US v. Sine
| Decision Date | 01 May 2007 |
| Docket Number | No. 05-10575.,05-10575. |
| Citation | 483 F.3d 990 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Wesley SINE, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
COPYRIGHT MATERIAL OMITTED
Russell A. Cline, Crippen & Cline, Salt Lake City, UT, for the defendant-appellant.
John K. Vincent, Assistant United States Attorney, Sacramento, CA, for the plaintiff-appellee.
Before BETTY B. FLETCHER and MARSHA S. BERZON, Circuit Judges, and DAVID G. TRAGER,* District Judge.
Defendant Wesley Sine, a Utah lawyer, helped run a pyramid scheme that defrauded victims of more than two million dollars. Sine's role in the scheme was to reassure individuals that they were lending money to a legitimate real estate investor and that millions of dollars in legitimate collateral protected them in case of default. Once the scheme started to unravel and it became clear that the collateral was worthless, Sine began to weave a "good faith" defense to his actions, claiming that it was as much of a surprise to him as to anybody else that the collateral was illusory. To give credence to this story, Sine filed a number of lawsuits that purported to be seeking recovery of the value of the collateral. Ultimately, however, these lawsuits just added to Sine's troubles: An Ohio federal district court rejected his factual claims, enjoined his recovery efforts, held him in contempt, and denounced on the record his "chicanery, mendacity, deceit, and pretense."
This appeal arises from the criminal prosecution of Sine and his co-defendant Darra Panthaky, the mastermind of the fraud scheme, commenced in a California federal district court after the scheme unraveled.1 During cross-examination of various defense witnesses—including Sine, who testified in his own defense—the government repeatedly referred to the fact-finding and derogatory character assessments of the Ohio court. By doing so, the government created a substantial risk that the jury would pay undue and unwarranted attention to the strongly adverse assessment of a figure, the Ohio judge, who never appeared in the courtroom but who the jury likely assumed had both authority and expertise with regard to determining the true course of events and to making credibility determinations. Such use of the judge's statements was highly improper. It both unfairly prejudiced Sine and introduced impermissible hearsay into the trial.
Sine did not, however, object during the trial to the use of the judge's observations. The government presented such strong admissible evidence of his guilt that, even without considering the Ohio court's decision, we cannot find plain error warranting reversal. We therefore affirm.
Panthaky masterminded a wildly imaginative, bizarrely complex pyramid scheme in the late 1990s and early 2000s: First, he convinced victims that they were lending money to fund various real estate projects conducted by Alpha Funding Group, Inc. ("Alpha"), of which Panthaky was president. In making his pitch, Panthaky represented himself as a wealthy international financier and humanitarian who had led Alpha to great success, and promised potential "lenders" between twenty and one hundred percent interest on short-term loans. Using this persona and promise, Panthaky successfully solicited over five million dollars in loans. "Lenders" would receive a promissory note prepared by Sine as Alpha's lawyer and signed by Panthaky. In fact, the money provided by these "lenders" funded no legitimate projects. Instead, some of the money went to repay earlier "lenders" so that the pyramid scheme could continue, and some ended up in the personal coffers of Panthaky and his cohorts.
To reassure the victims, Panthaky promised them that in case anything went wrong with Alpha's projects, they would be protected by assets held in the Alpha Funding Group Trust ("Alpha Trust"). Sine was the trustee of Alpha Trust. In that capacity, he prepared and signed security letters to victims explaining that he would liquidate the trust if Alpha defaulted on loans. Both Sine and Panthaky stated on numerous occasions, including in the security letters, that the trust held $54 million in Ginnie Mae securities.2
Almost always, the "lenders" were not repaid as promised and then experienced increasing difficulty in contacting Panthaky. Even after receiving complaints that the loans were not repaid on time, Sine continued to tell the victims that Alpha was a legitimate investment opportunity and had a track record of successful repayment of loans. When such excuses ran out and a "lender" continued to press for repayment, Sine would then play hardball—by, for example, insisting that the promissory note did not allow the "lender" to demand liquidation of the collateral or by instigating litigation against the "lender."
