Free Memorandum - District Court of Arizona - Arizona

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PAUL K. CHARLTON United States Attorney District of Arizona STEPHEN W. LARAMORE JOHN LOPEZ Assistant U.S. Attorneys Arizona State Bar No. 017218 Arizona State Bar No. 019182 Two Renaissance Square 40 N. Central Avenue, Suite 1200 Phoenix, Arizona 85004-4408 Telephone: (602) 514-7500

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA United States of America CR-03-1098-PHX-EHC Plaintiff, v. Jeanette B. Wilcher, Defendant. The United States of America, by and through its attorney, the United States Attorney for GOVERNMENT'S SUPPLEMENTAL TRIAL MEMORANDUM

15 the District of Arizona, respectfully submits a Supplement to its Trial Memorandum. The 16 following presents a more thorough discussion of the law and evidence relevant to this case. The 17 Memorandum follows. RESPECTFULLY SUBMITTED this 3rd day of April, 2006. 18 19 20 21 22 23 24 25 26 27 28 STEPHEN W. LARAMORE JOHN LOPEZ Assistant U.S. Attorneys PAUL K. CHARLTON United States Attorney District of Arizona

Case 2:03-cr-01098-EHC

Document 208

Filed 04/03/2006

Page 1 of 23

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SUPPLEMENTAL MEMORANDUM OF LAW

2 I. WIRE FRAUD: 3 1. Elements. 4 In the context of this case, to prove that a defendant committed wire fraud, the 5 government must show that the defendant: (1) used or caused the use of a transmitting device 6 in interstate commerce; (2) that the use was in furtherance of a scheme to defraud; and (3) that 7 the defendant had an intent to defraud. United States v. Bonanno, 852 F.2d 434, 440 (9th Cir. 8 1990), United States v. Woods, 335 F.3d 993, 997 (9th Cir.); cert. denied.; 124 S.Ct. 586 (2003). 9 10 2. Mail Fraud Principles Apply to Wire Fraud.

The defendants are charged within Count 1 and in Counts 31-35, 38, 40-43 of the Second

11 Superseding Indictment with wire fraud in violation of 18 U.S.C. § 1343. Interpretation of the 12 wire fraud statute is guided by the law that pertains to the mail fraud statute. United States v. 13 Louderman, 576 F.2d 1383, 1387 n.3 (9th Cir. 1978). 14 3. The Scheme to Defraud/Materiality. 15 Materiality is an essential element of the crime of wire fraud. Neder v. United States, 527 16 US 1 (1999). Materiality of statements or promises is a question of fact for the jury. A 17 statement is material if it has a natural tendency to influence, or is capable of influencing, the 18 decisionmaker. United States v. Gaudin, 515 U.S. 506, 509; 115 S.Ct. 2310 (1995). 19 There is, however, no requirement that the scheme be reasonably calculated to deceive only 20 persons of ordinary prudence and comprehension. United States v. Ciccone, 219 F.3d 1078, 21 1083-84 (9th Cir. 2000); Irwin v. United States, 338 F.2d 770, 773 (9th Cir. 1964). The fraud 22 statutes protect even the most gullible or naive citizens, as they are more in need of protection. 23 Id. In fact, "the lack of guile on the part of those solicited may itself point with persuasion to 24 the fraudulent character of the artifice." Id.; United States v. Hanley, 190 F.3d 1017, 1023 (9th 25 Cir. 1999). 26 The mail fraud statute focuses on the scheme to defraud rather than actual fraud. United 27 States v. Andreadis, 366 F.2d 423, 431 (2d Cir 1966). Accordingly, the United States is not 28 required to prove that anyone was defrauded or sustained a loss. E.g. United States v. Rasheed,
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1 663 F.2d 843, 850 (9th Cir. 1981). In other words, the accused need not have succeeded in his 2 scheme to be guilty of the crime. United States v. Utz, 886 F.2d 1148, 1150 (9th Cir. 1989). A 3 fraud scheme may be­and usually is­established by circumstantial evidence, by inferences from 4 the evidence of the relationship of the parties, and by overt acts, conduct, and other probative 5 circumstances. United States v. Matta-Ballesteros, 71 F.3d 754, 765 (9th Cir. 1995). 6 The statute can be violated in several different ways. United States v. Halbert, 640 F.2d 7 1000, 1007 (9th Cir. 1981). There can exist a scheme to defraud without specific 8 misrepresentations, Id.; Lustiger v. United States, 386 F.2d 132, 138 (9th Cir. 1968), or even 9 if no misrepresentations are made, United States v. Halbert, 640 F.2d at 1007. It is only 10 necessary to prove that it is a scheme reasonably calculated to deceive and that the mails (or a 11 private or commercial interstate carrier) were used and intended to be used in execution of the 12 scheme. See Lustiger, 386 F.2d at 138; Irwin v. United States, 338 F.2d 770, 773 (9th Cir. 13 1965); Lemon v. United States, 278 F.2d 369, 373 (9th Cir. 1960). 14 4. Intent to Defraud. 15 An intent to defraud is an intent to deceive or cheat. Deceitful statements or half-truths 16 or concealment of material facts is actual fraud, which violates the mail fraud statute. United 17 States v. Sayakhom, 186 F.3d 928, 941 (9th Cir. 1999); United States v. Allen, 554 F.2d 398, 410 18 (9th Cir. 1977); Cacy v. United States, 298 F.2d 227, 229 (9th Cir. 1961). The deception need 19 not be premised on verbalized words alone. The arrangement of the words and the circum20 stances in which they are used may convey the false and deceptive appearance resulting in fraud. 21 Lustiger, 386 F.2d at 138. 22 In cases involving mail or wire fraud, the defendant need not personally have made the 23 false representations, the offense may be established where one acts with knowledge that the 24 prohibited actions will follow in the ordinary course of business or where the prohibited acts can 25 reasonably be foreseen. United States v. Hanley, 190 F.3d 1017, 1022 (9th Cir. 1999)(where 26 defendant did not personally make any fraudulent statements to any victims but false 27 representations were made by telemarketers). 28
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Direct proof of fraudulent intent is not necessary. Fraudulent intent may, and often must

