U.S. v. McCarthy
| Decision Date | 01 August 2000 |
| Docket Number | DEFENDANT-APPELLANT,Docket No. 00-1639 |
| Citation | 271 F.3d 387 |
| Parties | (2nd Cir. 2001) UNITED STATES OF AMERICA, APPELLEE v. ROBERT J. MCCARTHY, |
| Court | U.S. Court of Appeals — Second Circuit |
Jason Brown, Holland & Knight, Llp (Roseann Bassler, on the brief) New York, NY for Defendant-Appellant.
Karl Metzner, Assistant United States Attorney (Mary Jo White, United States Attorney for the Southern District of New York, Gary Stein, Assistant United States Attorney, on the brief) New York, NY for Appellee.
Before: McLAUGHLIN and Pooler, Circuit Judges, and Koeltl, District Judge*
Robert McCarthy appeals from his conviction on multiple counts of embezzlement from employee benefit plan funds, money laundering, conspiracy to create false documents that the Employee Retirement Income Security Act ("ERISA") requires and embezzlement of bankruptcy assets. On appeal, McCarthy primarily raises two challenges to his verdict. First, he argues that the evidence supporting his money laundering convictions is insufficient because the government failed to prove the money laundering involved the proceeds of a separate, completed criminal activity. Second, McCarthy argues the district court improperly instructed the jury as to his good faith defense by failing to give the specific good faith charge we approved in United States v. Nolan, 136 F.3d 265 (2d Cir. 1998). Alternatively, McCarthy asks us to reverse his sentence and remand for resentencing, with instructions to the district court to group his money laundering and embezzlement charges. He also seeks to have the district court apply the embezzlement sentencing guideline rather than the more onerous money laundering sentencing guideline. For the reasons given below, we affirm both the conviction and sentence.
McCarthy, a certified public accountant, opened his own practice in 1986, specializing in distressed companies and turnaround situations. Lloyd's Shopping Centers Inc. ("Lloyd's") fell squarely within the parameters of McCarthy's practice. Lloyd's owned two combination supermarket and department stores in Orange County, New York. Faltering in the face of competition from larger retailers, Lloyd's filed for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code in December 1992. By May 1994, Lloyd's closed its Newburgh store. Lloyd's hired McCarthy in October 1994 as a consultant to help the company emerge from bankruptcy protection. Shortly after hiring McCarthy as a consultant, Lloyd's management asked McCarthy to become chief executive officer of the publicly held corporation. McCarthy's compensation package included the right to purchase two options which would entitle him to buy, in total, one million shares of Lloyd's stock - enough to make him the company's majority shareholder.1
During McCarthy's tenure, the following small group managed Lloyd's: McCarthy, Edmund Lloyd, the company's founder; William Kelder, the treasurer; and Richard G. Hickey, an attorney and member of the board of directors. Hickey was a partner in Lloyd's outside counsel, the New York City law firm of Foley, Hickey, Gilbert & O'Reilly. Hickey's law partner, Terrence O'Reilly, also frequently consulted with McCarthy.
At the time McCarthy joined the company in late 1994, a critical bankruptcy court deadline loomed. Lloyd's risked being liquidated unless the bankruptcy court confirmed its reorganization plan during a December 28, 1994, hearing. As a condition of confirmation, Lloyd's needed to reach repayment agreements with the bulk of its creditors. Lloyd's made agreements with several key creditors except its largest one, Orange County, which refused to compromise a $420,000 tax lien. McCarthy explored paying off the loan using money from the Lloyd's defined benefit plan ("Pension Plan") and from Lloyd's defined contribution plan ("401(k) Plan") (collectively, the "Plans"). O'Reilly and others advised McCarthy that the proposal would violate ERISA. Unable to use the Plans to pay off the lien before the December 28 court deadline, McCarthy settled on an alternate course of action. McCarthy used funds from the bankruptcy estate of Discount Harry, Inc., a New Jersey corporation he controlled as the disbursing agent. To accomplish this, McCarthy opened a personal checking account in his own name at the Bank of New York and directed a $420,000 wire transfer from the Discount Harry disbursing account into his newly opened account. McCarthy's check, drawn on this account, was used to pay off the lien.2 The bankruptcy court approved the reorganization plan, and Lloyd's was able to emerge from bankruptcy.
