210 F.3d 916 (8th Cir. 2000), 98-4100, United States v Ross

Docket Nº:98-4100, 98-4106
Citation:210 F.3d 916
Case Date:April 21, 2000
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

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210 F.3d 916 (8th Cir. 2000)







No. 98-4100, 98-4106

United States Court of Appeals, Eighth Circuit

April 21, 2000

Submitted: October 22, 1999

Appeals from the United States District Court for the District of Minnesota.

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Before McMILLIAN, Lay, and Fagg, Circuit Judges.

Lay, Circuit Judge.

Following a jury trial in federal district court, Arthur S. Ross was found guilty of fifteen counts of wire fraud and eighteen counts of money laundering. The court ordered restitution of $2.7 million and imposed a fifteen month prison sentence on the wire fraud counts and an eighty-seven month sentence for money laundering, with both sentences to be served concurrently. Ross appeals his conviction; on cross-appeal, the Government challenges the court's downward departures at sentencing and its failure to impose a four-level enhancement for Ross' aggravating role in the offenses. We affirm the convictions but reverse and remand for resentencing.

I. Background

In early 1994, Ross formed Consortium International, Inc. (Consortium), a Bloomington, Minnesota, corporation that purported to finance business transactions. Initially, Ross was the President of Consortium, then later assumed the position of Chairman of the Board of Directors.

The scheme charged in the indictment alleged that Consortium would provide its "Standard Information Package" describing available services to any interested person or organization, and containing a list of closed and funded transactions exceeding $165 million in which Consortium's principals had acted as "principals, investors, lenders, investment/merchant bankers, syndicators and/or advisors." Persons interested in Consortium's services would then submit an executive summary describing the business to be financed, its current assets, cash flow projections, and personal financial statements of all principals. If Consortium found the executive summary feasible, Consortium would invite the person to present a project proposal to its officers in Minnesota. Thereafter, the borrower paid Consortium a $10,000 expense retainer and the parties entered into "preliminary commitment agreements" (PCA) which expressly disclaimed any guarantee of funding. Consortium billed its costs of evaluating the proposed project against the $10,000 retainer with the promise that any unexpended monies would be returned to the payer if the project failed to proceed to funding.

If all parties agreed to proceed beyond the evaluation phase, a "formal commitment agreement" (FCA) was prepared and the potential borrower was required to pay Consortium a non-refundable fee of one percent of the loan amount, half of which was due at FCA execution. Unlike its predecessor agreement, the twenty-plus page formal commitment agreement did not contain a disclaimer of funding, but

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instead "approved" the loan amount subject to a number of conditions precedent, the most notable of which was that no loan would be approved without final ratification by Consortium's Board of Directors.1

Between Consortium's inception in early 1994 and Ross' arrest on August 27, 1996, Ross admits that nearly two hundred PCAs were executed, only thirty-four of which proceeded to FCA execution. From these transactions, Consortium collected in excess of $3.3 million. Throughout its course of business, Consortium never fully funded a loan.

The Government contended Consortium was operating an illegal "advance fee" scheme through which it fraudulently obtained fees from individuals and businesses seeking financing with neither the intent nor the ability to do so. Following a pretrial status conference, the court granted the Government's motion to dismiss two counts. Over Ross' objection, the court also granted in part the Government's motion to amend the indictment.

Ross proceeded pro se at a twenty-two day jury trial in federal district court which began on October 1, 1997, and was convicted on all thirty-three counts.2 On November 24, 1997, the jury returned a special forfeiture verdict finding that properties in the amount of $88,216.86 were traceable to the money laundering violations and were therefore subject to forfeiture. At sentencing on November 12, 1998, the court found the amount of loss in the instant case to be $3.2 million and ordered restitution in excess of $2.7 million. The court also imposed a prison sentence of fifteen months for the wire fraud convictions and eighty-seven months for money laundering, with the sentences to be served concurrently.

