Free Trial Brief - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8

PAUL K. CHARLTON United States Attorney District of Arizona Michelle Hamilton-Burns Arizona State Bar No.10269 Paul V. Rood Arizona State Bar No. 004494 Assistant U.S. Attorney Two Renaissance Square 40 N. Central Avenue, Suite 1200 Phoenix, Arizona 85004-4408 Telephone (602) 514-7500 [email protected]

UNITED STATES DISTRICT COURT 9 DISTRICT OF ARIZONA 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PAUL K. CHARLTON United States Attorney District of Arizona /s/MichelleHamilton-Burns /s/Paul V. Rood ________________________ Michelle R. Hamilton-Burns Paul V. Rood Assistant U.S. Attorneys United States of America, CR-03-1269-PHX-NVW Plaintiff, v. TRIAL MEMORANDUM Sharen Stewart, Paul K. Bryan. Defendants. The United States of America submits the following trial memorandum on legal issues that may arise during the trial of this case. Respectfully submitted this 11 th day of October, 2005.

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 1 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

I. FACTUAL BACKGROUND. Count One of the Superseding Indictment charges defendants Stewart and Bryan with Conspiracy. The conspiracy began on or about December 1999, the month and year affixed on the "Exclusive Trade Management Agreement (hereinafter ETMA)." Stewart and Bryan actually met on or about March, 2000 and their notarized signatures, dated March 9 2000, appear on page 12 of this agreement. This meeting and their agreement is the apogee of the case. In the agreement, the parties define their future roles: Stewart "promised to solicit from investors and forward to Bryan $100 million, which was to be placed in the alleged trading programs. In exchange, Stewart was to receive a commission on the trades. According to the Agreement, Stewart's profit was to be approximately One Hundred Ninety Eight Million Seven Hundred and Fifty Thousand Dollars ($198,750,000.00), minus various fees, which was approximately a 20% "net profit" on all of the "trades." [para. 1(g) Superceding Indictment] Stewart, as the "client" promised to solicit from investors and forward to Bryan 100 million dollars. Bryan, as the "trade manager" was to complete 156 round trip trades. The profit to Stewart was to be approximately $198,750,000.00, representing approximately a 20% profit on all trades. The agreement specified that all money brought in by Stewart was to be deposited into an account at the Oaks Bank & Trust Company, #31000972, controlled by T.J.Miller, an associate of Bryan's. After entering into the ETMA, Stewart then promoted this program to investors. [para. 1 (f)] The Mail and Wire Fraud Counts of the Superseding Indictment relate directly to Stewart's obtaining funds from investors pursuant to the ETMA. The Promotional and Transactional Money Laundering Charges are the movement of funds or mailing of correspondence either in pursuit of, or as a result of that agreement. All of the charges in the Superseding Indictment relate to the scheme perpetrated by defendants Bryan and Stewart to obtain money by unlawful means, that is, the promotion of a contrived investment program, and their subsequent receipt and conversion of millions of dollars to their own use. The government proposes, and has given notice of its intent, pursuant to Rule 702, FRE, to call an expert to testify concerning the 2

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 2 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

fraudulent aspects of the investment program. Victim Lydia Garrett lost approximately one million dollars: victim Monte Wedel lost approximately $295,000: David Carson lost one million dollars: victim Ranaji Ganaguli lost approximately $500,000: victim Kamlesh Patel lost approximately one million dollars: victim Ann Caffray lost one million dollars: Armand Fredette, acting as trustee to Focus International Club, lost one million dollars: Patrick Guest, acting on behalf of Mid Continent Services, lost 2 million dollars. Of this approximately 7.9 million dollars collected by Stewart, she forwarded approximately 3.1 million dollars into a bank account controlled by T.J. Miller, Bryan's associate. Mr. Miller then transferred approximately 2.5 million dollars into Bryan's personal accounts. Stewart spent approximately 4.8 million dollars of the remaining amount on personal expenditures. None of the money obtained from investors by Stewart was invested in any program II. A. ELEMENTS OF THE OFFENSES Conspiracy

Count 1 of the superseding indictment charges that the defendants conspired to commit mail fraud and wire fraud. "Conspiracy is established when there is an agreement to accomplish an illegal objective, coupled with one or more overt acts in furtherance of the illegal purpose." United States v. Boone, 951 F.2d 1526, 1543 (9th Cir. 1991). 1. Agreement. The essence of the crime of conspiracy is an agreement between two or more persons to commit an unlawful act or to accomplish a lawful end by illegal means. Iannelli v. United States, 420 U.S. 770, 777 (1976). To establish the existence of such an agreement, the government is not required to show that there was an express or formal agreement to violate the law. Id.; Boone, 951 F.2d at 1543. An agreement may be nothing more than a tacit understanding. United States v. Pintar, 630 F.2d 1270, 1275 (8th Cir. 1980). The agreement may be proven by circumstantial evidence, including the acts of the conspirators and the inferences that may be drawn from those acts. Iannelli, 420 U.S. at 777 3

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 3 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

n.10. "An implicit agreement may be inferred from the facts and circumstances of the case." Boone, quoting United States v. Hernandez, 876 F.2d 774, 777 (9th Cir. 1989). Coordinated activity can raise a reasonable inference of a joint plan. United States v. Smith, 924 F.2d 889, 894 (9th Cir. 1991). 2. Illegal Objective.

If multiple objectives are charged in a conspiracy, proof sufficient to convict on any one objective will sustain a verdict. e.g. United States v. Murray, 618 F.2d 892, 898 (2d Cir. 1980). 3. Knowledge. A defendant is deemed to have knowledge of the conspiracy if he had reason to know of its scope through his participation or if the defendant has maintained deliberate ignorance. United States v. Arbelaez, 719 F.2d 1453, 1458-59 (9th Cir. 1983). The government is not required to show that each defendant knew every detail of the conspiracy or the identity or role of each of the other co-conspirators. United States v. Thomas, 586 F.2d 123, 132 (9th Cir. 1978). 4. Participation. Once the existence of a conspiracy is established, evidence that establishes beyond a reasonable doubt that the defendant is even slightly connected with the conspiracy is sufficient to convict him of knowing participation in the conspiracy. Boone, 951 F.2d at 1543. Every member of a conspiracy need not know every other member or be aware of all the acts committed in connection with the conspiracy. United States v. Lorenzo, 995 F.2d 1448, 1458 (9th Cir. 1993). B. Mail Fraud The defendants are charged within Count 2 of the Superseding Indictment with mail fraud in violation of 18 U.S.C. § 1341. That statute, in pertinent part, states: Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations or promises . . . for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be 4

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 4 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail according to the directions thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, [shall be punished as provided in the statute]. 1. Elements.