2 be, proven by circumstantial evidence. Rasheed, 663 F.2d at 848. It may be inferred from the 3 activities of the parties involved and need not be specifically admitted or confessed. United 4 States v. Jones, 425 F.2d 1048, 1058 (9th Cir. 1970); Phillips v. United States, 356 F.2d 297, 5 303 (9th Cir. 1965). Such intent may be shown by examining the scheme itself. United States 6 v. Bohonus, 628 F.2d 1167, 1172 (9th Cir. 1980). Elaborate efforts to conceal activity can be 7 "powerful evidence" of an intent to defraud. United States v. Olson, 925 F.2d 1170, 1176 n.10 8 (9th Cir. 1991). Fraudulent intent is also shown if a representation is made with reckless 9 indifference to its truth or falsity. E.g., United States v. Dees, 34 F.3d 838, 842-43 & n.1 (9th 10 Cir. 1994); United States v. Gay, 967 F.2d 322, 326 (9th Cir. 1992); United States v. Farris, 11 614 F.2d 634, 638 (9th Cir. 1980); United States v. Cusino, 694 F.2d 185, 187 (9th Cir. 1982). 12 United States v. McDonald, 576 F.2d 1350, 1358 (9th Cir. 1978); United States v. Love, 535 13 F.2d 1152, 1158 (9th Cir.1976). 14 Good faith is a defense to wire fraud. Beck v. United States, 305 F.2d 595, 599 (10th 15 Cir.), cert denied, 371 U.S. 890 (1962). A liberal policy of admitting evidence of good faith 16 should be followed because it is often the only defense available in a wire fraud prosecution. 17 United States v. Diamond, 430 f.2d 688, 692 (5th Cir. 1970). Inasmuch as good faith is the 18 obverse of intent to defraud, an instruction that the jury has to find that the defendant acted with 19 a specific intent to defraud can be deemed an instruction on good faith. United States v. Cusino, 20 694 F.2d 185, 188 (9th Cir. 1985). 21 Good faith only exists if the defendant has an honest, good faith belief in the truth of his 22 representations. Payment or a good faith belief that the victim will be repaid or will sustain no 23 loss is no defense. United States v. Benny, 786 F.2d 1410, 1417 (9th Cir. 1986); United States 24 v. Scott, 701 F.2d 1340, 1347-1348 (11th Cir. 1983). An honest belief in the ultimate success of 25 venture or scheme is not in itself a defense to the use of mails to defraud. United States v. 26 Diamond, 430 F.2d 688, 691 (5th Cir. 1970). In accord see United States v. Coin, 753 F.2d 27 1510, 1511 (9th Cir. 1985). United States v. Olson, 925 F.2d 1170, 1175 (9th Cir. 1991)(what 28 matters is that defendant fraudulently obtained the use of others money. Whether he intended
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1 the effects of the fraud to be permanent or temporary has no legal relevance); United States v. 2 Molinaro, 11 F.3d 853, 863 (9th Cir. 1993)(approving a jury instruction that "defendant's belief 3 that the victim . . . will be paid in the future or will sustain no economic loss is no defense . . . 4 to the crime charged . . .") 5 6 5. Use of Wire Communications. To be part of the execution of the scheme to defraud, use of the interstate wire need not

7 be an essential element of the scheme; it is sufficient for use of the wire to be incidental to an 8 essential part of the scheme, or a step in the plot. See Schmuck v. United States, 489 U.S. 705, 9 712 (1989). 10 Where the interstate communication was made by an innocent third party, a defendant 11 causes the interstate wire communication if he does an act with knowledge that the use of a 12 wirecommunication will follow in the ordinary course of business or where such use can 13 reasonably be foreseen, even though not actually intended. United States v. Muni, 668 F.2d 87, 14 89-90 (2nd Cir. 1981); Pereira v. United States, 347 U.S. at 8-9 (1954). The defendant does not 15 have to reasonably foresee that the wire communication would be interstate, the defendant only 16 has to reasonably foresee the use of the wire communication by an innocent third party, whether 17 or not the interstate nature of the communication was reasonably foreseeable. United States v. 18 Blackman, 839 F.2d 900, 907-908 (2nd Cir. 1988). 19 II. PROMOTIONAL MONEY LAUNDERING: 20 Counts 2, 3 and 4 of the Superseding Indictment charge defendant with promotional 21 money laundering in violation of 18 U.S.C. § 1956(a)(1)(A)(i). That statute provides: 22 Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful 23 activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified 24 unlawful activity 25 26 27 28
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(i) with the intent to promote the carrying on of specified unlawful activity... [is guilty of an offense]. 1. Elements.