The issue of the Plans, however, was not settled. McCarthy suggested moving the assets from both Plans and placing them into a holding account, ostensibly a makeshift measure while he explored better investment options. In late January 1995, Lloyd's transferred $1,423,844.46 from the Pension Plan and $723,024.05 from the 401(k) Plan into trust accounts at the Bank of New York, with Kelder as trustee. Shortly after the plan funds were in the trust accounts, McCarthy signed a wire transfer ordering $300,000 moved from the Pension Plan trust account to the account of Alliance Capital Design Group, Ltd. ("Alliance") at NatWest Bank in New York. Alliance was a corporation that McCarthy controlled and used for another of his business ventures.
Lloyd's financial problems continued. An especially pressing concern was a $2.4 million mortgage that Fleet Bank held against both Lloyd's properties. The mortgage was particularly burdensome to Lloyd's because of high mortgage payments and escalating penalty payments that Lloyd's had agreed to in March 1995 to prevent foreclosure. Further, extinguishing the mortgage against the Newburgh property would allow Lloyd's to lease the property to another retailer. McCarthy was interested in using money from the Plans to pay off the Fleet mortgage. He suggested a number of different ways for doing so to O'Reilly during the late winter and spring of 1995. O'Reilly testified that he shot down each of the plans as violating ERISA in some manner. O'Reilly also testified that he told Hickey, his law partner and Lloyd's director, that any plan to pay down the mortgage using the trust account funds would be considered a prohibited transaction under ERISA. Hickey, however, testified that he never discussed paying down the Fleet mortgage with O'Reilly, or advised McCarthy that ERISA would prohibit the transaction.
McCarthy eventually used money from the Plans to extinguish the Fleet Bank mortgage. To obtain the money from the trust accounts, Lloyd's trustee Kelder forwarded a letter on Alliance letterhead to the Bank of New York, which held the trust accounts. The letter stated the monies were needed to acquire a mortgage which would earn interest at the rate of 8 percent. Kelder obtained certified checks in the amount of $1,115,000 from the Pension Plan trust account and $635,000 from the 401(k) Plan to pay down the mortgage. McCarthy opened an account at Fleet Bank in the name, "Lions Capital Design Group, Ltd"3 and deposited both checks into the Lions account, for a total account balance of $1,750,000.
Using the money in both the Alliance and Lions accounts, McCarthy paid off the Fleet mortgage. Lloyd's never executed a new mortgage protecting the Plans' interest. McCarthy also used money from the Alliance and Lions accounts for a variety of other financial transactions, benefitting both Lloyd's and other of McCarthy's business ventures. Lloyd's employees, meanwhile, began asking why they had not yet received their quarterly 401(k) statements. McCarthy and Kelder created false 401(k) statements for distribution to the employees.
Lloyd's fired McCarthy on February 1, 1996. After his termination, McCarthy sued Lloyd's and Edmund Lloyd, individually, for money damages and an injunction directing his reinstatement as an officer and the enforcement of the stock option agreement. In 1998, James Lloyd, as trustee of the Pension Plan, sued McCarthy, Alliance, Kelder and the Bank of New York alleging embezzlement of $300,000 from the Pension Plan. The government's multi-count indictment against only McCarthy followed on December 18, 1998. A jury trial took place from September 23, 1999, until October 13, 1999. O'Reilly testified at trial for the government pursuant to a non-prosecution agreement. Hickey testified for the government on rebuttal pursuant to a compulsion order after receiving immunity from prosecution. Kelder pleaded guilty to one count of conspiracy to distribute false ERISA documents, and he testified for the government pursuant to his plea agreement. Testifying at his trial as the sole defense witness, McCarthy maintained he had a good faith belief that each transaction at issue was proper. The jury convicted McCarthy of three counts of embezzlement of employee benefit plan funds, in violation of 18 U.S.C. § 664; ten counts of money laundering, in violation of 18 U.S.C. § 1956 (a)(1)(B)(i); seven counts of money laundering in violation of 18 U.S.C. § 1957; one count each of conspiracy to create and creating false documents required by ERISA, in violation of 18 U.S.C. §§ 371 and 1027, respectively; and one count of embezzlement of bankruptcy assets in violation of 18 U.S.C. § 153. The district court sentenced McCarthy to 78 months imprisonment, three years supervised release, a $1,200 special assessment, no fine and restitution of $1.6 million. McCarthy now appeals.
McCarthy contends that the government presented insufficient evidence to support the seventeen money laundering charges because he made no payment from the proceeds of a criminal activity. We review an allegation of insufficient evidence de...
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