In the context of this case, the elements required to prove a violation of § 1341 are: (1) the defendants made up a scheme for obtaining money by false promises or statements; (2) the defendants knew that the promises or statements were false; (3) the promises or statements were of a kind that would reasonably influence a person to part with money; (4) the defendants acted with an intent to defraud; and (5) the defendants used, or caused someone to use, the mails or a private or interstate carrier to carry out or to attempt to carry out an essential part of the scheme. 2. The Scheme to Defraud. There is no requirement that the scheme be reasonably calculated to deceive only persons of ordinary prudence and comprehension. United States v. Ciccone, 219 F.3d 1078, 1083-84 (9 th Cir. 2000); Irwin v. United States, 338 F.2d 770, 773 (9 th Cir. 1964). The fraud statutes protect even the most gullible or naive citizens, as they are more in need of protection. Id. In fact, "the lack of guile on the part of those solicited may itself point with persuasion to the fraudulent character of the artifice." Id.; United States v. Hanley, 190 F.3d 1017, 1023 (9 th Cir. 1999). The mail fraud statute focuses on the scheme to defraud rather than actual fraud. United States v. Andreadis, 366 F.2d 423, 431 (2d Cir 1966). Accordingly, the United States is not

required to prove that anyone was defrauded or sustained a loss. e.g. United States v. Rasheed, 663 F.2d 843, 850 (9th Cir. 1981). In other words, the accused need not have succeeded in his scheme to be guilty of the crime. United States v. Utz, 886 F.2d 1148, 1150 (9th Cir. 1989). A fraud scheme may be­and usually is­established by circumstantial evidence, by inferences from the evidence of the relationship of the parties, and by overt acts, conduct, and other probative circumstances. United States v. Matta-Ballesteros, 71 F.3d 754, 765 (9 th Cir. 1995). 5

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 5 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

The statute can be violated in several different ways. United States v. Halbert, 640 F.2d 1000, 1007 (9th Cir. 1981). There can exist a scheme to defraud without specific

misrepresentations, Id.; Lustiger v. United States, 386 F.2d 132, 138 (9th Cir. 1968), or even if no misrepresentations are made, United States v. Halbert, 640 F.2d at 1007. It is only necessary to prove that it is a scheme reasonably calculated to deceive and that the mails (or a private or commercial interstate carrier) were used and intended to be used in execution of the scheme. See Lustiger, 386 F.2d at 138; Irwin v. United States, 338 F.2d 770, 773 (9th Cir. 1965); Lemon v. United States, 278 F.2d 369, 373 (9th Cir. 1960). 3. Intent to Defraud.

An intent to defraud is an intent to deceive or cheat. Deceitful statements or half-truths or concealment of material facts is actual fraud, which violates the mail fraud statute. United States v. Sayakhom, 186 F.3d 928, 941 (9 th Cir. 1999); United States v. Allen, 554 F.2d 398, 410 (9th Cir. 1977); Cacy v. United States, 298 F.2d 227, 229 (9th Cir. 1961). The deception need not be premised on verbalized words alone. The arrangement of the words and the circumstances in which they are used may convey the false and deceptive appearance resulting in fraud. Lustiger, 386 F.2d at 138. Direct proof of fraudulent intent is not necessary. Fraudulent intent may, and often must be, proven by circumstantial evidence. Rasheed, 663 F.2d at 848. It may be inferred from the

activities of the parties involved and need not be specifically admitted or confessed. United States v. Jones, 425 F.2d 1048, 1058 (9th Cir. 1970); Phillips v. United States, 356 F.2d 297, 303 (9th Cir. 1965). Such intent may be shown by examining the scheme itself. United States v. Bohonus, 628 F.2d 1167, 1172 (9th Cir. 1980). Elaborate efforts to conceal activity can be "powerful evidence" of an intent to defraud. United States v. Olson, 925 F.2d 1170, 1176 n.10 (9th Cir. 1991). Fraudulent intent is also shown if a representation is made with reckless indifference to its truth or falsity. e.g., United States v. Dees, 34 F.3d 838, 842-43 & n.1 (9th Cir. 1994); United States v. Gay, 967 F.2d 322, 326 (9th Cir. 1992); United States v. Farris, 614 F.2d 634, 638 (9th Cir. 1980); United States v. Cusino, 694 F.2d 185, 187 (9th Cir. 1982). 6

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 6 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

United States v. McDonald, 576 F.2d 1350, 1358 (9th Cir. 1978); United States v. Love, 535 F.2d 1152, 1158 (9th Cir.1976). 4. Co-Schemer Vicarious Accountability and Liability.

Mail, wire, and bank fraud all share a common first element­the existence of a scheme to defraud­which when more than one person is involved, is analogous to a conspiracy. United States v. Lothian, 976 F.2d 1257, 1262 (9 th Cir. 1992). Similar evidentiary rules apply. Just as acts and statements of co-conspirators are admissible against other conspirators, so too are the statements and acts of co-participants in a scheme to defraud admissible against other participants. Id. at 1262-63. Like Pinkerton, a knowing participant in a scheme to defraud is vicariously liable for substantive offenses and acts of co-schemers that were reasonably foreseeable as a necessary and natural consequence of the fraudulent scheme. United States v. Stapleton, 293 F.3d 1111, 111718 (9 th Cir. 2002). As with conspiracy law, a defendant can only be convicted of substantive offenses that occur during the defendant's active participation in the scheme to defraud. Id. In Stapleton, the Ninth Circuit approved a jury instruction for co-schemer vicarious liability that was substantially the same as a Pinkerton instruction. Id. 1 The Ninth Circuit also noted in a footnote that prior precedent would not undermine the principle that a schemer need not know the names, identities, or specific acts of other members of the fraudulent scheme in order to be vicariously liable. Id. 5. Use of the Mails or Private Commercial Carrier.

It is not necessary that the scheme to defraud contemplate the use of the mails as an essential element. Pereira v. United States, 347 U.S. 1, 8 (1954). All that is required is that the mailings somehow contribute to the success of the scheme. Halbert, 640 F.2d at 1009; United States v. Kelem, 416 F.2d 346, 348-50 (9th Cir. 1970). Mailings need not be essential, but they must be for the purpose of executing the scheme. United States v. Maze, 414 U.S. 395, 402 (1974);

1

The Ninth Circuit Model Criminal Jury Instruction now contain this instruction in § 8.101A. 7

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 7 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Bohonus, 628 F.2d at 1173. Under the mail fraud statute, the individual mailing relied on by the prosecution need not be in any way false or inaccurate, if the mailing is utilized in furtherance of or pursuant to the scheme to defraud. Pereira, 347 U.S. at 8. Even the use of the mails after the money is obtained may be "for the purpose of executing" the fraud. United States v. Miller, 676 F.2d 359, 362 (9th Cir. 1982); United States v. Love, 535 F.2d 1152, 1159-60 (9th Cir. 1976). The United States is not required to show that a mailing came from the defendant himself. "The question is whether the defendant reasonably foresaw that the mails would be used, not by whom or to whom the mailing is made." United States v. Bortnovsky, 879 F.2d 30, 37 (2nd Cir. 1989). For example, in Bortnovsky, the requirement of a use of the mails was satisfied where an insurance adjustor sent a letter to the defendant, "who reasonably could have foreseen that the third party would use the mail in the ordinary course of business as result of the defendant's act." Id. One causes the use of the mails if he "does an act with knowledge that the use of the mails will follow in the ordinary course of business, or where such use can reasonably be foreseen." Pereira v. United States, 347 U.S. 1, 8-9. 6. Application of Conspiracy Evidentiary Principles to Mail Fraud.