1

To establish a violation of this statute, the United States must prove that: (1) the defendant

2 conducted, or attempted to conduct, a financial transaction involving property that represented 3 the proceeds of specified unlawful activity; (2) the defendant knew that the property represented 4 the proceeds of some form of unlawful activity; and (3) the defendant acted with the intent to 5 promote the carrying on of specified unlawful activity. United States v. Marbella, 73 F.3d 1508, 6 1514 (9th Cir. 1996). 7 2. Conducts or Attempts to Conduct. 8 As defined in § 1956(c)(2), "[t]he term "conducts" includes initiating, concluding, or 9 participating in initiating, or concluding a transaction . . . ." See United States v. Castaneda, 16 10 F.3d 1504, 1511 (9th Cir. 1994). Even if another individual or entity actually effected the 11 subject transaction, the defendant who benefits from this transaction, and participated in 12 initiating it, can be liable for the substantive money laundering charge as either a direct violator 13 or an aider and abettor. See United States v. Salazar, 958 F.2d 1285, 1293 (5th Cir. 1992); 14 United States v. Chandler, 996 F.2d 1073, 1106 (11th Cir. 1993) (affirming money laundering 15 conviction based on third party's purchase of real estate on behalf of defendant). 16 3. "Financial Transaction" and "Transaction" Defined. 17 18 19 20 21 22 23 24 (B) Subsection 1956(c)(4) defines a "financial transaction" as either: (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 a transaction involving the use of a financial institution 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

25 if a "transaction" has occurred. This term is broadly defined in § 1956(c)(3) to include a 26 purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition of property between 27 private parties, and with respect to a financial institution, it includes a deposit, withdrawal, 28 transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of
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1 any stock, bond, certificate of deposit, or other monetary instrument, use of a safe deposit box, 2 or any other payment, transfer, or delivery by, through, or to a financial institution, by whatever 3 means effected. 4 The term "transaction" includes virtually any exchange of property between private 5 parties and almost any activity involving a financial institution. To be a financial transaction, 6 however, the transaction must satisfy one of four requirements: (i) it must involve the movement 7 of funds by wire or other means; (ii) it must involve the use of one or more monetary 8 instruments; (iii) it must involve the transfer of title to any real property, vehicle, vessel, or 9 aircraft; or (iv) it must involve the use of a financial institution. For transactions (i) through (iii), 10 the transaction must also affect in any way or degree interstate or foreign commerce; for 11 transactions involving financial institutions, it is sufficient if the institution itself is engaged, or 12 its activities affect, interstate or foreign commerce in any way or degree. 18 U.S.C. § 13 1956(c)(4). See United States v. Ripinsky, 109 F.3d 1436, 1444 (9th Cir. 1997)(checks drawn 14 on FDIC-insured bank is in interstate commerce and therefore need not affect interstate 15 commerce, United States v. Ladum, 141 F.3d 1328, 1339 (9th Cir. 1998)(proof that transaction 16 involves financial institutions insured by the Federal Deposit Insurance Corporation (FDIC) is 17 sufficient to meet 1956's interstate commerce requirement). 18 The term "financial institution" is defined in 18 U.S.C. § 1956(c)(6) to have the same 19 definition as given that term in 31 U.S.C. § 5312(a)(2) or its implementing regulations. Title 31, 20 United States Code, Section 5312(a)(2) includes within the meaning of "financial institutions" 21 such entities as banks; thrift institutions; securities brokers and dealers, investment bankers or 22 companies; currency exchanges; issuers, redeemers, or cashiers of travelers' checks, checks, or 23 money orders; credit card companies; insurance companies; dealers in precious metals; 24 pawnbrokers; loan or finance companies; travel agencies; licensed senders of money; telegraph 25 companies; vehicle dealers; realtors; the U.S. Postal Service; government agencies involved in 26 the aforementioned activities; and other businesses as designated by the Secretary of the 27 Treasury. The Secretary of the Treasury has also designated numerous business entities as 28 financial institutions by regulation. 31 C.F.R. § 103.11(n).
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4.

"Proceeds" Defined.

The term "proceeds" is defined as something of value which is obtained by any

3 transaction. United States v. Akintobi, 159 F.3d 401, 403-04 (9th Cir. 1998). In the context of 4 promotional money laundering, the term "proceeds" is property derived from a specified 5 unlawful activity, which property then is involved in a subsequent financial transaction. Id. 6 5. Specified Unlawful Activity. 7 The United States must prove that the proceeds were from specified unlawful activity. 8 In this case, wire fraud is a specified unlawful activity. See 18 U.S.C. § 1956 (c)(7)(A); 18 9 U.S.C. §1961(1). 10 11 6. Commingled Funds.

For "promotional" laundering, unlike "transactional" money laundering under 18 U.S.C.

12 § 1957(a), the United States does not have to segregate tainted from untainted funds in various 13 bank accounts. Instead, the United States can prove that the funds used in financial transactions 14 came from accounts in which tainted proceeds were commingled with other funds. The United 15 States need only establish a direct relationship between the illegally obtained proceeds and the 16 subsequent financial transactions charged in the Superseding Indictment. United States v. 17 Marbella, 73 F.3d 1508, 1515-16 (9th Cir. 1996) ( ". . .[I]t is sufficient to prove that the funds 18 in question came from an account in which tainted proceeds were commingled with other 19 funds"]; United States v. Garcia, 37 F.3d 1359, 1364-65 (9th Cir. 1994). 20 21 7. Merger.

The money laundering statutes contemplate a temporal progression of transactions (i.e.,

22 that the funds already have attained the status of unlawful proceeds when the money laundering 23 financial transaction is commenced). See United States v. Montoya, 945 F.2d 1068 (9th Cir. 24 1991). The same transaction, in other words, cannot at once constitute the money laundering 25 offense and the underlying specified unlawful activity that generated the funds being laundered. 26 27 28
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1 2 3 4 5 6 7 8 9 10 11

8.

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) of Section 1956 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.

12 The defendant need not know that the property was in fact the proceeds of specified unlawful 13 activity. Rather, it is sufficient if he knows the property to be the proceeds of some form of 14 felonious conduct under state, federal or foreign law. See United States v. Knapp, 120 F.3d 928, 15 932 (9th Cir. 1997). 16 17 9. Intent to Promote the Carrying on of Specified Unlawful Activity.

