U.S. v. Blumeyer

• Decision Date: 02 June 1997
• Docket Number: 96-3102,Nos. 96-3003,s. 96-3003
• Citation: 114 F.3d 758
• Parties: UNITED STATES of America, Appellee, v. Arthur A. BLUMEYER, III, Appellant. UNITED STATES of America, Appellee, v. John W. PECKHAM, Jr., Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 758

114 F.3d 758

UNITED STATES of America, Appellee, v. Arthur A. BLUMEYER, III, Appellant.

UNITED STATES of America, Appellee, v. John W. PECKHAM, Jr., Appellant.

Nos. 96-3003, 96-3102.

United States Court of Appeals,

Eighth Circuit.

Submitted April 14, 1997.

Decided June 2, 1997.

Rehearing and Suggestion for Rehearing En Banc Denied in

No. 96-3003 July 8, 1997.

Rehearing and Suggestion for Rehearing En Banc Denied in

No. 96-3102 July 30, 1997.

Anthony J. Sestric, argued, St. Louis, MO, for Blumeyer.

Lee Lawless, Assistant Federal Public Defender, argued, St. Louis, MO, for Peckham.

Audrey Goldstein Fleissig, argued, Assistant U.S. Attorney, St. Louis, MO, for appellee.

Before BOWMAN, Circuit Judge, HENLEY, Senior Circuit Judge, and MAGILL, Circuit Judge.

BOWMAN, Circuit Judge.

Arthur Blumeyer and John Peckham appeal their convictions and sentences in this complicated case involving mail fraud, wire fraud, conspiracy, and money laundering in the insurance industry. We affirm the judgments of the District Court. ¹

I.

Viewed in the light most favorable to the verdicts, the record reveals the following facts. Blumeyer owned and operated several insurance companies, including Bel-Aire Insurance Company, a Missouri corporation (Bel-Aire); Atlantic General Insurance Company Limited, originally known as U.S. Reinsurance Company, a company incorporated on the island of Anguilla in the British Virgin Islands (Atlantic General); and Atlantic General and Specialty Insurance Company Limited, later known as Marigot Casualty Company Limited, also an Anguillan corporation (Atlantic General and Specialty). Blumeyer concealed his interest in Atlantic General by placing his ownership in the name of two nominees. In addition, Blumeyer owned and operated a number of insurance-related businesses that were affiliated with Bel-Aire, and he and his wife owned a personal holding company.

Blumeyer incorporated Bel-Aire in February 1987 and applied to the Missouri Division of Insurance, later known as the Missouri Department of Insurance (MDI), for a Certificate of Authority to sell property and casualty insurance. At the time, the state required a start-up company such as Bel-Aire to have $800,000 in unencumbered capital. During a pre-licensing audit of Bel-Aire conducted by an MDI examiner, Blumeyer represented that his new company owned $400,000 in Treasury bonds and a $500,000 certificate of deposit. He did not disclose that all of these assets were fully encumbered, nor did he disclose that the certificate of deposit had not yet been purchased. (He presented the examiner with a letter from a bank purporting to state that Bel-Aire owned such a CD.) Based on this examination, the MDI issued Bel-Aire a Certificate of Authority in May 1987.

Peckham, who had had a long career in the insurance industry, joined one of Bel-Aire's affiliates the next month and took charge of marketing. His job soon expanded to include legislative and regulatory compliance work.

The MDI became suspicious of Bel-Aire not long after its certification when insurance commissioners from other states suggested possible problems with the company to Missouri's commissioner. The MDI ordered another audit of Bel-Aire, which was coordinated by Mark Stalhuth, the assistant general counsel of the MDI, in October 1987. This audit disclosed the encumbrance of Bel-Aire's startup capital and revealed that Blumeyer had replaced Bel-Aire's $500,000 CD with a promissory note from himself. Although this note purported to be secured by Treasury notes, CDs, and corporate stock as of September 30, 1987, the examiner discovered that the Treasury notes and CDs had not been purchased until late October. (It was later determined that the Treasury notes and CDs were purchased with borrowed funds and that the corporate stock was worthless because the corporation did not exist on September 30, 1987.) Based on the audit findings, which included other problems not mentioned here, the MDI brought charges against Bel-Aire in November 1987. The parties settled the dispute the next month when Bel-Aire agreed to redeem Blumeyer's promissory note and remove the encumbrance from the original Treasury bonds. The MDI issued a press release stating that Bel-Aire was a viable insurance company with which it was safe to do business.