A mail fraud prosecution, involving a scheme or artifice to defraud, and conducted by two or more individuals, is very similar for evidentiary purposes to a conspiracy to defraud. The rules of evidence are the same as in the conspiracy context, and one schemer is liable for the acts of other schemers committed in furtherance of the scheme to defraud. Similarly, with respect to the admissibility of co-schemers statements against another schemer defendant, it is the general rule that where two or more people have schemed to commit an offense, everything done or said by one of them during the course of the scheme's operation may be admitted into evidence against the others. United States v. Lutz, 621 F.2d 940 (9th Cir. 1980). C. 1. Wire Fraud Mail Fraud Principles Apply to Wire Fraud.

The defendants are charged within Counts 3-31 of the Superseding Indictment with wire 8

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 8 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

fraud in violation of 18 U.S.C. § 1343. Interpretation of the wire fraud statute is guided by the law that pertains to the mail fraud statute. United States v. Louderman, 576 F.2d 1383, 1387 n.3 (9th Cir. 1978). The mail fraud section of this trial memorandum deals with several issues common to both mail and wire fraud. 2. Elements.

In the context of this case, to prove that a defendant committed wire fraud, the government must show that the defendant: (1) used or caused the use of a transmitting device in interstate commerce; (2) that the use was in furtherance of a scheme to defraud; and (3) that the defendant had an intent to defraud. United States v. Bonanno, 852 F.2d 434, 440 (9th Cir. 1990). 3. Use of Wire Communications.

To be part of the execution of the scheme to defraud, use of the interstate wire need not be an essential element of the scheme; it is sufficient for use of the wire to be incidental to an essential part of the scheme, or a step in the plot. See Schmuck v. United States, 489 U.S. 705, 712 (1989). Where the interstate communication was made by an innocent third party, a defendant causes the interstate wire communication if he does an act with knowledge that the use of a wire communication will follow in the ordinary course of business or where such use can reasonably be foreseen, even though not actually intended. United States v. Muni, 668 F.2d 87, 89-90 (2nd Cir. 1981); Pereira, 347 U.S. at 8-9. The defendant does not have to reasonably foresee that the wire communication would be interstate, the defendant only has to reasonably foresee the use of the wire communication by an innocent third party, whether or not the interstate nature of the communication was reasonably foreseeable. United States v. Blackman, 839 F.2d 900, 907-908 (2nd Cir. 1988). D. Promotional Money Laundering.

Counts 32-41 of the superseding indictment charge defendants with promotional money laundering in violation of 18 U.S.C. § 1956(a)(1)(A)(i). That statute provides:

9

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 9 of 39

1 2 3 4 5

Whoever, knowing that the property involved in a transaction represents the proceeds of some form of activity, conducts or attempts to conduct such a transaction which in fact involves the proceeds of unlawful activity -

financial unlawful financial specified

(i) with the intent to promote the carrying on of specified unlawful activity... [is guilty of an offense]. 1. Elements.

6 To establish a violation of this statute, the United States must prove that: (1) the defendant 7 conducted, or attempted to conduct, a financial transaction involving property that represented 8 the proceeds of specified unlawful activity; (2) the defendant knew that the property represented 9 the proceeds of some form of unlawful activity; and (3) the defendant acted with the intent to 10 promote the carrying on of specified unlawful activity. United States v. Marbella, 73 F.3d 1508, 11 1514 (9th Cir.), cert. denied, 116 S. Ct. 2555 (1996). 12 2. Conducts or Attempts to Conduct. 13 As defined in § 1956(c)(2), "[t]he term "conducts" includes initiating, concluding, or 14 participating in initiating, or concluding a transaction . . . ." See United States v. Castaneda, 16 15 F.3d 1504, 1511 (9th Cir. 1994). Even if another individual or entity actually effected the 16 subject transaction, the defendant who benefits from this transaction, and participated in 17 initiating it, can be liable for the substantive money laundering charge as either a direct violator 18 or an aider and abettor. See United States v. Salazar, 958 F.2d 1285, 1293 (5th Cir. 1992); 19 United States v. Chandler, 996 F.2d 1073, 1106 (11th Cir. 1993) (affirming money laundering 20 conviction based on third party's purchase of real estate on behalf of defendant). 21 3. 22 Subsection 1956(c)(4) defines a "financial transaction" as either: 23 24 25 26 27 28 (A) a transaction which in any way or degree affects interstate or foreign commerce (i) involving the movement of funds by wire or other means or (ii) involving one or more monetary instruments, or (iii) involving the transfer of title to any real property vehicle, vessel, or aircraft, which in any way or degree affects interstate or foreign commerce, or (B) a transaction involving the use of a financial institution 10 Financial Transaction.

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 10 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

which is engaged in, or the activities of which affect, interstate or foreign commerce in any way or degree... In order to determine if a "financial transaction" has occurred, one must first determine if a "transaction" has occurred. This term is broadly defined in § 1956(c)(3) to include a purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition of property between private parties, and with respect to a financial institution, it includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, use of a safe deposit box, or any other payment, transfer, or delivery by, through, or to a financial institution, by whatever means effected. The term "transaction" includes virtually any exchange of property between private parties and almost any activity involving a financial institution. To be a financial transaction, however, the transaction must satisfy one of four requirements: (i) it must involve the movement of funds by wire or other means; (ii) it must involve the use of one or more monetary instruments; (iii) it must involve the transfer of title to any real property, vehicle, vessel, or aircraft; or (iv) it must involve the use of a financial institution. For transactions (i) through (iii), the transaction must also affect in any way or degree interstate or foreign commerce; for transactions involving financial institutions, it is sufficient if the institution itself is engaged, or its activities affect, interstate or foreign commerce in any way or degree. 18 U.S.C. § 1956(c)(4). The term "financial institution" is defined in 18 U.S.C. § 1956(c)(6) to have the same definition as given that term in 31 U.S.C. § 5312(a)(2) or its implementing regulations. Title 31, United States Code, Section 5312(a)(2) includes within the meaning of "financial institutions" such entities as banks; thrift institutions; securities brokers and dealers, investment bankers or companies; currency exchanges; issuers, redeemers, or cashiers of travelers' checks, checks, or money orders; credit card companies; insurance companies; dealers in precious metals; pawnbrokers; loan or finance companies; travel agencies; licensed senders of money; telegraph companies; vehicle dealers; realtors; the U.S. Postal Service; government agencies involved in 11

