throbber
UNITED STATES COURT OF APPEALS
`For the Fifth Circuit
`___________________________
`
`No. 03-10228
`___________________________
`
`UNITED STATES OF AMERICA,
`
`VERSUS
`
`United States Court of Appeals
`Fifth Circuit
`F I L E D
`June 18, 2004
`
`Charles R. Fulbruge III
`Clerk
`
`Plaintiff - Appellee,
`
`LISA L. DALE; KEVIN DEWAYNE SPENCER,
`Defendants - Appellants.
`_________
`
`Appeals from the United States District Court
`for the Northern District of Texas
`
`Before DAVIS, PRADO and PICKERING, Circuit Judges.
`
`W. EUGENE DAVIS, Circuit Judge:
`
`Defendant Kevin Spencer appeals his conviction and defendant Lisa Dale appeals her
`
`sentence on charges of securities fraud, wire fraud, money laundering and related charges. Based
`
`on our conclusion that the district court did not err in its disposition of trial matters raised by
`
`Spencer, nor did it err in applying the Sentencing Guidelines to Dale, we AFFIRM.
`
`I.
`
`Lisa Dale and Kevin Spencer, along with two co-defendants, were indicted on charges
`
`relating to a Ponzi scheme they ran. The two co-defendants pled guilty. Spencer was found
`
`guilty by a jury of one count of securities fraud (in violation of 15 U.S.C. §§ 1(a) & 77x and 18
`
`U.S.C. § 2), one count of interstate transportation of stolen property (in violation of 18 U.S.C. §§
`
`2314 & 2), several counts of wire fraud (in violation of 18 U.S.C. §§ 1343 & 2), several counts of
`
`money laundering (in violation of 18 U.S.C. §§ 1956(a)(1)(A)(I) & 2) and several counts of
`
`

`
`engaging in monetary transactions in property derived from specified unlawful activity (in
`
`violation of 18 U.S.C. §§ 1957 & 2). Dale was found guilty by a jury of two counts of securities
`
`fraud (in violation of 15 U.S.C. §§ 1(a) & 77x and 18 U.S.C. § 2), two counts of interstate
`
`transportation of stolen property (in violation of 18 U.S.C. §§ 2314 & 2), several counts of wire
`
`fraud (in violation of 18 U.S.C. §§ 1343 & 2), and several counts of money laundering (in
`
`violation of 18 U.S.C. §§ 1956(a)(1)(A)(I) & 2).
`
`The charges arose from a Ponzi scheme. We focus on Spencer’s role in the transaction
`
`because only he raises sufficiency of the evidence issues on appeal. Dale and a co-defendant
`
`started Progressive Financial Services and Group (“Progressive”) as a check cashing company.
`
`Progressive was used to solicit investors for the check cashing business and later for trading
`
`programs promising investment in foreign capital markets and various commodities. Few
`
`investments were made and most of the funds were used on personal luxuries and to perpetuate
`
`the Ponzi scheme. Eventually Progressive filed bankruptcy, listing the principal and interest owed
`
`to the investors as liabilities.
`
`Spencer owned and ran Spencer Mortgage, a company specializing in serving people with
`
`bad credit. After Spencer and Dale became acquainted through one of the other co-defendants,
`
`Spencer agreed to let Progressive use its Spencer Mortgage bank accounts for a fee. Before
`
`Progressive funds from investors were deposited, the Spencer Mortgage account had a negative
`
`balance. Spencer made deposits, gave Progressive investors wiring instructions over the phone
`
`and sent confirmations that he had received wire transfers. Over $5 million in investors’ funds
`
`went into the Spencer Mortgage accounts. Spencer wrote checks to investors for false returns
`
`out of the accounts. He also wrote checks for cars, boats and houses using these funds. Spencer
`
`2
`
`

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`took $581,865.20 of the investors’ funds for himself, including $200,000 for a house after
`
`investors began questioning why they had not been paid as promised. Spencer also used $17,200
`
`of the funds to pay an old business debt. Spencer prepared a letter containing false information
`
`about Spencer Mortgage for a co-defendant to use for marketing purposes. He attended sales
`
`pitches by the co-defendant and did not correct the lies told to investors.
`
`Dale and Spencer were sentenced to 78 months in prison and 3 years supervised release
`
`and ordered to pay special assessments. Dales’s Presentence Report did not include an
`
`enhancement under U.S.S.G. § 2F1.1(b)(6)(A), which applies to a defendant whose offense
`
`substantially jeopardizes the safety and soundness of a financial institution. The government
`
`objected to the PSR and Addendum because this enhancement was omitted. The district court
`
`sustained the objection noting that although the court was unable to find any federal case law
`
`addressing the issue, it concluded that Progressive appears to fall within the definition of a
`
`financial institution.
`
`Spencer and Dale appeal.
`
`II.
`
`Spencer raises several trial related issues as a challenge to his conviction.
`
`A.
`
`Spencer argues first that the district court erred in denying his motion to sever his trial
`
`from that of Lisa Dale. We review that decision for abuse of discretion. United States v. Nutall,
`
`180 F.3d 182, 186 (5th Cir. 1999). In order to prevail, Spencer must show that “(1) the joint
`
`trial prejudiced him to such an extent that the district court could not provide adequate
`
`protection; and (2) the prejudice outweighed the [G]overnment’s interest in economy of judicial
`
`3
`
`

