U.S. v. Degeorge

Citation380 F.3d 1203
Decision Date30 August 2004
Docket NumberNo. 02-50365.,02-50365.
PartiesUNITED STATES of America, Plaintiff-Appellee, v. Rex K. DeGEORGE, aka Rex Karageorge DeGeorge, Rex Karageorgiou DeGeorge, Angelos George Karageorgiou, Angelos George Karageorge, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

William J. Kopeny, William J. Kopeny & Associates, Irvine, CA, for the defendant-appellant.

Eileen M. Decker, Assistant United States Attorney, Los Angeles, CA, for the plaintiff-appellee.

Appeal from the United States District Court for the Central District of California; Lourdes G. Baird, District Judge, Presiding. D.C. No. CR-99-00038-LGB-01.

Before: D.W. NELSON, GIBSON,* and GRABER, Circuit Judges.

GIBSON, Senior Circuit Judge:

Rex K. DeGeorge appeals his conviction and sentence following a month-long jury trial for conspiracy, mail fraud, wire fraud, and perjury. The government alleged that DeGeorge participated in a scheme to defraud by purchasing a yacht, inflating its value through a series of sham transactions, obtaining insurance on the yacht at the inflated value, scuttling it off the coast of Italy, and attempting to collect the insurance proceeds, in part by lying about the cause of the sinking during civil litigation with the yacht's insurer. We affirm the convictions but reverse and remand for resentencing.

FACTS

DeGeorge, an attorney, contracted with an Italian firm in June 1992 for the construction of a 76-foot yacht, later named the Principe di Pictor, for $1.9 million. In late July of that year, DeGeorge assigned his rights in the construction contract to Continental Pictures Corp., which in turn sold its interest in the yacht to Polaris Pictures Corp. for $3.6 million in October. DeGeorge himself continued throughout this time to make payments to the Italian builder.

Polaris had been formed by DeGeorge, and its President at the time of the yacht's purchase was Paul Ebeling, who was later indicted as a co-conspirator and who eventually testified as a government witness at trial. Polaris ostensibly financed its purchase of the yacht through notes issued by U.S. Inbanco, Ltd., a corporation formed by DeGeorge and incorporated on the same day that Polaris bought the yacht from Continental. Ebeling testified that the name "Inbanco" was designed to give the appearance that the corporation was a bank. Inbanco was given a security interest in the yacht in exchange for the notes. With the exception of DeGeorge's original contract with the Italian builder, no money changed hands in any of these transactions.

Soon after purchasing the yacht from Continental, Polaris entered into a contract with one Jacob Wizman, an acquaintance of DeGeorge's. Wizman agreed to buy a 98% interest in the Principe for the price of $3.6 million if it could be delivered to him "as a new vessel" in January 1993.

DeGeorge disguised his connection with Polaris by engaging in a stock swap with Tridon Corporation about two weeks before Continental sold the yacht to Polaris. DeGeorge traded all his shares of Polaris to Tridon Corporation, whose CEO was Ebeling, in exchange for two million shares of Tridon stock. The stock swap agreement contained a provision stating that all shares of Polaris stock would revert to DeGeorge if either Tridon or Polaris filed bankruptcy or became unable to meet its financial obligations. Ebeling testified that, to his knowledge, no money ever actually changed hands between Inbanco, Tridon, and Polaris.

The net effect of these transactions was to make Tridon, and not DeGeorge, the owner of Polaris, which now owned the Principe, which now appeared to have a market value of $3.6 million.

Tridon's ownership of Polaris was necessary for insurance purposes. DeGeorge had a rather extensive history of boat losses, including three instances — one alleged theft and two alleged sinkings — where he was fully compensated by insurance companies. Ebeling testified that DeGeorge was concerned that his loss history would prevent him from obtaining insurance in his own name. Whether this evidence of prior losses was admissible was a contested issue at trial, and the district court ultimately allowed the government to show only that three prior vessels owned by DeGeorge were insured; that he claimed the vessels were lost at sea; and that the vessels were not recovered. The government was not permitted to elicit details of the incidents themselves or the fact that DeGeorge had collected insurance proceeds on the losses.

Polaris purchased insurance from Cigna Property and Casualty Insurance Company in late October 1992. The insurance application listed $3.675 million as the purchase price of the yacht, made no mention of DeGeorge whatsoever, and listed U.S. Inbanco, Ltd. as the loss payee. Cigna issued an insurance policy binder to Polaris on October 22, insuring the yacht for $3.5 million.