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 11 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

the aforementioned activities; and other businesses as designated by the Secretary of the Treasury. The Secretary of the Treasury has also designated numerous business entities as financial institutions by regulation. 31 C.F.R. § 103.11(n). Transfering funds by writing a check drawn on a financial institution that is engaged in, or the activities of which affect, interstate or foreign commerce to any degree therefore constitutes a "financial transaction" for purposes of § 1956. See United States v. Jackson, 935 F.2d 832, 841 (7th Cir. 1991). In this case, the evidence will show that defendants wrote or caused others to transfer funds by writing checks drawn on commercial banks engaged in interstate commerce. 4. Proceeds of Specified Unlawful Activity. The third element common to all § 1956(a)(1) offenses requires proof that the property involved in the transaction was, in fact, the "proceeds of specified unlawful activity" as defined in 18 U.S.C. § 1956(c)(7). The United States must prove that the proceeds were in fact derived from "specified unlawful activity." See e.g., United States v. McDougald, 990 F.2d 259, 262 (6th Cir. 1993) (government failed to show proceeds did not come from a legitimate source). Subsection 1956(c)(7) identifies crimes that constitute "specified unlawful activity." The term does not include every state or federal crime, but does include those crimes most commonly associated with organized crime, drug trafficking, and financial misconduct, including all of the RICO predicate offenses listed in 18 U.S.C. § 1961(1), which includes state crimes. See e.g., United States v. Montoya, 945 F.2d 1068 (9th Cir. 1991). Wire and mail fraud are "specified unlawful activity" as defined in 18 U.S.C. § 1956(c)(7)(A), referring to 18 U.S.C. 1961(1). a. Commingled Funds. Sometimes a defendant commingles the proceeds of specified unlawful activity with legally derived funds. An issue may then arise as to whether the funds disbursed from a commingled source are, in fact, the proceeds of specified unlawful activity or legally derived funds. In United States v. Jackson, 935 F.2d 832, 842 (7th Cir. 1991), the Court addressed this issue and ruled that since Congress only required that the transaction "involve" the proceeds of specified 12

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 12 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

unlawful activity, it was sufficient to show that the financial transaction involved disbursements from commingled sources. The Court reasoned that to hold otherwise would permit criminals to avoid the liability of the statute merely by commingling unlawfully and lawfully derived funds. Id.; United States v. Johnson, 971 F.2d 562, 570-71 (10th Cir. 1992). b. Merger. The money laundering statutes contemplate a temporal progression of transactions (i.e., that the funds already have attained the status of unlawful proceeds when the money laundering financial transaction is commenced). See United States v. Montoya, 945 F.2d 1068 (9th Cir. 1991). The same transaction, in other words, cannot at once constitute the money laundering offense and the underlying specified unlawful activity that generated the funds being laundered. In this case, the underlying fraud violations occurred prior to and were distinct from the laundering conduct. See United States v. Griffith, 17 F.3d 865, 878-79 (6th Cir. 1994) (defendant controlled the underlying fraud proceeds, and thereafter engaged in a laundering transaction); United States v. Hollis, 971 F.2d 1441, 1450 (10th Cir. 1992) (mail fraud violation and subsequent laundering deposit were separate violations). 5. Knowing that the Property Was Proceeds of Some Form of Unlawful Activity. The United States must establish with direct or circumstantial proof that the defendant actually or constructively knew that the property involved in the financial transaction was the proceeds of some state, federal, or foreign felonious activity. Subsection (c)(1) defines the knowledge element. It states: the term "knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity" means that the person knew the property involved in the transaction represented proceeds from some form, though not necessarily which form, of activity that constitutes a felony under state, federal, or foreign law, regardless of whether or not such activity is specified in paragraph (7). The definition specifically dissociates the knowledge element from the proceeds element.

26 The defendant need not know that the property was in fact the proceeds of specified unlawful 27 28 13

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 13 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

activity. Rather, it is sufficient if he knows the property to be the proceeds of some form of felonious conduct under state, federal or foreign law. See United States v. Knapp, 120 F.3d 928, 932 (9th Cir. 1997). The knowledge element applies in two different kinds of cases -- first party knowledge or third party knowledge. In the first party knowledge cases, where the defendant was the perpetrator of the underlying offense and thus is accused of laundering the proceeds of his own criminal activity, proof of the knowledge element is straightforward. See e.g., United States v. Jackson, 983 F.2d 757 (9th Cir. 1993) (knowledge element established by proof of sale of narcotics during the period of the financial transaction, and the defendant's unexplained wealth). In third-party knowledge cases, however, the defendant will be accused of laundering the proceeds of another person's criminal activity, and therefore proof of knowledge will be less direct. The defendant's knowledge that the property involved in the financial transaction was the proceeds of some form of unlawful activity may be inferred from the circumstances of the case. These circumstances might include the relationship between the defendant and the perpetrator of the criminal offense, or the peculiar way in which the transaction was conducted. See United States v. Campbell, 977 F.2d 854, 859-60 (4th Cir. 1992) (circumstances suggested defendant knew or was willfully blind that the funds came from a criminal activity). Ultimately, the determination of whether a jury may infer that the defendant had the requisite knowledge depends on the facts and circumstances of each individual case. See e.g., United States v. Brown, 944 F.2d 1377, 1387-88 (7th Cir. 1991) (jury is able to infer knowledge from the defendant's elaborate, time-consuming efforts to keep all of his cash transactions under $10,000 when such efforts would have made no sense if the defendant had not been aware that he was dealing with the proceeds of some form of unlawful activity); United States v. Atterson, 926 F.2d 649, 656 (7th Cir. 1991) (defendant's status as girlfriend of a drug dealer permitted a jury to infer that she knew that the wire transfers she made for him when he traveled out of town involved the proceeds of some form of unlawful activity). 6. Intent to Promote the Carrying on of Specified Unlawful Activity. 14

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 14 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

This subsection requires proof that the defendant conducted or attempted to conduct a financial transaction "with the intent to promote the carrying on of specified unlawful activity." Circumstantial evidence will suffice. United States v. Salazar, 958 F.2d 1285, 1296 (5th Cir. 1992). Concealment is not an element of an offense under § 1956(a)(1)(A)(i). United States v. Montoya, 945 F.2d 1068, 1076 (9th Cir. 1991). A defendant who conducts a financial

transaction with the intent to promote a criminal offense violates § 1956(a)(1)(A)(i), even if he conducts the transaction openly and with no intent to disguise either the nature of the transaction or the identity of the person involved. United States v. Jackson, 935 F.2d 832, 842 (7th Cir. 1991). Under § 1956(a)(1)(A)(i) , the defendant's intent may relate to promotion of an ongoing or future offense. United States v. Marbella, 73 F.3d at 1514 (payment of fee encouraged future fraudulent transaction activity); United States v. Baker, 10 F.3d 1374, 1405-06 (9th Cir. 1993) (defendant's payments to suppliers promoted continuing illegal trafficking). Payments of personal expenditures may also be for the purpose of carrying on specified criminal conduct. For example, in United States v. Johnson, 971 F.2d 562 (10th Cir. 1992), the defendant lured investors into a fraudulent currency exchange scheme by claiming that he could exchange pesos for dollars through contacts he had with the Mexican government. However, he was not investing the funds; he was spending the funds to pay off his mortgage and buy a Mercedes automobile. He returned some of the money to the investors as "dividends" to gain their confidence and obtain additional investments. Defendant claimed that paying off the mortgage and buying the Mercedes was not done with an intent to promote the underlying wire fraud. The Tenth Circuit, however, held that a jury could infer that the defendant used his house and car to add an "aura of legitimacy" to his business, and therefore the use of the wire fraud proceeds promoted the illegal activity. Id. at 566. The payment of proceeds to fraud victims made for the purpose of enticing them to continue investing in a fraudulent scheme, or to keep quiet about an ongoing scheme, could be promotion. In Johnson, the defendant made an effort to gain victims' confidence by wire transferring twenty 15

