USA. v. Hook

Decision Date21 October 1999
Docket NumberNo. 98-2420,98-2420
Citation195 F.3d 299
Parties(7th Cir. 1999) United States of America, Plaintiff-Appellee, v. George C. Hook, Defendant-Appellant
CourtU.S. Court of Appeals — Seventh Circuit

Appeal from the United States District Court for the Central District of Illinois. No. 95 CR 10010--Michael M. Mihm, Judge. [Copyrighted Material Omitted]

Before Flaum, Kanne and Evans, Circuit Judges.

Kanne, Circuit Judge.

George C. Hook is a failed attorney who wagered his practice on a series of illegal transactions designed to support a struggling manufacturer, Wittek Industries, Inc. He lost the gamble because, on the basis of these transactions, a jury found Hook guilty of three counts of wire fraud, 18 U.S.C. sec. 1343, one count of theft from an employee benefit plan, 18 U.S.C. sec. 664, and three counts of money laundering, 18 U.S.C. sec. 1956. On appeal, Hook raises more than a score of grounds for reversal. We will directly address only two: (1) whether prosecution is precluded because an essential element of the theft count has been estopped; and (2) whether the cumulative effect of the district court's evidentiary rulings denied Hook the right to present a defense.

I. History

In 1990, Carmen Viana acquired Wittek Industries, Inc. ("Wittek"), assuming the positions of CEO and sole director. Wittek manufactured door rods and hose clamps for the automotive industry with facilities located in Chicago, LaGrange Park, Illinois and Pineville, North Carolina. Despite contracts with Chrysler Corporation and Ford Motor Company, Wittek experienced financial difficulties.

In 1989, Chrysler purchased $13,000,000 of Wittek debt from a creditor in order to alleviate some of these difficulties. The cash flow problems at Wittek continued until Wittek closed its Illinois plants in 1991 and sold the assets at its Pineville plant (retaining only the plant location, which also was deactivated), intending to consolidate its manufacturing operations at one facility in Galesburg, Illinois. However, the move ran over budget, and Chrysler was forced to extinguish much of the outstanding debt to ensure a continued supply of door rods. Wittek's problems were complicated further when Viana unilaterally terminated Wittek's contract with Ford, reducing Wittek's income by 40 percent.

In the effort to consolidate Wittek, Viana hired independent advisor Sam Lillie to close out many of the sixteen existing pension and profit- sharing plans related to Wittek. About this time, Lillie informed Viana that one of these plans, "the Retirement Plan for United Steel Workers, Local 6141, Employees of E.C. Manufacturing Division, Wittek Industries, Inc." (the "6141 Plan"), was underfunded and that Wittek's contributions to this plan were delinquent. In an attempt to cure these problems, Viana authorized Lillie to negotiate annuities for many retired plan members. Even these efforts were complicated by Wittek's cash flow shortfall and by a lawsuit filed by former employees of the Pineville plant who sought vacation and severance pay due as a result of the Pineville plant closure. These claims resulted in liens being placed on the Pineville property. With Wittek in this financial condition, Viana contacted defendant George C. Hook.

Viana met Hook on June 6, 1992, in Galesburg, Illinois, at a social gathering held at Knox College. Viana asked Hook, an attorney whose professional corporation was a general partner in the Chicago law firm of McBride, Baker, and Coles ("McBride"), for legal advice on a number of pending lawsuits and for specialized advice on retirement plans. Shortly thereafter Hook arranged to meet with Viana and Drake Boutwell, a former McBride attorney who specialized in the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. sec. 1001 et seq. (1994). Viana approached Boutwell with the idea of removing funds from the 6141 Plan to fund Wittek through a sale of Wittek assets to the plan. Boutwell informed Hook and Viana that Wittek could not legally receive funds from such a sale but that the 6141 Plan's underfunding could be reduced through the use of a real estate operating corporation. Following the meeting, Boutwell provided Viana and Hook with a written memorandum detailing the proposed transaction, which Hook personally read and edited. This memorandum explicitly informed Hook and Viana that no funds from the 6141 Plan could flow, directly or indirectly, into Wittek.

Boutwell advocated the creation of a real estate operating corporation whose equity would be held by the 6141 Plan in majority and Viana in minority. This corporation would be able to borrow from the 6141 Plan, and the corporation would use these borrowed funds to purchase, sell, develop, maintain or lease real property. Viana and Hook soon implemented these plans, incorporating the Pineville Real Estate Operating Corporation ("PREOC") in North Carolina on July 7, 1992. Immediately following incorporation, Hook prepared a deed evidencing a transfer of Wittek's Pineville property to PREOC and a mortgage in the amount of $600,000 from PREOC to the 6141 Plan.