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`administration.” United States v. Solis, 299 F.3d 420, 440 (5th Cir. 2002), cert. denied, 537 U.S.
`
`1060 (2002) (quoting United States v. Richards, 204 F.3d 177, 193 (5th Cir.), cert. denied, 531
`
`U.S. 826 (2000)). Spencer claims that the jury was exposed to a significant amount of testimony
`
`dealing with his co-defendant whose role in the crime was broader than his. However, joinder is
`
`proper where a single scheme to defraud is carried out through the operations of different
`
`companies, even if a defendant not connected with all of the companies is charged on only some
`
`of the substantive counts. United States v. Chavis, 772 F.2d 100, 111 (5th Cir. 1985). Also,
`
`disparity in the amount of evidence presented against co-defendants does not justify severance in
`
`the absence of a showing of prejudice. United States v. Hogan, 763 F.2d 697, 705 (5th Cir.
`
`1985). Spencer makes only a general claim of prejudice by spill-over effect. This does not rise to
`
`the level to outweigh the government’s interest in judicial economy. The district court did not
`
`abuse its discretion in denying Spencer’s motion to sever.
`
`B.
`
`Spencer argues next that the district court abused its discretion in admitting, as extrinsic
`
`evidence, evidence that Spencer used investors’ money to repay an overdue business debt. The
`
`district court admitted the testimony of Sharon Brock concerning a $17,200 wire transfer she
`
`received from Spencer from investor funds. Brock also testified that Spencer sent her the money
`
`because she had invested the funds with Spencer and that Spencer offered her a 200% return on
`
`her investment. These facts were not part of the scheme charged in the indictment. Spencer
`
`contends that this is extrinsic evidence because Spencer was not charged with defrauding Brock.
`
`The government contends that this is not extrinsic evidence because it was presented to show that
`
`Spencer was using the investor’s funds, which should have been invested as promised, to instead
`
`4
`
`

`
`repay a loan unrelated to the investment programs. The admission of this evidence is reviewed for
`
`abuse of discretion. United States v. Buck, 324 F.3d 786, 790 (5th Cir. 2003).
`
`Brock’s testimony is not extrinsic evidence. Rather it is intrinsic as it was presented to
`
`show the nature of the Ponzi scheme in that Spencer used investors’ funds to repay a loan
`
`unrelated to the investment programs. Evidence is intrinsic and admissible when it and the crime
`
`charged are intertwined, both acts are part of the same criminal episode or the other act was a
`
`necessary preliminary to the crime charged. United States v. Torres, 685 F.2d 921, 924 (5th Cir.
`
`1982). The district court appropriately limited this testimony to avoid the mention of fraud. No
`
`error resulted from the admission of this testimony.
`
`C.
`
`Spencer argues that the district court erred in failing to compel the government to disclose
`
`FBI Form 302s to Spencer under the Jencks Act, Brady or Giglio. Before and during the trial
`
`Spencer made requests for FBI Form 302s under its request for Brady, Giglio and Jencks Act
`
`material. Brady v. Maryland, 373 U.S. 83 (1963)(exculpatory material); Giglio v. United States,
`
`405 U.S. 150 (1972)(material that would impeach a government witness); Jencks Act, 18 U.S.C.
`
`§ 3500 (statements of any witness). At trial Spencer asked that the forms for each witness be
`
`reviewed in camera to see if they contained any such material. The court reviewed them and
`
`determined (with one small exception) that they contained no material required to be disclosed.
`
`Spencer now requests that this court review the sealed Form 302s to determine whether they
`
`contain Jencks, Brady or Giglio material and thus whether the district court erred in refusing the
`
`compel the government to produce them to the defense. If the district court erred, Spencer
`
`submits that reversal of his conviction is required.
`
`5
`
`