On appeal, Ross argues that his convictions should be set aside for various reasons: (1) his actions did not involve the "proceeds" of unlawful activity under 18 U.S.C. § 1956(a)(1); (2) the court erred in denying funding as to one of Ross' two requested expert witnesses; (3) the amendment of the indictment deprived him of his right to indictment by grand jury; and (4) the district court erred in awarding victim restitution to those 173 persons who executed PCAs but never proceeded to FCA execution.

The Government cross-appeals arguing that the district court abused its discretion under the United States Sentencing Guidelines Manual (Guidelines) by departing downward from the sentencing range on both the money laundering and wire fraud convictions and erred in failing to impose a four-level enhancement for Ross' aggravating leadership role in the scheme.

II. Discussion

A. Sufficiency of the Evidence

Ross first challenges the sufficiency of the evidence for the money laundering conviction, arguing that the financial transactions charged did not involve the "proceeds" of an unlawful activity under the money laundering counts.3

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The gravamen of Ross' argument is that the money laundering convictions must be reversed because the Government did not prove an essential element of the crime; namely, that the funds deposited into Consortium's business account were "proceeds" of some previously completed illegal activity. Instead, he argues that the indictment merely charged the receipt and deposit of proceeds and contends that the mere deposit of money received from the underlying wire fraud does not evidence his use of proceeds to "promote" the "carrying on" of illegal activity under § 1956(a)(1)(A)(i).

The cases relied upon by Ross are readily distinguishable from this case to the extent they are factually inapposite from the instant case. These cases, such as United States v. Shoff, 151 F.3d 889 (8th Cir. 1998) (the money laundering statute may not be so broadly construed that it becomes a money spending statute) are based on violations of the Money Laundering Control Act of 1986 not charged in Ross' indictment and turn on the fact that the allegations of money laundering are based on the same transaction charged in the predicate act thereby raising double jeopardy concerns. See generally, United States v. Johnson, 971 F.2d 562 (10th Cir. 1992) (§ 1957 money laundering charge predicated on wire fraud transfers to defendants account where wire fraud counts charged the same wire transfers); United States v. Christo, 129 F.3d 578 (11th Cir. 1997) (reversing conviction for money laundering where the money laundering counts were based on the same transmission of funds as the underlying criminal activity of bank fraud and misapplication of bank funds).

We rejected an argument substantially similar to Ross' in United States v. Hildebrand, 152 F.3d 756 (8th Cir. 1998). The defendants in Hildebrand were involved in a conspiracy through which they collected a $300 fee from persons for the purpose of filing a claim on their behalf in a pro se class action suit. The co-conspirators represented that for their participation, claimants could share in a substantial damage award. Throughout the course of the conspiracy, the group collected over $1.3 million. Id. at 761. Like Ross, the defendants were indicted under 18 U.S.C. § 1956(a)(1)(A) and (a)(1)(B) for participating in a conspiracy to launder money. Following conviction, three defendants appealed arguing the Government failed to prove the elements of the crime. Id. at 762. We affirmed the convictions based on the evidence that the defendants deposited over $1.1 million in mail fraud proceeds into bank accounts and then expended the proceeds to promote the ongoing scheme to defraud by paying for office supplies, secretarial services, and staff wages. Id. See also United States v. Kennedy, 64 F.3d 1465, 1477-78 (10th Cir. 1995) (affirming § 1956 conviction for money laundering predicated on acts of mail fraud separate and distinct from acts charged as money laundering); Johnson, 971 F.2d at 566 (finding jury could conclude defendant promoted fraudulent scheme in violation of § 1956 where evidence showed he used illegal proceeds to purchase Mercedes to impress investors and paid off mortgage on residence from which he operated fraudulent scheme).

Ross' wire fraud convictions were predicated on facsimile transmissions of various documents to potential borrowers (e.g., FCAs, letters promising to fund loans, and a letter terminating a loan agreement). The money laundering convictions arose from related, but separate and distinct transactions, namely the deposit of wire fraud proceeds and subsequent acts promoting the carrying on of illegal activity.

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At trial, the Government presented proof that Consortium was engaged in a broad scheme to defraud and that Consortium's continuing operation was funded almost exclusively by fees received from potential...

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