By 2000, under pressure from a growing number of unpaid victims, Sine purported to attempt as trustee of Alpha Trust to liquidate the collateral, only to find out— for the first time, he maintained—that the forms establishing the trust's ownership of the securities were worthless. That the forms were worthless was quite true: Such forms could only transfer ownership of securities issued in paper format, but the Ginnie Mae securities referenced by Alpha Trust's forms existed only in an electronic format. Moreover, Ginnie Mae had no record that Alpha Trust, Alpha, Sine, Panthaky, or the Delmarva Timber Trust ("Delmarva")—the entity the defendants claimed had transferred the securities to Alpha3—ever owned any of the securities referred to in the documents.
The main factual dispute at trial was whether Sine realized from the outset, rather than only after the victims demanded access to the collateral, that the supposed collateral was worthless. Sine testified during trial that he had a good faith belief that the trust legitimately owned the Ginnie Mae securities and made efforts to verify their ownership at the time the trust was established. One such effort, he represented, was a 1992 conversation with Jeffrey Franklin, a Maryland banker whose signature appears on the transfer forms. Sine also told the jury that when he learned in 2000 that the forms could not have transferred the securities, he entered into negotiations with Don Meddles, the current trustee of Delmarva, to obtain ownership of the securities. Sine ultimately filed several lawsuits in Utah, naming Meddles and Delmarva as defendants and supposedly seeking to recover the value of the securities.
The government set out at trial to portray all these purported indices of good faith as just further steps in Sine's fraudulent scheme. Several witnesses—including Franklin—refuted Sine's story that he received assurances in 1992 that Alpha Trust did own the Ginnie Mae securities. The government presented evidence that Sine's efforts to liquidate the securities began only after several years of complaints by victims about Alpha's defaults and became most active after federal prosecutors began showing interest in the defendants' activities. And the government's witnesses highlighted Sine's inconsistent stories about these efforts.
As part of its effort to disprove Sine's good faith, the government decided—a decision that is at the core of this appeal—to highlight the shady nature of the legal tactics Sine used in trying to recover on behalf of Alpha Trust. Jurors heard testimony, for example, that Sine did not serve Meddles and Delmarva with the complaint in the Utah state court suit he filed against them in late 2000, so it was dismissed for a lack of prosecution. Also, Sine sued Meddles and Delmarva in Utah again in 2002, this time in both state and federal court, along with two entities, Polly & Co. and Hare & Co., that were the true owners of the Ginnie Mae securities referenced in the transfer forms. In response to this second suit, Meddles—in March 2003, over a year after the indictment in this casesettled the two suits for $18 million. But, according to the government's evidence, the settlement was a sham: Although Meddles said he was acting on behalf of Polly and Hare, the two entities were never served with the complaint, and were in fact subsidiaries of the Bank of New York, with no connection to Meddles. Sine nonetheless used his supposed status as a judgment creditor of the two entities to request that companies who owed money to Polly and Hare redirect repayments of those debts to him, as trustee of Alpha Trust. When these requests were in several instances successful, Sine, inexplicably, gave the money he received to Meddles—even though the settlement of the Utah case obligated Meddles to pay $18 million to Alpha Trust.
Eventually, the Bank of New York learned what was happening and took steps to stop the seizures of Polly's and Hare's assets. So Sine went to court again, this time filing a declaratory judgment action against the Bank of New York. That action was removed to the United States District Court for the Northern District of Ohio and assigned to Judge James Carr. In December 2003, Judge Carr entered a temporary restraining order against Sine to prevent his diversion of money owed to Polly and Hare. In March 2004, Judge Carr issued a preliminary injunction to the same effect and held Sine guilty of criminal contempt for violating the restraining order and continuing to redirect money from Polly and Hare.4
Well before the Ohio District Court proceedings, in February 2002, the government indicted Sine in the Eastern District of California for mail fraud, pursuant to 18 U.S.C. § 1341. A superseding indictment was filed in September 2004. That indictment alleged as the mail fraud a series of four letters sent in April and May 1999 between Clarence Trausch, a prospective "lender," and Renata Lee, an individual who was already a "lender" and whom the defendants had induced to seek out additional participants. In February 2005, a jury...
To continue reading
Request your trial