109 F.3d 660 (10th Cir. 1997), 96-6305, United States v. Cochran

Docket Nº:96-6305.
Citation:109 F.3d 660
Party Name:UNITED STATES of America, Plaintiff-Appellee, v. Robert M. COCHRAN, Defendant-Appellant.
Case Date:March 25, 1997
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit
 
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Page 660

109 F.3d 660 (10th Cir. 1997)

UNITED STATES of America, Plaintiff-Appellee,

v.

Robert M. COCHRAN, Defendant-Appellant.

No. 96-6305.

United States Court of Appeals, Tenth Circuit

March 25, 1997

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B.J. Rothbaum, Jr. (Drew Neville and Russell Cook with him, on the brief), Linn & Neville, P.C., Oklahoma City, OK, for Defendant-Appellant.

Susan Dickerson Cox, Assistant U.S. Attorney (Mary C. Spearing, Acting U.S. Attorney, Mary M. Smith and Michael C. James, Assistant U.S. Attorneys, with her, on the brief), Oklahoma City, OK, for Plaintiff-Appellee.

Richard H. Walker, General Counsel, Eric Summergard, Principal Assistant General Counsel, Adam C. Pritchard, Attorney, and Paul Gonson, Solicitor, Securities and Exchange Commission, Washington, DC, for Amicus Curiae, The Securities and Exchange Commission.

Before BALDOCK, KELLY and LUCERO, Circuit Judges.

PAUL KELLY, Jr., Circuit Judge.

Defendant-appellant Robert M. Cochran appeals from his conviction on five counts of wire fraud, 18 U.S.C. §§ 2, 1343, 1346, one count of interstate transportation of stolen property, 18 U.S.C. §§ 2, 2314, and two counts of money laundering, 18 U.S.C. §§ 1956, 1957. The jury acquitted on seven counts of wire fraud and six counts of money laundering and also acquitted Mr. Cochran's codefendant. Mr. Cochran was sentenced to 87 months imprisonment, ordered to provide restitution of up to $489,241.09, to pay a fine of $50,000 and $400 in special assessments and, following release, to serve three years on probation. We stayed his reporting date and expedited his appeal. 1 Our jurisdiction arises under 28 U.S.C. § 1291. We reverse.

Background

This is a case about greed, and not only that of Defendant. That said, greed and criminal liability are not necessarily synonymous. Mr. Cochran was the head of the Oklahoma City Municipal Bond Underwriting Department of Stifel, Nicolaus & Company, Inc. (Stifel). Stifel participated in underwriting several municipal bond issues and received compensation from both the issuers and various third-party financial institutions. The pertinent transactions for our purposes include: (1) a 1992 Oklahoma City Airport Trust transaction (OCAT transaction) where the government charged that Mr. Cochran and his acquitted codefendant Michael B. Garrett received the benefit a $489,241.09 secret payment, and (2) a 1992 Sisters of St. Mary Healthcare System transaction (SSM transaction) where the government charged that Mr. Cochran received the benefit of a $100,000 secret payment.

A. OCAT Transaction

The OCAT transaction involved an issuance of almost $77 million in taxable 20-year revenue bonds by the Oklahoma City Airport Trust Authority to finance a "transfer center" to be leased by the federal Bureau of Prisons. Stifel was named the co-managing underwriter for this "BBB-rated" bond issue and received a portion of the 3.2 percent underwriting fee ($2.5 million). The bonds were somewhat unique and carried a lower credit rating.

Because interest received by the bondholders was taxable, OCAT could earn an unrestricted amount of interest on the bond proceeds. In addition to acting as underwriter

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for the offering, Stifel also brokered a collateralized guaranteed investment contract between OCAT and the Postipankki Bank, a Finnish bank with branches in the United States. Such a contract allows the issuer to invest the bond proceeds at a fixed rate until needed and earn a return in excess of most short-term investments.

As co-participating broker, Stifel contacted Pacific Matrix Financial Corporation, a California money broker, to find a financial institution to provide the contract. Pacific Matrix selected Postipankki. Stifel received a fee of $529,241.09 from Postipankki, due to the following series of events. On bid day, Postipankki bid 7.05 percent on the debt service reserve funds and 4.2 percent on the construction and capitalized interest funds of the bond issue. Stifel then instructed Pacific Matrix to deduct 50 and 25 basis points, respectively, from the gross bid of Postipankki as the broker fee. Postipankki then reduced its original bid from 7.05 to 7.0 percent on the debt service reserve fund and the net bid figures presented to OCAT were 6.5 percent (7.0 percent less 50 basis points) and 3.95 percent (4.2 percent less 25 basis points), to account for the broker fees charged by Stifel and Pacific Matrix. Gross or net, Postipankki submitted the highest bid. Tr. 1270. Stifel and Pacific Matrix had agreed to split the broker fee 85%-15%, respectively, with Stifel also recouping $40,000 (based on a previous transaction) from the Pacific Matrix share. Postipankki paid Stifel through an affiliated company of Mr. Cochran, American Investment Corporation (AIC), resulting in a net broker fee for Stifel of $489,241.09. This was later transferred to Stifel's account by Mr. Cochran.