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 15 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

percent of the original investment claiming that it represented "dividends." As a result, victims were enticed to invest even more funds in the scheme. Id. The defendant's intent may also relate to the promotion of a prior unlawful activity. For example, in United States v. Montoya, 945 F.2d 1068 (9th Cir. 1991), the court concluded that a state legislator's depositing a check that was the proceeds of bribery evidenced an intent to promote illegal activity because the defendant could not have used the money for the bribe unless he deposited the check. Similarly, in United States v. Paramo, 998 F.2d 1212 (3d Cir. 1993), the defendant had participated in a mail fraud scheme which issued Internal Revenue Service checks to fictitious payees. The defendant argued that although he had engaged in a financial transaction with the proceeds of an unlawful activity, depositing those funds could not be characterized as promoting the underlying activity, because he was not plowing the funds back into an ongoing enterprise. Rejecting this argument, the Third Circuit held that "a defendant can engage in financial transactions that promote not only ongoing or future unlawful activity, but also prior unlawful activity." Id. at 1218. E. Transactional Money Laundering.

Counts 42-45 of the superseding indictment charge defendant Stewart with engaging in monetary transactions in violation of 18 U.S.C. § 1957(a). That statute is violated if a person: knowingly engages or attempts to engage in a monetary transaction in criminally derived property that is of a value greater than $10,000 and is derived from specified unlawful activity. 1. Elements. To prove a violation of § 1957(a), the government must show that the defendant: (1) engaged in or attempted to engage in a monetary transaction; (2) in property that was derived from specified criminal activity -- in this case, mail or wire fraud; (3) that the defendant knew that the property was derived from mail or wire fraud; and (4) the property had a value of more than $10,000. United States v. Rutgard, 116 F.3d 1270, 1291 (9th Cir. 1997). 2. Monetary Transaction. The statute defines monetary transaction to mean: 16

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 16 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

the deposit, withdrawal, transfer, or exchange, in or affecting interstate commerce, of funds or a monetary instrument (as defined in section 1965(c)(5) of this title), by, through, or to a financial institution (as defined in section 1956 of this title), including any transaction that would be a financial transaction under section 1956(c)(4)(B) of this title, but such term does not include any transaction necessary to preserve a person's right to representation as guaranteed by the sixth amendment to the Constitution. 18 U.S.C. § 1957(f)(1). Because the definition of "monetary transaction" for purposes of § 1957 incorporates the definition of "monetary transaction" in § 1956(c)(4)(B), § 1957 also defines a "monetary transaction" to include transfering funds by writing a check drawn on a commercial bank which is engaged in, or the activities of which affect, interstate or foreign commerce in any way or degree. 3. Criminally Derived Property. "Criminally derived property" means any property constituting or derived from, proceeds obtained from a criminal offense. 18 U.S.C. § 1957(f)(2). "Specified unlawful activity" has the same meaning under § 1957 as is given that term under § 1956. Thus, property that is derived from mail or wire fraud is property derived from specified unlawful activity for purposes of 18 U.S.C. § 1957. 4. Knowingly Engages. To violate § 1957, a defendant must know that the transaction involves criminally derived property. The government is not required to show that the defendant intended to commit a crime by engaging in the monetary transaction or that the defendant intended to conceal criminal proceeds. Rutgard, 116 F.3d at 1291. 5. Commingling. The government may prove a § 1957 violation based on the deposit of $10,000 or more of criminally derived proceeds into an account that also contains innocent money. Rutgard, 116 F.3d at 1291. Where the alleged violation is based on the transfer or withdrawal of the funds from an account in which criminally derived proceeds are commingled with innocent funds, the government must show that at least $10,000 of the funds involved in the monetary transaction 17

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 17 of 39

1 2 3 4 5 6 7 8

were criminally derived proceeds. Id. at 1291-92. F. Aid and Abet.

Title 18, United States Code, Section 2(a), states "[W]hoever commits an offense against the United States or aid, abets, counsels, commands, induces or procures its commission is punishable as a principal." The Ninth Circuit in United States v. Lane stated: [I]n order to aid and abet another to commit a crime it is necessary that a defendant in some sort associate himself with the venture, that he participate in it as in something that he wishes to bring about, [and] that he seek by his action to make it succeed. 514 F.2d 22, 26 (9th Cir. 1975). See also United States v. Castro, 887 F.2d 988, 995 (9th Cir.

9 1989); United States v. Cloud, 872 F.2d 846, 850 (9th Cir. 1989); United States v. Zemek, 634 10 F.2d 1159, 1174 (9th Cir. 1980). The Revision Note to § 2 makes clear that one who puts in 11 motion or assists in the illegal enterprise, but intentionally refrains from the direct act 12 constituting the completed offense, is guilty as a principal. Although a defendant can be guilty 13 of aiding and abetting only if it is proven that a principal committed the crime, it is not necessary 14 that the principal be identified or convicted of the crime. United States v. Powell, 806 F.2d 15 1421, 1424 (9th Cir. 1986). 16 The Ninth Circuit has long recognized that one may be guilty of aiding and abetting a 17 conspiracy. Portac, 869 F.2d at 1288; United States v. Lane, 514 F.2d 22, 27 (9th Cir. 1975); 18 United States v. Williams, 308 F.2d 664, 666 (9th Cir. 1962). Lane illustrates that a defendant 19 may have only a tenuous relationship to the conspiracy yet still be liable as an aider and abetter. 20 There the defendant heard conversations over the radio about an expected drug bust and he 21 alerted the drug dealers that they were dealing with an undercover informant. Lane, 514 F.2d 22 at 24-25. The Court held that one may be guilty of aiding and abetting even though he advised 23 against the criminal conduct. Id. at 26-27. The Court also made clear that knowledge of the 24 details of the crime is immaterial and the defendant need not have a stake in the outcome. 25 26 27 28 It is immaterial that he did not know all the details of the crime, or all of the persons who were perpetrating the crime. Neither is it necessary that he have an active stake in the outcome of the crime, or that there was an agreement between him and the drug dealers. It is enough that he acted 18

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 18 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

with criminal intent and design to assist the perpetrators of the crime. Id. at 27 (cites omitted). The evidence connecting a defendant to the conspiracy can be circumstantial. Nye & Nissan v. United States, 336 U.S. 613, 619 (1949). For example, in United States v. Zafiro, 945 F.2d 881 (7th Cir. 1991), the defendant's apartment was used to operate a drug conspiracy. Although the defendant testified she was "just a girlfriend" of a conspirator, the Court held that by allowing the activity in her apartment she was knowingly rendering material assistance to the conspiracy. Thus, one can aid and abet a conspiracy without being a member of the conspiracy. Id. at 884. Finally, a defendant may be acquitted of a conspiracy charge and found guilty of aiding and abetting the conspiracy. United States v. Stozek, 783 F.2d 891, 894 (9th Cir. 1986). Such a verdict is not inconsistent because the charge of conspiracy requires proof of an agreement, while aiding and abetting does not. Id. III. A. EVIDENTIARY ISSUES. Non-hearsay Evidence.