This element requires proof that the defendant conducted or attempted to conduct a

18 financial transaction "with the intent to promote the carrying on of specified unlawful activity." 19 Concealment is not an element of an offense under § 1956(a)(1)(A)(i). United States v. 20 Montoya, 945 F.2d 1068, 1076 (9th Cir. 1991). A defendant who conducts a financial 21 transaction with the intent to promote a criminal offense violates § 1956(a)(1)(A)(i), even if he 22 conducts the transaction openly and with no intent to disguise either the nature of the transaction 23 or the identity of the person involved. Id. (citing United States v. Jackson, 935 F.2d 832, 842 24 (7th Cir. 1991)). 25 10. Promotion. 26 To "promote the carrying on of specified unlawful activity," the United States is not 27 required to prove that the funds received from the unlawful activity were "plowed back" into that 28 specified unlawful activity. United States v. Barragan, 263 F.3d 919, 923-25 (9th Cir. 2001);
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1 United States v. Manarite, 44 F.3d 1407, 1416-17 (9th Cir. 1995) (merely converting or cashing 2 the stolen casino chips was promotional because it allowed the defendant "to reap the rewards 3 of the scheme"); United States v. Montoya, 945 F.2d 1068, 1076 (9th Cir. 1991) (depositing 4 check in defendant's bank account allowed defendant to make use of the funds received in 5 completed bribe); United States v. Estacio, 64 F.3d 477 (9th Cir. 1995)(deposit of check drawn 6 on insufficient funds promotes continuation of check kiting scheme; United States v. v. Godwin, 7 272 F.3d 659, 669 (4th Cir. 2001)(payments from proceeds to investors were meant to dispel 8 investor concerns and thereby promoted the scheme); United States v. Allen, 76 F.3d 1348, 1363 9 (5th Cir. 1996)(actions taken to avoid detection and to lull victims promotes the scheme even 10 after the victim has ceded the funds or goods to the defendant's control.). 11 12 III. TRANSACTIONAL MONEY LAUNDERING/ 18 USC SEC. 1957(a): 13 Defendant is charged in Counts 5-7 of the Superseding Indictment with engaging in 14 monetary transactions in violation of 18 U.S.C. § 1957(a). That statute is violated if a person: 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1. 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. Elements.

To prove a violation of Section 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, wire fraud; (3) that the defendant knew that the property was derived from this activity; 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/Monetary Instruments Defined.

A monetary transaction under 18 U.S.C. § 1957(f)(1) is defined as: 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
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1 2 3

transaction necessary to preserve a person's right to representation as guaranteed by the sixth amendment to the Constitution. The term "monetary instrument" means "coin or currency of the United States or of any

4 other country, travelers' checks, personal checks, bank checks, and money orders." 18 U.S.C. 5 § 1956(c)(5). Because the definition of "monetary transaction" for purposes of Section 1957 6 incorporates the definition of "monetary transaction" in Section 1956(c)(4)(B), Section 1957 7 also defines a "monetary transaction" to include transferring funds by writing a check drawn on 8 a commercial bank which is engaged in, or the activities of which affect, interstate or foreign 9 commerce in any way or degree. 10 11 3. Criminally Derived Property.

"Criminally derived property" means any property constituting or derived from, proceeds

12 obtained from a criminal offense. 18 U.S.C. § 1957(f)(2). "Specified unlawful activity" under 13 Section 1956 has the same meaning as "criminally derived property" under Section 1957. 14 United States v. Savage, 67 F.3d 1437, 1442 (9th Cir. 1995). 15 4. Knowingly Engages. 16 To violate Section 1957, a defendant must know that the transaction involves criminally 17 derived property. The government is not required to show that the defendant intended to commit 18 a crime by engaging in the monetary transaction or that the defendant intended to conceal 19 criminal proceeds. Rutgard, 116 F.3d at 1291. 20 5. Commingling. 21 The government may prove a Section 1957 violation based on the deposit of $10,000 or 22 more of criminally derived proceeds into an account that also contains innocent money. 23 Rutgard, 116 F.3d at 1291. Where the alleged violation is based on the transfer or withdrawal 24 of the funds from an account in which criminally derived proceeds are commingled with 25 innocent funds, the government must show that at least $10,000 of the funds involved in the 26 monetary transaction were criminally derived proceeds. Id. at 1291-92. 27 The United States may prove that the funds withdrawn or transferred from the various 28 bank accounts were criminally derived in any of three ways. First, the United States may prove
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1 that all the money in the various bank accounts came from illicit activities and that those illicit 2 activities were entirely fraudulent. United Sates v. Hanley, 190 F.3d 1017, 1025-26 n. 3 (9th 3 Cir. 1999); Rutgard, 116 F.3d at 1289-1293. Second, the United States may prove that all the 4 money in the respective accounts, at the time of a particular withdrawal or transfer was made, 5 was criminally derived. Id. Third, the United States may prove that the amount of a particular 6 withdrawal or transfer exceeded the total of all non-criminally derived funds in the account just 7 prior to the withdrawal or transfer. Id. For example, if the account contained $100,000.00, of 8 which half was criminally derived and half was not, any withdrawal of less than half of the funds 9 in the account, that is, of less than $50,000.00, would not involve criminally derived property. 10 IV. EVIDENTIARY ISSUES. 11 12 13 a. Non-hearsay Evidence. 1. Assertions with Direct Legal Significance/Verbal Acts.