The government presented evidence that DeGeorge, Ebeling, and a third associate, Gabriel Falco,1 set out from Viareggio, Italy, on November 4, 1992, for the maiden voyage of the Principe. For the first day of their journey, the yacht was captained by an Italian man named Ramono Romani, who was aided by an additional Italian crew member. When the group reached Naples, Italy, on November 5, DeGeorge dismissed Romani and the crew member.

According to testimony from Ebeling and Falco, the three men left Naples without a captain on the evening of November 6. They sailed for several hours, with DeGeorge and Falco alternating at the helm while Ebeling read and slept. Sometime in the middle of the night, DeGeorge instructed Falco to take the power tools they had purchased a few days earlier and begin cutting holes in the boat. For the next six or seven hours, DeGeorge, Falco, and Ebeling took turns cutting holes and trying to do anything else necessary to sink the Principe, including smashing equipment and opening vents in the engine room to make the boat take on more water. The scene became rather frantic, and at one point DeGeorge even began ramming a dinghy into the side of the yacht. Despite their efforts, and despite taking on a significant amount of water, the Principe refused to sink.

Sometime after daybreak, Italian authorities patrolling the coast spotted the yacht and began to approach. Noticing the Italian ship on the horizon, the three men disembarked the Principe and got into rescue dinghies to await the arrival of the Italians. Falco and Ebeling testified that while they waited DeGeorge devised a story for the three men to explain how they ended up off the coast of Italy with a scuttled yacht.

DeGeorge's story went as follows: he, Ebeling, and Falco had been in Naples looking for a captain. A man named Captain Libovich,2 who resembled Robert Redford and claimed to be a former Russian submarine captain, heard of their search and offered his services, along with those of his two crewmen. The six men took the yacht out from Naples for what was ostensibly to be a test drive. The captain and his men each brought aboard two large black duffel bags.

After several hours at sea, the captain and his crewmen overpowered the others and forced them into the cabin of the yacht. The captain and crew then set about cutting holes in the yacht so that it would sink. Sometime near dawn, a black speed boat pulled up next to the yacht. Libovich and his men unloaded their six bags onto the boat, jumped aboard, and sped off.

DeGeorge, Ebeling, and Falco recited this story to the Italian authorities once they were finally picked up and returned to land. They continued to tell their Libovich stories to Italian investigators during the ensuing months. Due to certain inconsistencies and the overall suspiciousness of their story, the three men were incarcerated briefly in Salerno, Italy, and forced to remain under house arrest in that city for several months. The Italian authorities finally allowed the three men to return home to the United States in February 1993.

Ebeling, acting in his capacity as Polaris's president and at the behest of DeGeorge, submitted a claim to Cigna on February 17, 1993, seeking payment under the insurance policy. The request repeated the Libovich story. Cigna refused to pay and informed Polaris on April 20, 1993, that it was rescinding the insurance policy due to Polaris's misrepresentations and concealment of material information, including DeGeorge's participation in the venture. On the same day, Cigna filed a civil lawsuit against DeGeorge, Ebeling, Polaris, and others seeking rescission of the insurance contract. Polaris filed a counterclaim for payment under the insurance policy.

Cigna ultimately prevailed on its rescission claim, obtained summary judgment on the counterclaim, and was awarded attorney's fees. The judgment was affirmed on appeal. See Cigna Prop. & Cas. Ins. Co. v. Polaris Pictures Corp., 159 F.3d 412 (9th Cir.1998). The district judge who presided over the case referred the matter to the United States Attorney's Office for the Central District of California for a possible perjury investigation.

On August 18, 1997, the U.S. Attorney submitted a request to Italian authorities seeking interviews with eight Italian witnesses and seeking documents related to the scuttling of the Principe. A grand jury subpoena was issued one week later to Neil S. Lerner, one of Cigna's attorneys in the civil case, requesting all documents related to that case.

On August 25, 1997, the government filed an ex parte application for an order suspending the statute of limitations under 18 U.S.C. § 3292, based on the pending foreign-evidence request. United States District Judge Stephen Wilson issued such an order on September 3, 1997. DeGeorge was indicted in January 1999 on charges including mail fraud, wire fraud, and perjury. The conspiracy count was added in a superseding indictment returned...

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