1. Assertions with Direct Legal Significance. If an out-of-court assertion has direct legal significance, regardless of its truth, it is not hearsay. Words expressed that constitute a crime itself or an element of a crime have direct legal significance. See, e.g., United States v. Jones, 663 F.2d 567, 571 (5th Cir. 1981) (threats against judge and prosecutor admitted because statements were "paradigmatic non-hearsay" of operative words of criminal action); United States v. Anfield, 539 F.2d 674, 678 (9th Cir. 1976) (assertion the basis for perjury charge). An out-of-court assertion may have direct legal significance as a misrepresentation. If so, the statement will be introduced to prove the assertion was made and establish its falsity, not its truth. Operative misrepresentations are not hearsay. See Anderson v. United States, 417 U.S. 211, 220 (1974); United States v. Wellington, 754 F.2d 1457, 1464 (9th Cir. 1985); United States v. Hathaway, 798 F.2d 902, 904-05 (6th Cir. 1986). 19

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 19 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

2. Assertion Used as Circumstantial Evidence. An out-of-court statement constitutes circumstantial evidence if the trier of fact may infer from it, regardless of its truth, the existence or nonexistence of a fact in issue. Statements offered as circumstantial evidence are not hearsay. See Sica v. United States, 325 F.2d 831, 836 (9th Cir. 1964) (statements were circumstantial evidence of relationship between defendant and others); United States v. Martin, 773 F.2d 579, 583 (4th Cir. 1985) (bookmaking records were circumstantial evidence showing that defendant was bookmaker). a. Circumstantial Evidence of Fraud. False out-of-court statements may be offered as circumstantial evidence of fraud. The statements are not offered to prove the truth of the matters asserted; thus they are not hearsay. See, e.g., Anderson v. United States, 417 U.S. 211, 216-21 (1974); United States v. Wellington, 754 F.2d 1457, 1464 (9th Cir. 1985) (evidence of representations to investors in real estate scam admitted to show falsity); United States v. Gibson, 690 F.2d 697, 700-01 (9th Cir. 1982) (assertions by salesmen established scheme to defraud); United States v. Saavedra, 684 F.2d 1293 (9th Cir. 1982) (testimony by victims of wire fraud scheme admitted as circumstantial evidence of conspiracy to defraud); see also United States v. Hathaway, 798 F.2d 902, 904-05 (6th Cir. 1986) (fraudulent statements by sales agents in investment firm); United States v. Toney, 605 F.2d 200, 207 (5th Cir. 1979) (statements by salesmen admitted to prove deceit and misrepresentation); United States v. Krohn, 573 F.2d 1382, 1386 (10th Cir. 1978). Both Wellington and Saavedra are especially pertinent here. In Wellington, the Ninth Circuit recognized that out-of-court statements consisting of false representations made to potential investors were not hearsay because their probative value was independent of the truth of the statements. Similarly, in Saavedra, the Ninth Circuit recognized that notes used by a caller to record the cardholder's phone and credit card number and the alias of the defendant were not hearsay because they were not offered to show the truth of the matter asserted but instead were evidence of how the fraud was conducted and the defendant's connection to it. b. Assertion Implying Particular State of Mind of Declarant. 20

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 20 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Out-of-court statements are admissible as circumstantial evidence of the declarant's intent, knowledge, or guilty conscience. A direct assertion of the declarant's present intent is hearsay, but is typically admitted as an exception to the hearsay rule. See Fed. R. Evid. 803(3) (then-existing mental, emotional, or physical condition). An out-of-court assertion may be introduced as circumstantial evidence of the declarant's intent, regardless of its truth or falsity. See Atlantic-Pacific Construction Co., Inc. v. National Labor Relations Board, 52 F.3d 260, 263 (9th Cir. 1995) (statements introduced as circumstantial evidence to prove declarant's intent to act); United States v. Abascal, 564 F.2d 821, 829-30 (9th Cir. 1977) (declarant's statements admitted to clarify or explain his ambiguous conduct). A statement is not hearsay if offered as circumstantial evidence of the declarant's knowledge of facts otherwise established. See United States v. Parry, 649 F.2d 292, 295 (5th Cir. 1981) (testimony regarding phone conversation admitted to show defendant had knowledge of caller's identity); United States v. Frank, 494 F.2d 145, 155 (2nd Cir. 1974) (statements admitted to show knowledge of transactions). An out-of-court assertion, if shown by other evidence to be false, may be introduced as circumstantial evidence that the declarant had a guilty conscience. See Wilson v. United States, 162 U.S. 613, 620-21 (1896) (false statements by defendant to explain his innocence were admissible as circumstantial evidence of defendant's guilty conscience). Accord United States v. Fox, 613 F.2d 99, 100-01 (5th Cir. 1980); United States v. Sawyer, 607 F.2d 1190, 1192 (7th Cir. 1979); United States v. Cline, 570 F.2d 731, 735-36 (8th Cir. 1978). c. Assertion That Produces Particular State of Mind in Another. A person's particular state of mind may be proved by circumstantial evidence that the person heard an assertion made by another. Where such assertions are offered to show their effect on the person hearing them, they are not hearsay. This type of evidence is often admitted to show knowledge, notice, or motive. An out-of-court assertion introduced to prove the person to whom the assertion was 21