If an out-of-court assertion has direct legal significance, regardless of its truth, it is not

14 hearsay. Words expressed that constitute a crime itself or an element of a crime have direct legal 15 significance. See, e.g., United States v. Jones, 663 F.2d 567, 571 (5th Cir. 1981) (threats against 16 judge and prosecutor admitted because statements were "paradigmatic non-hearsay" of operative 17 words of criminal action); United States v. Anfield, 539 F.2d 674, 678 (9th Cir. 1976) (assertion 18 the basis for perjury charge). 19 An out-of-court assertion may have direct legal significance as a misrepresentation. If 20 so, the statement will be introduced to prove the assertion was made and establish its falsity, not 21 its truth. Operative misrepresentations are not hearsay. See Anderson v. United States, 417 U.S. 22 211, 220 (1974); United States v. Wellington, 754 F.2d 1457, 1464 (9th Cir. 1985); United 23 States v. Hathaway, 798 F.2d 902, 904-05 (6th Cir. 1986). 24 If the significance of offered statement was solely the fact that it was made, no issue is 25 raised as to the truth of anything asserted, and the statement is not hearsay. The effect is to 26 exclude from hearsay the entire category of "verbal act" and "verbal parts of an act," in which 27 the statement itself affects the legal rights of the parties or is a circumstance bearing on conduct 28 affecting their rights. Emich Motors Corp. v. General Motors Corp., 181 F. 2d 70, 82 (7th Cir.
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1 1950, rev'd on other grounds 340 U.S. 558, 71 S.Ct. 408, 95 L.Ed. 534; United States v. 2 Bellucci, 995 F.2d 157, 161 (9th Cir. 1993) (written statements affecting the legal right of the 3 parties or is a circumstance bearing on conduct affecting their rights like a written contract or 4 certificate of insurance falls outside the definition of hearsay); United States v. Pang, 362 F.3d 5 1187 (9th Cir. 2004) (a check is a negotiable instrument, a legally operative document, and falls 6 squarely within the category of legally-operative verbal acts which are excludable from hearsay. 7 Checks, together with tellers' markings and routing stamps are commercial events which create 8 legal rights and obligations, and therefore no exception to hearsay need be found to admit them 9 into evidence. As a species of commercial paper, it is therefore self-authenticating); United 10 States v. Sliker, 751 F.2d 477, 489 (2nd Cir. 1984) (papers, including checks used to perpetrate 11 a fraud, were offered to prove that part of the scheme relating to the existence of a sham offshore 12 bank. The Court held the hearsay objection of defendant was meritless because these papers 13 were not hearsay in that they were admitted to prove the sham nature of the bank and to link the 14 defendants to it.) 15 16 2. Assertion Used as Circumstantial Evidence.

An out-of-court statement constitutes circumstantial evidence if the trier of fact may infer

17 from it, regardless of its truth, the existence or nonexistence of a fact in issue. Statements 18 offered as circumstantial evidence are not hearsay. See Sica v. United States, 325 F.2d 831, 836 19 (9th Cir. 1964) (statements were circumstantial evidence of relationship between defendant and 20 others); United States v. Martin, 773 F.2d 579, 583 (4th Cir. 1985) (bookmaking records were 21 circumstantial evidence showing that defendant was bookmaker). 22 A. Circumstantial Evidence of Fraud. 23 False out-of-court statements may be offered as circumstantial evidence of fraud. The 24 statements are not offered to prove the truth of the matters asserted; thus they are not hearsay. 25 See, e.g., Anderson v. United States, 417 U.S. 211, 216-21 (1974); United States v. Wellington, 26 754 F.2d 1457, 1464 (9th Cir. 1985) (evidence of representations to investors in real estate scam 27 admitted to show falsity); United States v. Gibson, 690 F.2d 697, 700-01 (9th Cir. 1982) 28 (assertions by salesmen established scheme to defraud); United States v. Saavedra, 684 F.2d
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1 1293 (9th Cir. 1982) (testimony by victims of wire fraud scheme admitted as circumstantial 2 evidence of conspiracy to defraud). 3 4 B. Assertion Implying Particular State of Mind of Declarant.

Out-of-court statements are admissible as circumstantial evidence of the declarant's

5 intent, knowledge, or guilty conscience. 6 A direct assertion of the declarant's present intent is hearsay, but is typically admitted as 7 an exception to the hearsay rule. See Fed. R. Evid. 803(3) (then-existing mental, emotional, or 8 physical condition). An out-of-court assertion may be introduced as circumstantial evidence 9 of the declarant's intent, regardless of its truth or falsity. See Atlantic-Pacific Construction Co., 10 Inc. v. National Labor Relations Board, 52 F.3d 260, 263 (9th Cir. 1995) (statements 11 introduced as circumstantial evidence to prove declarant's intent to act); United States v. 12 Abascal, 564 F.2d 821, 829-30 (9th Cir. 1977) (declarant's statements admitted to clarify or 13 explain his ambiguous conduct). 14 A statement is not hearsay if offered as circumstantial evidence of the declarant's 15 knowledge of facts otherwise established. See United States v. Parry, 649 F.2d 292, 295 (5th 16 Cir. 1981) (testimony regarding phone conversation admitted to show defendant had knowledge 17 of caller's identity); United States v. Frank, 494 F.2d 145, 155 (2nd Cir. 1974) (statements 18 admitted to show knowledge of transactions). 19 An out-of-court assertion, if shown by other evidence to be false, may be introduced as 20 circumstantial evidence that the declarant had a guilty conscience. See Wilson v. United States, 21 162 U.S. 613, 620-21 (1896) (false statements by defendant to explain his innocence were 22 admissible as circumstantial evidence of defendant's guilty conscience). Accord United States 23 v. Fox, 613 F.2d 99, 100-01 (5th Cir. 1980); United States v. Sawyer, 607 F.2d 1190, 1192 (7th 24 Cir. 1979); United States v. Cline, 570 F.2d 731, 735-36 (8th Cir. 1978). 25 26 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