`
`The district court’s conclusion that a document does not contain a Jencks Act “statement”
`
`is reviewed for clear error. 18 U.S.C. § 3500. United States v. Brown, 303 F.3d 582, 591 (5th
`
`Cir. 2002), cert. denied, 537 U.S. 1173 (2003). A denial of a discovery request is reviewed for
`
`abuse of discretion. United States v. Gonzalez, 466 F.2d 1286, 1288 (5th Cir. 1972).
`
`The government argues that a defendant seeking in camera inspection to determine
`
`whether documents contain Brady material must make a “plausible showing” that the file will
`
`produce material evidence. United States v. Lowder, 148 F.3d 548, 550-551 (5th Cir. 1998);
`
`United States v. Martin, 565 F.2d 362, 364 (5th Cir. 1978). Also, to obtain production of a
`
`statement under the Jencks Act, the defendant must make a preliminary showing that there is a
`
`producible document. United States v. Edwards, 702 F.2d 529, 531 (5th Cir. 1983). Spencer
`
`makes no claims as to what the forms may contain. The district court nevertheless carefully
`
`reviewed the documents in question and determined, with minor exceptions, that they did not
`
`qualify as Jencks Act material and did not contain material required to be disclosed under Brady
`
`or Giglio. Our own independent review confirms these conclusions and we find no error in the
`
`district court’s disposition of this issue.
`
`D.
`
`Spencer asserts that the evidence was insufficient to convict him of the crimes charged.
`
`Specifically, Spencer argues that the evidence was insufficient to prove that he knew of the
`
`fraudulent scheme, that he knew that the money in the Spencer Mortgage account was obtained
`
`by fraud or that he intended to participate in the fraudulent scheme. Lack of proof of these
`
`elements would negate his convictions. Essentially, Spencer is claiming that he had no knowledge
`
`of the fraudulent nature of his co-defendants’ activities and that he simply acted on the orders of
`
`6
`
`

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`the others whom he viewed as his superiors in a legitimate business. He also claims that he did
`
`not lie to investors and that the co-defendants gave instructions to investors to wire funds into his
`
`account without his authorization.
`
`The following evidence in the record supports Spencer’s convictions. Spencer made the
`
`first deposit of investors’ funds into his account. He took no steps to prevent the co-defendants
`
`from using his account. Spencer also did not return the money that “appeared in his account”
`
`without his permission. Rather he was paid a fee and used the money in the account for personal
`
`luxuries including a home and a car. Spencer lied about the size and success of Spencer
`
`Mortgage and did not correct lies told to investors by his co-defendants. Spencer was in a
`
`position to see the investors’ funds going into the account with no investment income. He wrote
`
`checks to investors which led them to believe they were earning a return on their money. Spencer
`
`also took $100,000 from money that an investor asked him to return.
`
`The above outlined evidence is clearly sufficient to support a conclusion that Spencer
`
`knew of the fraudulent nature of the scheme and intended to participate. Accordingly, we find no
`
`merit to Spencer’s claim of insufficient evidence.
`
`E.
`
`Spencer’s final complaint is that the district court improperly instructed the jury in
`
`conjunction with the wire fraud counts that a defendant is criminally liable for acts he did not
`
`engage in based on participation in a joint scheme where the extraneous acts are a reasonably
`
`foreseeable consequence of the scheme. As Spencer objected to the instruction, this court
`
`reviews for abuse of discretion. United States v. Daniels, 281 F.3d 168, 183 (5th Cir. 2002), cert.
`
`denied, 535 U.S. 1101 (2002). The question is whether the “charge, as a whole is a correct
`
`7
`
`

`
`statement of the law and whether it clearly instructs jurors as to the principles of the law
`
`applicable to factual issues confronting them.” Id.
`
`There is no merit to the claim. As Spencer acknowledges, the challenged instruction
`
`follows the Fifth Circuit Pattern Criminal Jury Instruction for “Conspirator’s Liability for
`
`Substantive Count.” Spencer’s complaint is that the second prong of the instruction, covering
`
`acts (presumably use of wires) that are a reasonably foreseeable consequence of the scheme, goes
`
`beyond the principle that co-conspirators are responsible for acts in furtherance of the scheme.
`
`However, the instruction given is a correct statement of the law. “One ‘causes’ the mail to be
`
`used when one 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, even though not actually
`
`intended.” United States v. Finney, 714 F.2d 420, 423 (5th Cir. 1983), citing United States v.
`
`Kenofskey, 243 U.S. 440, 37 S. Ct. 438, 61 L. Ed. 836 (1917). The charge as given was proper.
`
`III.
`
`Dale’s sole issue on appeal relates to a four-level increase imposed pursuant to U.S.S.G. §
`
`2F1.1(b)(6)(A) (1997). Under that provision, if the offense “substantially jeopardized the safety
`
`and soundness of a financial institution,” the defendant’s offense level is increased by 4 levels and
`
`if the resulting offense level is less than 24, the offense level is increased to 24. Application Note
`
`14 defines “financial institution” as follows:
`
`“Financial institution,” as used in this guideline, is defined to include any institution
`described in 18 U.S.C. § § 20, 656, 657, 1005-1007, and 1014; any state or
`foreign bank, trust company, credit union, insurance company, investment
`company, mutual fund, saving (building and loan) association; union or employee
`pension fund; any health, medical or hospital insurance association; brokers and
`
`8
`
`

