279 F.3d 62 (1st Cir. 2002), 00-2057, United States v McGauley

Docket Nº:00-2057
Citation:279 F.3d 62
Party Name:UNITED STATES OF AMERICA, Appellee, v. KAREN M. MCGAULEY, Defendant, Appellant.
Case Date:February 05, 2002
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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279 F.3d 62 (1st Cir. 2002)



KAREN M. MCGAULEY, Defendant, Appellant.

No. 00-2057

United States Court of Appeals, First Circuit

February 5, 2002

, Decided

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Jeremiah P. Sullivan, Jr., with whom Sullivan and McDermott were on brief, for appellant.

James B. Farmer, United States Attorney, with whom Antoinette E.M. Leoney, Assistant United States Attorney, was on brief, for appellee.

Before Selya, Circuit Judge, Lipez, Circuit Judge, and Doumar,[x] Senior District Judge.

LIPEZ, Circuit Judge.

Karen McGauley was convicted on numerous counts of making false statements to the United States Postal Service, under 18 U.S.C. § 1001; misrepresentation of social security numbers, under 42 U.S.C. § 408(a)(7)(B); mail fraud, under 18 U.S.C. § 1341; and money laundering, under 18 U.S.C. § 1956(a)(1)(B). She was also ordered to forfeit $ 243,087.42 to the United States, pursuant to 18 U.S.C. § 982(a)(1). McGauley appeals on several grounds, one of which requires us to decide whether 18 U.S.C. § 982 (a)(1) authorizes the forfeiture of legitimate funds that have been commingled with the proceeds of unlawful activity for the purpose of concealing those proceeds. Concluding that it does, we affirm.

I. Background

Before examining the evidence supporting McGauley's conviction in greater detail, we briefly summarize the facts of this case, viewing the evidence in the light most favorable to the verdict. Between 1991 and 1997 McGauley, a resident of Yarmouthport, Massachusetts, returned large volumes of merchandise, most of it women's clothing, to numerous retail stores in exchange for refunds. In most instances McGauley received a refund check in the mail, although sometimes the refund would be issued to one of her credit cards, creating a credit balance which would result at some point in a check being mailed to McGauley. She received these refund checks under numerous names and at various addresses, including five United States post office boxes which she had opened under false names and false social security numbers. In total, McGauley received 220 refund checks amounting to $ 55,296.28. There was no direct evidence, however, that the specific items McGauley returned in exchange for these refund checks had been stolen.

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In July of 1997, Massachusetts State Police searched McGauley's home, where they discovered "piles and piles of clothing with one room stacked to the ceiling that you couldn't walk into, all brand new in various piles all over the house." No sales receipts were found. A State Trooper testified that McGauley "said she had a problem with kleptomania and she couldn't control herself." Less than two weeks after the search of her home in July of 1997, McGauley initiated a series of transactions that continued into October, resulting in the withdrawal of over $ 300,000 from bank accounts into which she had deposited refund checks.1 She deposited these funds into new accounts, held jointly with her parents, from which she then made substantial withdrawals over the next two months.

In February of 1998 McGauley was charged with five counts of making false statements to the U.S. Postal Service, in violation of 18 U.S.C. § 1001; five counts of misrepresentation of social security numbers, in violation of 42 U.S.C. § 408(a)(7)(B); 25 counts of mail fraud, in violation of 18 U.S.C. § 1341; and six counts of money laundering, in violation of 18 U.S.C. § 1956(a)(1)(B)(i). The indictment alleged that McGauley should forfeit to the United States those funds that were involved in or traceable to her money laundering activities, pursuant to 18 U.S.C. § 982(a)(1). In the interest of efficiency, the government (pursuant to the district court's request) pared down the mail fraud portion of the indictment to three counts: a refund check for $ 433.00 from Talbots, issued to McGauley under the name "Gale Peterson" on July 11, 1995; a refund check for $ 113.93 from Talbot's, issued to McGauley under the name "Steven Ryan" on November 10, 1995; and a refund check for $ 5,386.84 from Citibank VISA, issued to McGauley on October 28, 1997. The evidence at trial, however, included 217 other refund checks not charged in the indictment.

The trial began on February 14, 2000. On February 25, the jury found McGauley guilty of all charges except for one money laundering count. At a subsequent forfeiture hearing on February 28, the jury found that $ 243,087.42 was subject to forfeiture to the United States. On July 19, 2000, McGauley received a sentence of 24 months imprisonment (stayed pending this appeal) and five years of supervised release, plus a fine of $ 10,000, an order to pay restitution in the amount of $ 55,296.30, and forfeiture of $ 243,087.42.