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 21 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

communicated had knowledge of something is not hearsay. See Stevens v. Moore Business Forms, Inc., 18 F.3d 1443, 1449 (9th Cir. 1994) (statements introduced to show witness had knowledge of records); United States v. Kenney, 911 F.2d 315, 319 (9th Cir. 1990) (statements to attorney admissible to prove that defendant knew he would not be granted immunity); United States v. Castro, 887 F.2d 988, 1000 (9th Cir. 1989) (reports admissible to show defendant had knowledge of certain information); United States v. Tamura, 694 F.2d 591, 597-98 (9th Cir. 1982) (same); United States v. Kutas, 542 F.2d 527, 528 (9th Cir. 1976) (statement by defendant admissible to prove he knew he was harboring an escaped federal prisoner); United States v. Moody, 376 F.2d 525, 530 (9th Cir. 1967) (assertions by declarant admissible to show defendant was aware of unlawful practices of business enterprise). Similarly, an out-of-court statement introduced to prove that the person to whom the statement was communicated had notice of something is not hearsay. See Kunz v. Utah Power & Light Co., 913 F.2d 599, 605 (9th Cir. 1990) (press releases admissible to show plaintiffs had notice of potential flooding); Gibbs v. State Farm Mutual Insurance Company, 544 F.2d 423, 428 (9th Cir. 1976) (letters admissible to show defendants had received them); United States v. Martin, 897 F.2d 1368, 1374 (6th Cir. 1990) (statements are not hearsay if offered to show the hearer's notice); United States v. Gold, 743 F.2d 800, 818 (11th Cir. 1984) (statements admissible to show conspirators had notice that their activities were illegal). Out-of-court statements that are communicated to a person may also be introduced as circumstantial evidence of that person's motive for doing something, including whether the person acted in good faith. See Jones v. Los Angeles Community College District, 702 F.2d 203, 205 (9th Cir. 1983) (statements admitted to show college had legitimate basis for terminating plaintiff); Ostroff v. Employment Exchange, Inc., 683 F.2d 302, 305 (9th Cir. 1982) (testimony introduced to show defendant believed in good faith that plaintiff was not qualified for job referral); see also United States v. Reed, 639 F.2d 896, 907-08 (2nd Cir. 1981) (letter from bank admissible to prove defendant's motive for participating in crime); United States v. Cline, 570 F.2d 731, 735 (8th Cir. 1978) (evidence admitted to prove motive for homicide). 22

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 22 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

d. Prior Inconsistent Statement as Evidence that Witness is Unreliable. An out-of-court statement by a witness that conflicts with the person's testimony at trial may be admissible to show that the witness is unreliable. A statement used for this purpose is not hearsay. United States v. Hale, 422 U.S. 171 (1975); United States v. Crouch, 731 F.2d 621, 624 (9th Cir. 1984); United States v. Peterman, 841 F.2d 1474, 1479 n.3 (10th Cir. 1988). B. Co-conspirator Statements.

Statements by co-conspirators may be admissible independent of the hearsay exception under Fed. R. Evid. 801(d)(2)(E). For example, such statements may be admitted merely as background to place subsequent events or meetings in context. See United States v. Inadi, 475 U.S. 387, 398 n.11 (1986) (noting admissibility of co-conspirator statements to prove background to conspiracy or to explain significance of events); United States v. Payne, 944 F.2d 1458, 1472 (9th Cir. 1991) (noting non-hearsay purpose of statements offered to show effect on listener and to explain sequence of events). Fed. R. Evid. 801(d)(2)(E) provides that a statement offered against a party is not hearsay if it is "a statement by a coconspirator of a party during the course of and in furtherance of the conspiracy." In order for the court to admit a statement under this rule, the government must show by a preponderance of the evidence: (1) that a conspiracy existed; (2) that the defendant and the declarant were members of the conspiracy; and (3) that the statements were made during the course of and in furtherance of the conspiracy. Bourjaily v. United States, 483 U.S. 171, 173 (1987). 1. The Court's preliminary determinations. In making the preliminary factual determinations under Rule 801(d)(2)(E), the trial court may consider, along with other evidence, the actual hearsay statements sought to be admitted. Id. at 181; United States v. Schmit, 881 F.2d 608, 610 (9th Cir. 1989). A judge may receive the hearsay evidence and give it "such weight as his judgment and experience counsel." Bourjaily, 483 U.S. at 181. The procedure for determining the admissibility of co-conspirator statements is left to the 23

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 23 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

discretion of the trial court. Id. at 177-81; United States v. Zemek, 634 F.2d 1159, 1169 (9th Cir. 1980). The Ninth Circuit does not have a "preference" for the order of proof of admissibility of such statements. The court is not required to conduct a separate evidentiary hearing on the preliminary determinations before admitting co-conspirator statements. Zemek, 634 F.2d at 1169. An offer of proof in the government's trial memorandum can suffice. United States v. Kenny, 645 F.2d 1323, 1333-34 (9th Cir. 1981). The court may allow the government to introduce coconspirator statements before the existence of the conspiracy is established. United States v. Arbelaez, 719 F.2d at 1460; United States v. Miranda-Uriarte, 649 F.2d 1345, 1349 (9th Cir. 1981). The evidence can be stricken if the government does not ultimately satisfy the foundational requirements. E.g. Zemek, 634 F.2d at 1169. 2. Statements "In Furtherance of the Conspiracy". To admit statements under Rule 801(d)(2)(E), the government must show by a preponderance of the evidence that they were made "in furtherance" of the conspiracy. Statements meet this requirement if they further the common objectives of the conspiracy or set in motion transactions that are an integral part of the conspiracy. United States v. Yarbough, 852 F.2d 1522, 1535 (9th Cir. 1988). The statements must somehow assist the conspirators in achieving their objectives. United States v. Layton, 720 F.2d 548, 556-57 (9th Cir. 1983). Statements should be examined in the context in which they are made to determine if they advance the objectives of the conspiracy. Layton, 720 F.2d at 556. For example, statements made to induce enlistment or further participation in the group's activities are considered to be "in furtherance" of the conspiracy. Yarbough, 852 F.2d at 1535. Courts also have found statements informing co-conspirators about future plans to be in furtherance of the conspiracy. See, e.g., United States v. Moody, 778 F.2d 1380 (9th Cir. 1986). In Moody, the court admitted co-conspirator statements about plans to ship marijuana to a particular location and who would pick it up and smuggle it. The court noted that the coconspirator making the statements had participated in planning the conspiracy and had a 24

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 24 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

substantial interest in its continuing operation. Id. at 1383. Pre-conspiracy statements can be admitted against a defendant under Rule 801(d)(2)(E) if the discussion related in some way to the beginning of the defendant's participation in the conspiracy and the discussion tends to show the defendant had the proper state of mind. United States v. Del Purgatorio, 411 F.2d 84, 86-87 (2d Cir. 1969). 3. E-Mail Communication Between Defendants E-mail correspondence may be admissible with proper foundation. United States v. Prime, 363 F.3d 1028, 1038 (9 th Cir. 2004), vac'd on other grounds in United States v. Booker, 125 S.Ct. 738 (2005) E-mails written by a party have been held admissible as admissions of a party opponent pursuant to Fed.R.Evid. 801(d)(2). Sea-Land Service v. Lozen Intern'l, 285 F.3d 808, 821 (9 th Cir. 2002). The authentication of an e-mail may be supplied by an affidavit of the recipient, the e-mail address from which it originated; comparison of the content to other evidence; and/or statements or other communications from the purported author acknowledging the e-mail communication that is being authenticated. Fenje v. Feld, 301 F.Supp.2d 781 (N.D. Ill. 2003) A computer printout of a chat room discussion was affirmed as admissible in United States v. Simpson, 152 F.3d 1241 (10 th Cir. 1998). The court found that, utilizing Fed.R.Evid. 901(b), the evidence was sufficient to support a finding that the matter in question is what its proponent claimed. The defendant had used his real name, the exchanges included his address, and other evidence found next to the computer provided a connection to the e-mail exchanges. Id. at 1250. E-mail communication may be admissible as coconspirator statements, providing the proper foundation is laid. Nobody in Particular Presents, Inc. V. Clear Channel, 311 F.Supp.2d 1048 (D.Co. 2004) C. Admissions.