27 person heard an assertion made by another. Where such assertions are offered to show their 28
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1 effect on the person hearing them, they are not hearsay. This type of evidence is often admitted 2 to show knowledge, notice, or motive. 3 An out-of-court assertion introduced to prove the person to whom the assertion was 4 communicated had knowledge of something is not hearsay. See Stevens v. Moore Business 5 Forms, Inc., 18 F.3d 1443, 1449 (9th Cir. 1994) (statements introduced to show witness had 6 knowledge of records); United States v. Kenney, 911 F.2d 315, 319 (9th Cir. 1990) (statements 7 to attorney admissible to prove that defendant knew he would not be granted immunity); United 8 States v. Castro, 887 F.2d 988, 1000 (9th Cir. 1989) (reports admissible to show defendant had 9 knowledge of certain information); United States v. Tamura, 694 F.2d 591, 597-98 (9th Cir. 10 1982) (same); United States v. Kutas, 542 F.2d 527, 528 (9th Cir. 1976) (statement by defendant 11 admissible to prove he knew he was harboring an escaped federal prisoner); United States v. 12 Moody, 376 F.2d 525, 530 (9th Cir. 1967) (assertions by declarant admissible to show defendant 13 was aware of unlawful practices of business enterprise). 14 Similarly, an out-of-court statement introduced to prove that the person to whom the 15 statement was communicated had notice of something is not hearsay. See Kunz v. Utah Power 16 & Light Co., 913 F.2d 599, 605 (9th Cir. 1990) (press releases admissible to show plaintiffs had 17 notice of potential flooding); Gibbs v. State Farm Mutual Insurance Company, 544 F.2d 423, 18 428 (9th Cir. 1976) (letters admissible to show defendants had received them). 19 Out-of-court statements that are communicated to a person may also be introduced as 20 circumstantial evidence of that person's motive for doing something, including whether the 21 person acted in good faith. See Jones v. Los Angeles Community College District, 702 F.2d 22 203, 205 (9th Cir. 1983) (statements admitted to show college had legitimate basis for 23 terminating plaintiff); Ostroff v. Employment Exchange, Inc., 683 F.2d 302, 305 (9th Cir. 1982) 24 (testimony introduced to show defendant believed in good faith that plaintiff was not qualified 25 for job referral). 26 27 28
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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). b. 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 v. Weiner, 578 F.2d 757, 770 (9th Cir. 1978); United States v. Calaway, 524 F.2d 609, 613 (9th Cir. 1975). Documents and records prepared by the defendant or at his direction are admissible as an admission. United States v. Johnson, 28 F.3d 1487, 1498-1499 (8th Cir. 1994). 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, . . . . The possession of a statement, and an act of defendant manifesting some reliance on it or belief in its trustworthiness, makes the statement admissible as an "adoptive admission." United States v. Carrillo and Benavidez, 16 F.3d 1046, 1048-49 (9th Cir. 1994); United States v. Ospina, 739 F.2d 448, 451 (9th Cir. 1984). In Ospina, the Ninth Circuit held that business cards found in the defendant's hotel room were admissible as adoptive admissions under Fed.
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1 R. Evid. 801(d)(2)(B) because the cards were in the possession of the defendant and because the 2 defendant acted on the information written on the cards when he traveled to the listed address 3 to pick up the cocaine. 739 F.2d at 451. In Carrillo, the Ninth Circuit held that a slip of paper 4 found on an arrested defendant, which contained numbers similar to those involved in 5 negotiations for the subject drug sale, was admissible against the defendant at his trial for the 6 drug offense under the "adopted admission" exception to the hearsay rule. The fact that the 7 prices and quantities were consistent with those discussed in the negotiations created a sufficient 8 link between the writing and the defendant's actions to permit the district court to find an 9 adoption. 16 F.3d at 1048-49. 10 Adoptive admissions by silence should not go to the jury unless the court first finds that 11 the United States has made a showing through foundational questions that the defendant was 12 present and heard the statement, and that he had an opportunity and incentive to deny the 13 statement if untrue. United States v. Sears, 663 F.2d 986, 904-05 (9th Cir. 1981); United States 14 v. Giese, 597 F.2d 1170, 1196 (9th Cir. 1979); United States v. Moore, 522 F.2d 1068 (9th Cir. 15 1975). If the United States lays a sufficient foundation, evidence with respect to the defendant's 16 silence at the time the statement was made, and his adoption of the statement, are admissible, and 17 it is for the jury to decide whether the defendant actually heard, understood, and acquiesced in 18 the statement. United States v. Monks, 774 F.2d 945, 950 (9th Cir. 1985). 19 20 3. Admission by Authorized Person. A statement by a person authorized by the party to make a statement is not hearsay.

21 Fed.R.Evid. 801(d)(2)(C). See United States v. Diez, 515 F.2d 892, 896 n.4 (5th Cir. 1975) 22 (defendant authorized accountant to talk to third party; accountant's statements were admissions 23 as to defendant). 24 4. Admission by Agent. 25 A statement by a party's agent or servant concerning a matter within the scope of the 26 agency or employment, made during the existence of the relationship, is not hearsay. 27 Fed.R.Evid. 801(d)(2)(D). The statement must pertain to a mater within the employee or agent's 28 duties. It makes no difference that the agent or employee is not authorized to make disclosures.
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1 An authorization to speak is not a requirement of Rule 801(d)(2)(D). After the agency 2 relationship is established, Rule 801(d)(2)(D) requires only that the statement come within the 3 scope of the agency or employment. United States v. Chappell, 698 F.2d 308, 312 (7th Cir. 1983). 4 c. Business Records. 5 6 7 8 9 10 11 12 13 14 15 16 Rule 803, Fed. R. Evid., provides: The following are not excluded by the hearsay rule even though the declarant is available as a witness: *** (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, or by certification that complies with Rule 902(11), Rule 902(12), or a statute permitting certification 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