OCAT was unaware of the fee (the difference between the gross and net bids) or the fee split, although Mr. Cochran testified that his codefendant had informed him that disclosure had been made. Mr. Luther Trent, OCAT director, testified that the Stifel fee never came up but he presumed that Pacific Matrix would receive a fee, "just logic told me the guy does it for something." Tr. 1515. He also indicated that the return from the guaranteed investment contract earned OCAT more than $1.5 million, and that the net rates received were excellent rates, over twice what OCAT was making on short-term Treasury securities. Tr. 1527.

B. SSM Transaction

The Sisters of Saint Mary Healthcare System is a Missouri not-for-profit corporation that operates eighteen hospitals and three nursing homes. In an effort to secure more favorable financing, the SSM transaction involved a refunding issuance of more than $265 million of tax-exempt bonds, with Stifel as the co-senior managing underwriter. Stifel recommended that SSM purchase a forward supply contract. A forward supply contract is a financial instrument to invest bond refunding proceeds during the period after securities in an escrow account are redeemed and before the date when the funds must be distributed. It is beneficial because the maturity dates of the investment securities in an escrow account often cannot be identical to the redemption dates of the older bonds that are being refunded by the new bond issue. For example, $1 million of Treasury securities in an escrow account may mature on April 1, when the $1 million needed to repay principal on the older bonds is not due until April 15.

Stifel arranged for Sakura Global Capital (SGC) to provide the forward supply contract. SGC had bid $400,000 to be paid to SSM. Unlike the OCAT transaction, the SSM transaction was structured to generate tax-exempt interest for the bondholders which meant that the yield on the investment of the refunding bond proceeds, including the forward supply contract, was restricted. Bond counsel, therefore, required Stifel to certify that, other than the $400,000 specified in the forward supply agreements, no payments would be made "by or on behalf of SGC to or for the benefit of SSMHC" and "by or on behalf of SGC to any person." Although Stifel and SGC certified that no such payments were made, the latter representation was rendered incorrect when Mr. Cochran sought and received a $100,000 fee from SGC subsequent to the certification. At trial, Mr. Cochran contended that he had disclosed this fee to SSM's chief financial officer who had no recollection. The fee was

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billed by AIC in a "corrected billing," attributed to an unrelated bond transaction involving Mercer County, New Jersey and paid by SGC. The fee was later transferred from AIC to Stifel's account by Mr. Cochran.

Counts 3 and 5 of the indictment charged Mr. Cochran and his codefendant with wire fraud in connection with the OCAT transaction, specifically a telephone call from Stifel to Pacific Matrix directing the Postipankki bid reduction (count 3) and a fax transmission from Pacific Matrix to Oklahoma bond counsel reflecting the reduced bid amount (count 5). Counts 9-11 charged Mr. Cochran with wire fraud (deprivation of honest services) in connection with the SSM transaction, specifically the telephone call where Stifel and SGC employees agreed that the Stifel fee would be billed to the Mercer County, New Jersey bond issue (count 9), the fax transmission accomplishing same (count 10), and the wire transfer of the $100,000 fee from New York to Oklahoma (count 11). Count 2 and 12 charged money laundering of the proceeds of the above two wire fraud schemes (and another upon which conviction was not had) by transferring the proceeds from the AIC account to Stifel. Count 6 charged interstate transportation of money taken by fraud, specifically the $529,241.09 fee check from Postipankki to AIC.

Discussion

On appeal, Mr. Cochran contends that it was error (1) to construe 18 U.S.C. § 1343 to criminalize nondisclosure of fees received by an investment firm in the absence of proof of a duty to disclose such information, (2) to construe 18 U.S.C. § 1343 to criminalize such nondisclosure in the absence of proof that the alleged nondisclosure caused, or was intended to cause, a loss of money or property to which the alleged "victim" had some claim of right, and (3) to construe 18 U.S.C. § 1343, as amended by 18 U.S.C. § 1346, to criminalize nondisclosure of receipt of a fee by an underwriter in the absence of proof that knowledge of the receipt of the fee would have had some tangible effect on the alleged "victim." He also contends that (4) retroactive imposition of a duty to disclose information upon a private individual in a private business transaction as a predicate for criminal liability is a deprivation of due process of law, (5) insufficient evidence supports the wire fraud convictions, (6) it was prejudicial to submit alternative...

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