In late December 1987, Peckham wrote a memorandum to Blumeyer regarding Dewey Crump, a member of Bel-Aire's board of directors. Crump was at the time a Missouri state representative and chairman of the House Insurance Committee. Peckham's memorandum requested $475 per month to cover Crump's expenses for an apartment, utilities, and furniture rental. Blumeyer's secretary attached a note to the memorandum that read, "John, Art said $400 per month for Dewey." Tr. at 1286. Crump was also on the payroll of one of Bel-Aire's affiliates at a salary of approximately $55,000 per year--which he did not report in financial disclosure statements--and had a company credit card, even though he apparently did no work for the company. (Crump testified that he organized social and charitable events for legislators and staff on behalf of Blumeyer's companies.) Blumeyer and Peckham addressed considerable correspondence to Crump regarding insurance bills in the Missouri legislature. In February 1988, the House Appropriations Committee deleted from the MDI's appropriation bill an amount corresponding to the salary of Mark Stalhuth, the attorney responsible for the autumn 1987 audit of Bel-Aire. When the MDI's commissioner investigated, the chairman of the Appropriations Committee suggested that Stalhuth had made some enemies. The commissioner then spoke to Crump, who agreed to restore the funding if the MDI increased the salary of his uncle (an MDI employee) and hired another individual as an examiner. When the MDI complied, the funding for Stalhuth's position was restored.

Crump also sponsored a 1989 legislative amendment that would have made it easier for Bel-Aire to meet the MDI's capital requirements, and he introduced a bill in 1990 that would have altered the requirements of Stalhuth's position so that Stalhuth would not have qualified for the job. In addition, Crump spoke to MDI examiners during a 1989 audit of Bel-Aire, mentioning a recently enacted statute that had raised their salaries and commenting that Blumeyer was a good businessman.

The record is replete with questionable maneuvers involving the assets of Bel-Aire and Atlantic General. We will report only a few of these transactions here. Bel-Aire's financial report for the period ending September 30, 1988 included as an asset a surplus note in the amount of $2 million, payable to "Atlantic General Insurance Company." A surplus note represents an infusion of assets into an insurance company that is to be repaid only out of the company's surplus and only with the MDI's approval; because of these contingencies, a company is not required to show a corresponding liability on its financial statements. At the time the note was executed, however, Atlantic General did not exist; the Anguillan company that would eventually adopt the name "Atlantic General" was still known as U.S. Reinsurance Company. In his efforts to gain the MDI's approval of the note, Blumeyer represented that Atlantic General was a California insurance company.

In late 1989, Roy Thigpen, the owner of a foundering Wyoming insurance company, transferred a number of lots of real property in Arizona to Blumeyer. Thigpen had previously offered the lots to the receiver of his insurance company in Wyoming, but the receiver rejected them as worthless because of back taxes owed on them. Blumeyer certified to the Arizona tax authorities that he purchased the lots for $385,000, but after Thigpen arranged for a "friendly" appraisal of the lots for $3 million, the lots appeared on Bel-Aire's 1989 year-end financial statement as collateral for receivables and loans. When Bel-Aire's chief accountant refused to sign this financial statement, Peckham signed it instead.

Blumeyer and Peckham also worked with Thigpen to create fraudulent financial statements for Atlantic General, which figured more prominently in the defendants' plans after California ordered Bel-Aire to cease and desist marketing insurance in that state. Peckham suggested using Atlantic General as a means of pursuing sales in California instead. (Thigpen was interested because he planned to use Atlantic General to prop up his failing company in Wyoming.) Although Atlantic General's in-house balance sheet as of the end of 1989 showed assets of approximately $178,000 and liabilities of approximately $250,000, Thigpen and Peckham produced a financial statement showing assets of $12.8 million and liabilities of $4.4 million. Peckham coordinated the effort to provide fraudulent documentation of Atlantic General's assets to a certified public accountant in Texas in order to persuade the accountant to certify the financial statement. Preliminary and certified statements were sent to a sponsoring broker in California, even though the accountant withdrew his certification a week after he issued it. That broker wrote insurance for Atlantic General in California.

Finally, we consider the crown jewel of the defendants' shenanigans, known in this case as the "swirl" transaction. In an effort to prop up Bel-Aire's financial statement for the period ending March 31, 1990, Blumeyer transferred $2.25 million in liabilities and $2.3 million in cash from Bel-Aire to Atlantic General, purportedly as a reinsurance or indemnity transaction. Blumeyer then withdrew $2.275 million in cash from Atlantic General, leaving an unsecured personal promissory note in its place, and funneled it back into Bel-Aire via one of the affiliates. The net effect of the transaction was to decrease Bel-Aire's liabilities and to shore up its assets, while at the same time transferring risk to Atlantic General, a company that was...