17 "qualified witness" must establish that: (1) the writing was made or transmitted by a person with 18 knowledge at or near the time of the incident recorded; and (2) the record is kept in the course 19 of a regularly conducted business activity. Kennedy v. Los Angeles Police Department, 901 20 F.2d 702, 717 (9th Cir. 1990). 21 A "qualified witness" can be anyone who understands the record keeping system 22 involved. United States v. Ray, 930 F.2d 1368, 1370 (9th Cir. 1990). It is not necessary that this 23 witness be the one who personally generated the document or that this person verify the 24 underlying information. Id. Nor is it necessary that the qualified witness have been employed 25 when the records were prepared, United States v. Evans, 572 F.2d 455, 490 (5th Cir. 1978), or 26 have personal knowledge of the particular evidence in the record. United States v. Reese, 568 27 F.2d 1246, 1252 (6th Cir. 1977). 28
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1

The requirement that a record be "made at or near the time" of the incident recorded

2 means that the record be created within some reasonable time of the incident. For example, a 3 computer printout prepared eleven months after the close of year has been held to be 4 contemporaneous. United States v. Russo, 480 F.2d 1228, 1241 (6th Cir. 1973). That a record 5 was "received" rather than "made" in the ordinary course of business does not preclude its 6 admissibility under Rule 803(6). United States v. Flom, 558 F.2d 1179, 1182-1183 (5th Cir. 7 1977); United States v. Carranco, 551 F.2d 1197, 1200 (10th Cir. 1977); United States v. 8 Pfeiffer, 539 F.2d 668, 670-671 (8th Cir. 1976). 9 In offering a document as a business record, the United States is not required to prove 10 who created the document or precisely when it was made. As the Ninth Circuit has noted, 11 ""there is no requirement that the government establish when and by whom the documents were 12 prepared." Ray, 920 F.2d at 565. See also United States v. Arias-Villanueva, 998 F.2d 1491, 13 1503 (9th Cir. 1993) (to be admissible "there is no requirement that the government establish 14 when and by whom the documents were prepared"); Miller v. Fairchild Industries, Inc., 885 15 F.2d 498, 514 (9th Cir. 1989) (`[o]bjections, relating to the identity or competency of the actual 16 preparer, may [be] relevant to the evidentiary weight or credibility of the documents, but [do] 17 not [affect] their admissibility'). 18 Moreover, the fact that a business record may itself contain hearsay within hearsay does 19 not make the record inadmissible if it was relied upon in the ordinary conduct of the business. 20 See Ray, 920 F.2d at 565; Clark v. City of Los Angeles, 650 F.2d 1033, 1037 (9th Cir. 1981) 21 (hearsay in business records is admissible if information furnished `in the regular course of 22 business'). In other words, if a document from another is received and retained by a business 23 and held in its regular course of business, it is admissible as the business record of that business. 24 United States v. Childs, 5 F.3d 1328, 1332-1333 (9th Cir. 1993) (auto dealers kept and relied on 25 records in the regular course of business; it did not matter that they did not create the records. 26 Records admitted pursuant to Fed.R.Evid. 803(6)); United States v. Flom, 558 F.2d 1179, 1182 27 (5th Cir. 1977) (invoices received by defendant's company that were held by defendant it its 28 regular course of business but were prepared by sending company were admissible as business
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1 record of defendant pursuant to Fed.R.Evid. 803(6); United States v. Carranco, 551 F.2d 1197, 2 1200 (10th Cir.) (Testimony through defendant's company established that invoices were 3 received and held in the regular course of business as business records. No testimony of 4 preparing company was offered. Trustworthiness derived from ordinary routine use of invoices 5 as defendant's records. Freight bill admitted upon testimony of receiving company that freight 6 bills were adopted and relied on by receiving company as a business record. An employer of 7 defendant's company further testified that the freight bills received from larger carriers were 8 used to inventory the items shipped in their trucks.) In accord, see United States v. Ulrich, 580 9 F.2d 765, 771-72 (5th Cir. 1978) (inventory schedules and manufacturer's statements prepared 10 and furnished by other sources were kept in the regular course of the dealership's business, 11 integrated into their records and used by it to inventory cars.) 12 d. Authenticity of Documents. 13 Authentication requires sufficient evidence to support a finding that the matter in question 14 is what the proponent claims it is. Fed. R. Evid. 901(a). The burden of proof for authentication 15 of a document is slight. All that is required is a foundation from which the trier of fact can draw 16 an inference that the evidence is what it is claimed to be by the proponent. United States v. 17 Tank, 200 F.3d 627, 630 (9th Cir. 2000). The sufficiency of the showing of authenticity of a 18 document is a matter within the sound discretion of the trial judge. United States v. King, 472 19 F.2d 1, 7 (9th Cir. 1973). The authenticity of a document may be shown by circumstantial 20 evidence. United States v. Baxter, 492 F.2d 150, 164-65 (9th Cir. 1973). 21 Evidence of "chain of custody" is not necessary to authenticate documents. For example, 22 in United States v. Georgalis, 631 F.2d 1199, 1205-06 (5th Cir. 1980), the court ruled that 23 certain letters held in the government's possession for five years were admissible without 24 showing a chain of custody. The court noted that Fed. R. Evid. 901(b)(4) specifically allowed 25 reliance on appearance, contents, and surrounding circumstances for the authentication of the 26 letters. 27 Also instructive is United States v. Sliker, 751 F.2d 477, 488 (2d Cir. 1984), where the 28 police in executing a search warrant seized papers from the home of the defendant. The records
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1 seized included a telephone and address book, a telex, checks, a ledger and index cards recording 2 numerous checks. The records were admitted in connection with testimony by the police who 3 seized them during the search. One police officer, who had seen the defendant's signature 4 before, testified that the defendant had written certain of the papers. The defendant objected to 5 the admission of the documents on the grounds that they were insufficiently authenticated and 6 some of them constituted inadmissible hearsay. These papers were offered to prove the 7 existence of a sham offshore bank as part of a fraud scheme. Relying on Fed. R. Evid. 901(b)(4), 8 the Court of Appeals held that the papers were relevant regardless of their author to prove the 9 fraudulent scheme and that the contents of the documents, taken in conjunction with the place 10 where they were seized, provided sufficient basis to establish their authenticity. 11 An exhibit is admissible when it has been identified as being the same object about which 12 testimony is given if it is stated to be in substantially the same condition as at the time of the 13 event in question. United States v. Godoy, 528 F.2d 281, 283 (9th Cir. 1975); Gallego v. United 14 States, 276 F.2d 914, 917 (9th Cir. 1960). Varying testimony concerning custody affects the 15 weight and not the admissibility of evidence. Godoy, 528 F.2d at 284. 16 17 e. Summary and Demonstrative Evidence. Charts may be used in opening statements where they do no more than assist the jury in