On appeal, McGauley argues that the evidence was insufficient to support the verdict; that the district court erred in several of its evidentiary rulings; and that forfeiture, if any, should have been limited to the amount of the proceeds of her mail fraud scheme, rather than encompassing the legitimate funds with which she commingled those proceeds in the course of her money laundering transactions.

II. Sufficiency of the Evidence

After the government had presented its case, and again after the verdict, McGauley moved unsuccessfully for a judgment of acquittal pursuant to Fed. R. Crim. P. 29. In weighing a challenge to the sufficiency of the evidence, we view the evidence and draw all reasonable inferences in the light most favorable to the verdict. United States v. Benjamin, 252 F.3d 1, 5 (1st Cir. 2001). The evidence is Page 67

legally sufficient if, taken as a whole, it warrants a judgment of conviction. Id. A. Mail Fraud

To prove mail fraud, the government must establish "(1) the defendant's knowing and willing participation in a scheme or artifice to defraud with the specific intent to defraud, and (2) the use of the mails . . . in furtherance of the scheme." United States v. Woodward, 149 F.3d 46, 54 (1st Cir. 1998) (internal quotation marks omitted). The government charged McGauley with designing and executing a scheme to defraud retail stores by stealing merchandise and then returning it in exchange for mailed refund checks. McGauley argues that the evidence at trial was insufficient to prove the existence of a scheme to defraud, and that even if there was such a scheme, the evidence was insufficient to establish that she elicited the specific refund checks charged in the indictment pursuant to it. i. Existence of a Scheme to Defraud

McGauley argues that the government failed to prove a scheme to defraud because "three checks over a two year period . . . [does] not equal a scheme." The evidence at trial, however, went far beyond the three refund checks charged in the indictment. Between August of 1991 and October of 1997, McGauley - who between 1992 and 1996 earned no more than $ 25,000 per year as a part-time licensed practical nurse at Cape Cod Hospital - received and deposited 220 refund checks for a total of $ 55,296.28 into her bank accounts. The refund checks were made out to McGauley or to one of approximately 30 other names which she used as aliases. The stores that issued these refund checks were Talbots, Filene's, Victoria's Secret, Eddie Bauer, Jordan Marsh, Macy's, Ann Taylor, The Museum of Fine Arts, Laura Ashley, Starbucks, J.C. Penney, Henri Bendel, Lord & Taylor, L.L. Bean, Lechter's, Signature Stores, and Whitehall Robbins. The banks and credit card companies that issued refund checks were Citibank VISA, Chase Manhattan, Discover, and Bank of New York, Delaware. McGauley also received a refund check from United Parcel Service.

Employees testified that it was the policy of these stores to mail refund checks to customers who returned merchandise without a sales receipt or other proof of purchase. The general rule was that if the purchase had been made with cash, a refund check would be mailed to the customer; if the purchase had been made with a credit card the refund would be credited to the same card. However, exceptions to this rule were often made, and refunds were sometimes put on credit cards that McGauley had not used to purchase the returned items.

United States Postal Inspector Joseph Kleinberg testified that McGauley's bank records, which documented her receipt of the 220 refund checks for returned merchandise, contained no record of McGauley having made any purchases at the stores to which she returned merchandise. Likewise, there was evidence that McGauley had received refunds on her credit cards in amounts far exceeding the purchases she made, and that she had made no payments on the credit cards that issued her refund checks.

Although the government offered no direct evidence that McGauley had stolen the items she returned for the three refund checks charged in the indictment, there was evidence at trial sufficient to support the conclusion that McGauley stole substantial quantities of merchandise from the retail establishments that issued refund checks to her. Massachusetts State Trooper Robert Knott testified that a Page 68

search of McGauley's home on July 10, 1997 had revealed "a large quantity of clothing." He explained:

In various rooms of the house were piles and piles of clothing with one room stacked to the ceiling that you couldn't walk into, all brand new in various piles all over the house. It still had tags on it. It was such a quantity that we sent for a truck to haul it away.

Even with the truck, only about 20 percent of the clothing found in McGauley's home was seized. The search revealed no sales receipts that corresponded to the clothing, although it did turn up numerous documents...

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