`
`dealers registered, or required to be registered, with the Securities and Exchange
`Commission, futures commodity merchants and commodity pool operators
`registered, or required to be registered, with the Commodity Futures Trading
`Commission; and any similar entity, whether or not insured by the federal
`government. (Emphasis added).
`
`Dale argues that Progressive is not a “financial institution” and that the Sentencing Commission
`
`exceeded the Congressional directive in FIRREA by including nonfederally insured entities in the
`
`definition of “financial institution.”
`
`A.
`
`Dale’s Presentence Report did not include the enhancement because the probation office
`
`concluded that Progressive was simply a vehicle used to commit the securities fraud and was not a
`
`legitimate investment company making legitimate investments. The government objected and the
`
`district court sustained the objection upon finding that Progressive falls within the definition of a
`
`financial institution. The district court stated its belief that whether or not the company
`
`conducted itself as a legitimate investment company was irrelevant. It found that Progressive was
`
`an investment company and sold or attempted to sell securities nationwide. The district court also
`
`found that one of the co-defendants qualified as a broker/dealer and that the misapplication of the
`
`funds received from those sales resulted in the insolvency of Progressive. We review the district
`
`court’s factual findings for clear error, United States v. Texas, 168 F.3d 741, 752 (5th Cir. 1999),
`
`and its application and interpretation of the Sentencing Guidelines de novo. United States v.
`
`Montoya-Ortiz, 7 F.3d 1171, 1179 (5th Cir. 1993).
`
`Dale makes three arguments that Progressive is not a financial institution. First, she
`
`argues that Progressive was not a legitimate organization, it was merely a Ponzi scheme and the
`
`guideline was meant to punish those who harm legitimate, sound financial institutions by their
`
`9
`
`

`
`fraudulent conduct. The Seventh Circuit rejected this argument in United States v. Randy, 81
`
`F.3d 65, 67-68 (7th Cir. 1996). In Randy, the defendant had founded a phony (unlicensed) bank
`
`and used it as a vehicle to defraud his investors. Finding it to be a financial institution for
`
`purposes of this sentencing guideline, the Seventh Circuit said “when it walks and talks like a
`
`financial institution, even if it’s a phony one, it is, in our view, covered by § 2F1.1(b)(6).” Id.
`
`We agree. In connection with this argument, Dale argues that because the co-defendants owned
`
`Progressive, the purpose of the provision does not apply because it was victimized by their own
`
`conduct. This court has rejected that position. United States v. McDermot, 102 F.3d 1379, 1384
`
`(5th Cir. 1996), states that there is “no conceivable basis” for a conclusion that “the Sentencing
`
`Commission did not intend for § 2F1.1(b)(6) to apply to a defendant who jeopardized the safety
`
`and soundness of an institution he himself established.” McDermott also points out that the focus
`
`is not “only on the institution qua institution” but also on others who fail to receive the benefits
`
`for which they contracted. Application Note 15 to 2F1.1(b)(6) notes that an offense shall be
`
`deemed to have substantially jeopardized the safety and soundness of a financial institution if as a
`
`consequence of the offense, the institution was “unable to refund fully any deposit, payment or
`
`investment.” That is certainly the case with Progressive.
`
`Dale also argues that Progressive was not an investment company because it did not make
`
`any investments. There is no definition of investment company in the guidelines or related
`
`statutes. However, Progressive held itself out as an investment company. It solicited investments
`
`for the check cashing business and for trading programs involving investments in foreign capital
`
`markets and various commodities. We agree with the district court that whether the company
`
`actually made any investments is irrelevant.
`
`10
`
`