18 understanding the nature of the proof they are about to hear. See United States v. De Peri, 778 19 F.2d 963, 978-79 (3rd Cir. 1985); United States v. Churchill, 483 F.2d 268, 274 (1st Cir. 1973); 20 United States v. Rubino, 431 F.2d 284, 289-90 (6th Cir. 1970). Where a summary chart is not 21 itself admitted in evidence, the Court should give a limiting instruction advising the jury that the 22 chart is not evidence but is only an aid to the jurors' understanding the evidence. United States 23 v. Scales, 594 F.2d 558 (6th Cir. 1979). 24 Rule 1006 provides that evidence may be admitted "in the form of a chart, summary, or 25 calculation" where "[t]he contents of voluminous writings, recordings, or photographs" cannot 26 conveniently be examined in court. Charts may be admitted in evidence to illustrate testimony, 27 to coordinate underlying facts that have been placed in evidence, and to summarize such facts. 28 United States v. Saniti, 604 F.2d 603, 605 (9th Cir. 1979). Trial courts are given wide discretion
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1 in the introduction of summary evidence. United States v. Williams, 952 F.2d 1504, 1519 (6th 2 Cir. 1991). 3 A summary witness should be allowed to remain in the courtroom during the trial, in 4 addition to the case agent under Fed.R.Evid. 615. See United States v. Lussier, 929F.2d 25, 30 5 (1st Cir. 1991). The nature of a summary witness' testimony requires that he draw conclusions 6 from the evidence presented at trial. United States v. Esser, 520 F.2d 213, 218 (7th Cir. 1975). 7 Under Rule 1006, the underlying documents or recordings need not be "in evidence." See 8 United States v. Smyth, 556 F.2d 1179, 1184 (5th Cir. 1977). The rule only requires that the 9 summaries be based on admissible documents which have previously been made available to the 10 opposing side at a reasonable time and place. United States v. Johnson, 594 F.2d 1253, 1255 11 (9th Cir. 1979). It is also not necessary that the witness presenting the summary be an expert 12 witness or have specialized knowledge if the chart does not contain complicated calculations 13 requiring expert explanation. United States v. Jennings, 724 F.2d 436, 443 (5th Cir. 1984). 14 Under Rule 1006, the summary itself is the evidence which the trier of fact may consider. 15 United States v. Strissell, 920 F.2d 1162 (4th Cir. 1990). The jury may take summary evidence, 16 like other evidence, with them into the jury room. United States v. Orlowski, 808 F.2d 1283, 17 1289 (8th Cir. 1986). 18 Summaries, including the captions or headings of charts, may reflect conclusions or 19 assumptions that are supported by the evidence. Jennings, 724 F.2d at 442; United States v. 20 Diez, 515 F.2d 892, 905 (5th Cir. 1975). There is no requirement that the government's 21 summary charts reflect the defendant's version of the facts or theory of the case. United States 22 v. Ambrosiani, 610 F.2d 65 (1st Cir. 1979); Myers v. United States, 356 F.2d 469, 470 (5th Cir. 23 1966). Examples of allowed captions and headings include: "Total Net Unreported Income," 24 United States v. Lacob, 416 F.2d 756, 762 (7th Cir. 1969); "Amounts Not Reported on Taxable 25 Gains," Diez, 515 F.2d at 905; and "Falsified Data," United States v. Smyth, 556 F.2d 1179, 26 1182 (5th Cir. 1977). 27 In conclusion, where material is voluminous, the material is admissible, and has been 28 made available to the defendants, then a summary chart may be used and admitted as evidence
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1 without a limiting instruction. Accordingly, the government respectfully requests that this Court 2 permit the government to admit the summary charts into evidence under Rule 1006, without 3 limiting instruction. 4 RESPECTFULLY SUBMITTED this 3rd day of April, 2006. 5 6 7 8 9 10 s/Stephen W. Laramore STEPHEN W. LARAMORE JOHN LOPEZ Assistant U.S. Attorneys PAUL K. CHARLTON United States Attorney District of Arizona

11 Certificate of Service 12 I hereby certify that on April 3, 2006, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic 13 Filing to the following CM/ECF registrants: Deborah Euler-Ajayi 14 s/Stephen W. Laramore 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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