrant.” United States v. Bradley, 917 F.3d 493, 506 (6th Cir. 2019) (quotation omitted).

       No such conduct occurred. Take the prosecutor’s statement in closing about “credible”

witnesses testifying against Phelps. R.240 at 135. Prosecutors legitimately make statements like

this all the time so long as they don’t “manipulate or misstate the evidence” in the process, Darden

v. Wainwright, 477 U.S. 168, 182 (1986), or “convey the impression that evidence not presented

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Case No. 20-5889, United States v. Phelps

to the jury, but known to the prosecutor,” corroborated the witness’s testimony, United States v.

Young, 470 U.S. 1, 18 (1985). The prosecutor’s statement steered clear from that impermissible

line.

        So too for other statements. The government stated in closing that it “probably” could have

brought “a thousand counts.” R.240 at 100–01. But this statement was merely explaining how

each separate wiring qualifies under 18 U.S.C. § 1343 even though the government just charged

Phelps for “a representative sample of the wirings.” R.240 at 100. Phelps also highlights some

snippy exchanges between him and the prosecutor. But these statements likewise did not infect

the trial with pervasive unfairness, especially when viewed in the “context of the entire trial.”

Young, 470 U.S. at 11. No reversible error occurred.

        Jury charge. Phelps challenges the district court’s use of a “nonunanimity” instruction for

the conspiracy charge. The district court’s instruction, taken from Sixth Circuit Pattern Jury

Instruction 8.03B, permitted the jurors to convict Phelps so long as they all felt that he agreed to

commit a fraudulent scheme, even if they disagreed about which ones (oil concessions, debentures,

or the casino) he agreed to commit. Abuse-of-discretion review applies. United States v.

Hendrickson, 822 F.3d 812, 822 (6th Cir. 2016).

        Recall that the statute he was charged with violating, 18 U.S.C. § 1349, just requires a

knowing agreement between two (or more) people to commit wire fraud. Rogers, 769 F.3d at 377.

We generally permit courts to give this nonunanimity instruction when, as here, “several possible

sets of underlying brute facts make up a particular element.” Richardson v. United States, 526

U.S. 813, 817 (1999). “The means used to carry out a fraudulent scheme are not separate elements

requiring unanimity.” United States v. Boliaux, 915 F.3d 493, 495 (7th Cir. 2019).

                                                10
Case No. 20-5889, United States v. Phelps

       Phelps responds that sometimes a “specific unanimity” instruction—one that requires

agreement on how the offense occurred—offers the better path.             Cases that warrant such

instructions generally involve situations where the evidence is exceptionally complex or the

alternative means are only marginally related. See Hendrickson, 822 F.3d at 823. That was not

true here, as the district court legitimately found. The different schemes all involved the same two

people and the same fraudulent backstory. The district court acted within its discretion to instruct

the jury the way it did.

       Ineffective assistance of counsel. Phelps complains that his counsel’s performance during

trial was ineffective. But “we generally do not review such claims on direct appeal, preferring that

the defendant raise such claims (if at all) in a § 2255 petition.” United States v. Quinlan, 473 F.3d

273, 280 (6th Cir. 2007). We see no reason to make an exception here.

                                                III.

       Phelps challenges his sentence on several grounds. Each receives clear-error review, at

least for the underlying factual findings. United States v. Ward, 506 F.3d 468, 474 (6th Cir. 2007).

       Obstruction-of-justice enhancement. Phelps contests the district court’s two-level sentence

enhancement for willfully obstructing justice during his trial testimony. See U.S.S.G. § 3C1.1.

A court may impose this enhancement if it identifies material, perjured testimony. See United

States v. Roberts, 919 F.3d 980, 990–91 (6th Cir. 2019).

       The court imposed the enhancement after finding that Phelps lied on the stand when, for

example, he denied telling victims that he was the heir to the Morton Salt dynasty and that his

family trust had hundreds of millions of dollars to back up their investments. Ample evidence

showed that Phelps lied.

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Case No. 20-5889, United States v. Phelps

       In a variation on his sufficiency-of-the-evidence arguments, Phelps insists that he testified

truthfully. Castenir, as Phelps sees it, was the only liar. But many witnesses besides Castenir

contradicted material parts of Phelps’s story. And we see no fair-minded reason to diverge from

the district court’s and jury’s legitimate rejection of Phelps’s story.