Hook and Viana's plans to borrow money from the 6141 Plan were initially complicated by the plan's custodian, Manufacturer's Bank of Detroit, Michigan. To appease the custodian, Drake Boutwell drafted a document shifting trusteeship of the 6141 Plan from Wittek directly to Viana in her personal capacity. Manufacturer's Bank also demanded a client trust account number for PREOC and an opinion letter that affirmed the legality of the transfers. Hook provided the account number of a McBride trust account at Harris Bank Glencoe-Northbrook ("HBGN") and Boutwell provided an opinion letter which stated that the transaction was legal since none of the funds would inure to the benefit of Wittek. At the direction of Viana, Manufacturer's Bank wired $36,855.87 to the McBride account at HBGN.

When John Ronald ("Ronald") of Manufacturer's Bank determined that the funds had not been deposited in a plan trust account, he demanded that Hook return the funds. Instead, Hook wired the funds to Wittek, where the funds were used for operating expenses. On July 24, 1992, Hook opened a checking account for PREOC at HBGN. However, before Manufacturer's Bank would wire additional funds from the 6141 Plan, it demanded evidence of a fidelity bond. McBride attorney Robert Block, at Hook's direction, sent Manufacturer's Bank a copy of a fidelity bond that met all ERISA requirements. Additionally, Manufacturer's Bank demanded that Viana be replaced as trustee by an institutional trustee. In response, Hook drafted a document for HBGN that purported to accept its trusteeship and provide a plan account number. This document was signed by HBGN employee Marcia Schneider, at the request of Hook, after he assured her that "everything would be okay." However, HBGN never assumed trust powers, and the plan account number was actually the account number for PREOC's checking account. This document was sent on July 30, 1992, to Manufacturer's Bank, which in response began to wire 6141 Plan money to HBGN.

On July 31, Manufacturer's Bank wired $323,750 to HBGN. Hook used $300,000 of these funds to purchase a certificate of deposit in the name of PREOC. This certificate of deposit was subsequently pledged as collateral for a $300,000 loan made to PREOC by HBGN. The proceeds of this loan soon arrived in Wittek's bank account at Continental Bank, Chicago. On August 7, Manufacturer's Bank wired an additional $628,750 to the PREOC account at HBGN. These funds were used to purchase two certificates of deposit: the first in the name of PREOC for $260,000; the second in the name of the 6141 Plan for $367,250. The PREOC CD was soon pledged as collateral for a loan of equal value from HBGN. The proceeds of the second loan were deposited in Wittek's bank account at Harris Bank, Barrington, Illinois. On September 18, $100,000 was moved from the 6141 Plan CD to the PREOC checking account, used to purchase another CD and pledged as collateral for an additional loan. The proceeds of this loan were wired to the Wittek account at Harris Bank, Barrington. In return for these withdrawals, Hook prepared a note in the amount of $600,000 from PREOC, which was given on July 7, 1992, to the 6141 Plan. This note was secured by a mortgage on the Pineville property, subordinate to the mortgage that the 6141 Plan held already on the property.

By this time, Manufacturer's Bank had alerted the Department of Labor ("DOL") to Hook and Viana's activities, and an investigation was underway. Under heightened scrutiny and the continued strain of Wittek's unprofitability, the scheme began to crumble. Hook had failed to record the July deed and mortgage which protected the 6141 Plan's mortgage to PREOC. When the Pineville employees later filed a judgment lien, much of the value of the mortgage was diminished. Hook initially refused to divulge the details of the scheme to his partners or to DOL, asserting that $600,000 of the Plan was invested in PREOC, but withholding the September investment of an additional $100,000. He claimed that Viana was trustee, rather than HBGN, and he denied that any funds had been channeled through the McBride account. Eventually, Hook was forced to admit that the purpose of the HBGN loans was to distance Wittek from the receipt of the 6141 Plan's assets and that the document purporting to make HBGN a trustee had been devised in order to induce Manufacturer's Bank to wire the 6141 Plan's funds. PREOC eventually defaulted on its HBGN loans. In January 1993, HBGN recovered the CDs pledged as collateral. PREOC could not repay its loan to the 6141 Plan, and Wittek became insolvent. Finally, Carmen Viana fled the country.

In an attempt to salvage the 6141 Plan, the Pension Benefit Guaranty Corporation ("PBGC"), a wholly government-owned corporation, intervened and filed an action in North Carolina to...

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