1. Admission by Defendant. A statement offered against a party, which is the party's own statement in either an individual or representative capacity, is not hearsay. Fed. R. Evid. 801(d)(2)(A). United States 25

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 25 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13

v. Weiner, 578 F.2d 757, 770 (9th Cir. 1978); United States v. Calaway, 524 F.2d 609, 613 (9th Cir. 1975). Extrajudicial declarations made by the defendant are not hearsay and qualify as independent evidence. In United States v. Pistante, 453 F.2d 412, 413 (9th Cir. 1971), the Ninth Circuit held that false statements to agents and false exculpatory statements made by defendant are admissions and admissible as an exception to hearsay. In addition these false exculpatory statements by defendant may be used not only to impeach, but also to prove consciousness of guilt and unlawful intent. See also Fox v. United States, 381 F.2d 125, 129 (9th Cir. 1967) (defendant's lies regarding the ownership of the truck provided significant additional evidence of his guilt). 2. Adoptive Admission by Defendant.

Rule 801(d)(2)(B), Fed. R. Evid. provides: A statement is not hearsay if the statement is offered against a party and is . . . a statement of which the party has manifested an adoption or belief in its truth, . . . . Possession of statements and an act of defendant manifesting some reliance on it or belief

14 in its trustworthiness are admissible as an "adoptive admission." United States v. Carrillo and 15 Benavidez, 16 F.3d 1046, 1048-49 (9th Cir. 1994); United States v. Ospina, 739 F.2d 448, 451 16 (9th Cir. 1984). In Ospina, the Ninth Circuit held that business cards found in the defendant's 17 hotel room were admissible as adoptive admissions under Fed. R. Evid. 801(d)(2)(B) because 18 the cards were in the possession of the defendant and because the defendant acted on the 19 information written on the cards when he traveled to the listed address to pick up the cocaine. 20 739 F.2d at 451. In Carrillo, the Ninth Circuit held that a slip of paper found on an arrested 21 defendant, which contained numbers similar to those involved in negotiations for the subject 22 drug sale, was admissible against the defendant at his trial for the drug offense under the 23 "adopted admission" exception to the hearsay rule. The fact that the prices and quantities were 24 consistent with those discussed in the negotiations created a sufficient link between the writing 25 and the defendant's actions to permit the district court to find an adoption. 16 F.3d at 1048-49. 26 Adoptive admissions by silence should not go to the jury unless the court first finds that the 27 28 26

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 26 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

United States has made a showing through foundational questions that the defendant was present and heard the statement, and that he had an opportunity and incentive to deny the statement if untrue. United States v. Sears, 663 F.2d 986, 904-05 (9th Cir. 1981); United States v. Giese, 597 F.2d 1170, 1196 (9th Cir. 1979); United States v. Moore, 522 F.2d 1068 (9th Cir. 1975). If the United States lays a sufficient foundation, evidence with respect to the defendant's silence at the time the statement was made, and his adoption of the statement, are admissible, and it is for the jury to decide whether the defendant actually heard, understood, and acquiesced in the statement. United States v. Monks, 774 F.2d 945, 950 (9th Cir. 1985). 3. Admission by Authorized Person.

A statement by a person authorized by the party to make a statement is not hearsay. Fed. R. Evid. 801(d)(2)(C). See United States v. Diez, 515 F.2d 892, 896 n.4 (5th Cir. 1975) (defendant authorized accountant to talk to third party; accountant's statements were admissions as to defendant). 4 Admission by Agent.

A statement by a party's agent or servant concerning a matter within the scope of the agency or employment, made during the existence of the relationship, is not hearsay. Fed. R. Evid. 801(d)(2)(D). The statement must pertain to a matter within the employee or agent's duties. It makes no difference that the agent or employee is not authorized to make disclosures. An authorization to speak is not a requirement of Rule 801(d)(2)(D). After the agency relationship is established, Rule 801(d)(2)(D) requires only that the statement come within the scope of the agency or employment. Nekolny v. Painter, 653 F.2d 1164, 1171-72 (7th Cir. 1981); United States v. Chappell, 698 F.2d 308, 312 (7th Cir. 1982). D. Business Records.

Rule 803, Fed. R. Evid., provides: The following are not excluded by the hearsay rule even though the declarant is available as a witness: ***

27 28 27

Case 2:03-cr-01269-NVW

Document 164

Filed 10/11/2005

Page 27 of 39

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

(6) Records of regularly conducted activity. A memorandum, report, record, or data compilation, in any form, of acts, events, conditions, opinions, or diagnoses, made at or near the time by, or from information transmitted by, a person with knowledge, if kept in the course of a regularly conducted business activity, and if it was the regular practice of that business activity to make the memorandum, report, record, or data compilation, all as shown by the testimony of the custodian or other qualified witness, unless the source of information or the method or circumstances of preparation indicate lack of trustworthiness. The term 'business' as used in this paragraph includes business, institution, association, profession, occupation, and calling of every kind, whether or not conducted for profit. For a document to be admitted as a business record, a custodian or other "qualified witness" must establish that: (1) the writing was made or transmitted by a person with knowledge at or near the time of the incident recorded; and (2) the record is kept in the course of a regularly conducted business activity. Kennedy v. Los Angeles Police Department, 901 F.2d 702, 717 (9th Cir. 1990). A "qualified witness" can be anyone who understands the record keeping system involved. United States v. Ray, 930 F.2d 1368, 1370 (9th Cir. 1990). It is not necessary that this witness be the one who personally generated the document or that this person verify the underlying information. Id. Nor is it necessary that the qualified witness have been employed when the records were prepared, United States v. Evans, 572 F.2d 455, 490 (5th Cir. 1978), or have personal knowledge of the particular evidence in the record. United States v. Reese, 568 F.2d 1246, 1252 (6th Cir. 1977). The requirement that a record be "made at or near the time" of the incident recorded means that the record be created within some reasonable time of the incident. For example, a computer printout prepared eleven months after the close of year has been held to be contemporaneous. United States v. Russo, 480 F.2d 1228, 1241 (6th Cir. 1973). That a record was "received" rather than "made" in the ordinary course of business does not preclude its admissibility under Rule 803(6). United States v. Flom, 558 F.2d 1179, 1182-1183 (5th Cir. 1977); United States v. Carranco, 551 F.2d 1197, 1200 (10th Cir. 1977); United States v. Pfeiffer, 539 F.2d 668, 670671 (8th Ci