       Phelps also worries that applying this enhancement will chill future defendants’ willingness

to testify. But the same could be said of our prior cases applying the enhancement. United States

v. Castro, 960 F.3d 857, 870–71 (6th Cir. 2020). Plus, the opposite rule—that the enhancement

could never be used for criminal defendants who lie on the stand—has problems of its own. In the

end, the district court showed that it appreciated both sides of the issue, acknowledged that it did

not want “to chill a defendant’s right to testify,” R.256 at 16, and permissibly thought Phelps

earned the enhancement anyway.

       Sophisticated-means enhancement. The district court applied a two-level sophisticated-

means enhancement because Phelps’s scheme involved “especially complex or especially intricate

offense conduct pertaining to the execution or concealment of an offense.” U.S.S.G. § 2B1.1 cmt.

n.9(B); see United States v. Igboba, 964 F.3d 501, 511 (6th Cir. 2020).

       We see no clear error. As the district court observed, Phelps was complicit in “various

sophisticated means to attract investors, to lull them into thinking that their investments were

making money” over the course of a few years. R.256 at 38. The means in this instance included

multi-step falsehoods to investors, fraudulent bank documents, fictitious website information,

funneled money between investors, and more. Other courts have upheld this enhancement for

similar conduct in Ponzi-like schemes. See, e.g., United States v. Meadows, 866 F.3d 913, 918

(8th Cir. 2017) (frequent lies to defrauded investors); United States v. Regensberg, 381 F. App’x

60, 62 (2d Cir. 2010) (fraudulent loan documents, fake earnings reports, lies to investors, and

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altered account statements); United States v. Segal, 687 F. App’x 192, 195 (3d Cir. 2017) (falsified

documents). And our court has upheld this enhancement for less intricate fraud schemes involving,

for example, false documents, United States v. Masters, 216 F. App’x 524, 526 (6th Cir. 2007),

and funneled funds, United States v. Simmerman, 850 F.3d 829, 833 (6th Cir. 2017). We reach

the same conclusion here.

       Abuse-of-trust enhancement.        The abuse-of-trust enhancement applies if a defendant

“abused a position of public or private trust” to facilitate “the commission or concealment of the

offense.” U.S.S.G. § 3B1.3. It covers circumstances in which a “defendant provides sufficient

indicia to the victim that the defendant legitimately holds a position of private or public trust when,

in fact, the defendant does not,” and it includes a defendant who “perpetrates a financial fraud by

leading an investor to believe the defendant is a legitimate investment broker.” U.S.S.G. § 3B1.3

cmt. n.3.

       The district court did not clearly err in finding that Phelps falsely elevated himself to a

position of trust. Consistent with the commentary, “[a]n investment manager normally occupies a

position of trust.” United States v. Dobish, 102 F.3d 760, 762 (6th Cir. 1996) (per curiam). Phelps

not only “led these folks to believe he was a sophisticated investment advisor,” as the district court

permissibly found, R.256 at 44; but he also emphasized how the investors could trust him and how

safe their money would be with him. As the district court aptly put it, Phelps “created the facade

of legitimacy, along with representations to these victims that, essentially, their money would not

be at risk, or very little risk,” all the while “lull[ing] these investors into investing with him, into

making them believe that their investments were safe.” Id. at 43–44.

       Phelps does not meaningfully contest these fact-findings or the commentary’s application.

He instead pushes back with a policy argument, noting that, if the enhancement applies here, it

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will apply to every fraud case. Not so. Not all fraudulent schemes include concerted efforts to

bolster the fraudster’s bona fides based on deceit or otherwise put the fraudster in a unique position

of trust with the defrauded party. The district court permissibly applied the enhancement.

       Substantively unreasonable sentence. Even in the absence of any procedural errors, Phelps

claims that his sentence was too high. His guidelines range was 108 to 135 months, and the district

court sentenced him at the bottom of the range: 108 months. This within-guidelines sentence

receives a presumption of reasonableness. United States v. Vonner, 516 F.3d 382, 389 (6th Cir.

2008) (en banc). Phelps does not remotely overcome this presumption. The district court

considered each of his key objections—his age, lack of criminal history, medical ailments, and

other personal characteristics—and acted well within its discretion in deciding that they did not

require a below-guidelines sentence.

       We affirm.

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