`
`Dale argues finally that Progressive was not a financial institution because it was not, as
`
`the government argued, a “broker or dealer . . . required to be registered with the Securities and
`
`Exchange Commission.” Because we conclude that Progressive qualifies as a financial institution
`
`for purposes of this guideline provision because it was an investment company, we need not
`
`consider this argument. However, we note that the definition of broker and the underlying
`
`definition of security are broad enough to encompass Progressive. Under the Security Exchange
`
`Act, the “term ‘broker’ means any person engaged in the business of effecting transactions in
`
`securities for the account of others.” 15 U.S.C. § 78c(a)(4). A “security” is broadly defined to
`
`include a long list of investment devices. 15 U.S.C. § 78c(a)(11). The basic test laid down by the
`
`Supreme Court in SEC v. W. J. Howey Co., 328 U.S. 293 (1946), is whether “the person invests
`
`his money in a common enterprise and is led to expect profits solely from the efforts of the
`
`promoter or a third party.” As described by Dale, Progressive solicited persons throughout the
`
`United States and Puerto Rico to invest money in trading programs. They represented to
`
`investors that Progressive was a lucrative check cashing business, obtaining profits of 50 percent
`
`for short term loans to individuals and that it could pay investors 25 to 50 percent per month from
`
`its profits from the loans to individuals. Progressive represented that these returns were
`
`guaranteed. The investment programs Progressive offered to investors, although fraudulent,
`
`clearly fall within the definition of a security. Since Progressive sold securities for the account of
`
`others, its investors, it was a broker. Section 15(a)(1) of the Securities Exchange Act requires
`
`brokers to register with the SEC. 15 U.S.C. § 78c(a)(1). An expert testified on these points at
`
`the sentencing hearing. The district court’s conclusion that Progressive was a financial institution
`
`on this basis was correct.
`
`11
`
`

`
`In summary, Progressive presented itself as an investment company to its victims. Also,
`
`the trading programs it offered were securities and Progressive was a broker under securities
`
`laws. These facts provide two separate bases under which the company falls squarely within the
`
`definition of a financial institution as set forth above. The fact that the investment company was a
`
`sham and that the financial institution victimized was owned by the defendants does not prevent it
`
`from falling within the enhancements called for in § 2F1.1. The harm caused by Progressive,
`
`losses to its investor victims, was the type of harm contemplated by the phrase “jeopardized the
`
`safety and security of the financial institution” as set forth in the Application Notes. This
`
`enhancement was correctly applied. 1
`
`B.
`
`Dale also argues that the Sentencing Commission exceeded the Congressional directive in
`
`FIRREA by including nonfederally insured entities in the definition of “financial institution” in
`
`U.S.S.G. § 2F1.1(b)(6)(A). In Section 961(m) of the Financial Institutions Reform, Recovery and
`
`Enforcement Act of 1989 (FIRREA), Pub.L. 101-73, Congress directed the Sentencing
`
`Commission to promulgate guidelines to provide for a “substantial period of incarceration for a
`
`violation of, or a conspiracy to violate, section 215, 656, 657, 1005, 1006, 1007, 1014, 1341,
`
`1343 or 1344 of title 18, United States Code, that substantially jeopardizes the safety and
`
`soundness of a federally insured financial institution.” (Underlining added.) The guideline
`
`enacted in response to this directive, § 2F1.1 specifically covers non-federally insured financial
`
`institutions in the definition of financial institution. The Background of U.S.S.G. §
`
`Dale’s argument against the application of this enhancement based on recent
`1
`amendments to the 2B1.1(b)(12)(B), the successor guideline to U.S.S.G. § 2F1.1(b)(6)(A), are
`without merit.
`
`12
`
`

`
`2F1.1(b)(6)(A) (1997), states that “Subsection (b)(6)(A) implements, in a broader form, the
`
`instruction to the Commission in Section 961(m) of Public Law 101-73.” Two cases from other
`
`circuits have held that given the Sentencing Commission’s broad authority to promulgate
`
`guidelines for sentences and its specific statement that it was exercising it in this situation to enact
`
`a rule that was broader than the Congressional referenced directive, the Commission did not
`
`exceed its authority in enacting the definition of financial institution in § 2F1.1. United States v.
`
`Lauer, 148 F.3d 766, 769 (7th Cir. 1998); United States v. Ferrarini, 219 F.3d 145, 160 (2d Cir.
`
`2000). This circuit has noted that the language in the Background Note (“in broader form”)
`
`indicates that the Commission is exercising its authority to define an offense beyond a specific
`
`directive of Congress. United States v. Soileau, 309 F.3d 877, 881 (5th Cir. 2002). Accordingly,
`
`we conclude, following the 7th and 2d Circuits, that the promulgation of this provision was within
`
`the authority of the Sentencing Commission.
`
`IV.
`
`For the foregoing reasons, Spencer’s conviction and Dale’s sentence are AFFIRMED.
`
`13

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