541 F.3d 1331 (11th Cir. 2008), 05-11715, United States v. Schwartz

Docket Nº:05-11715.
Citation:541 F.3d 1331
Party Name:UNITED STATES of America, Plaintiff-Appellee, v. Larry E. SCHWARTZ, Raphael Raymond Levy, a.k.a. R. Ray Levy, Edward Meyer, Ronalee Levy Orlick, Defendants-Appellants.
Case Date:September 05, 2008
Court:United States Courts of Appeals, Court of Appeals for the Eleventh Circuit

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541 F.3d 1331 (11th Cir. 2008)

UNITED STATES of America, Plaintiff-Appellee,


Larry E. SCHWARTZ, Raphael Raymond Levy, a.k.a. R. Ray Levy, Edward Meyer, Ronalee Levy Orlick, Defendants-Appellants.

No. 05-11715.

United States Court of Appeals, Eleventh Circuit

September 5, 2008

Page 1332

Ira N. Loewy, Bierman, Shohat & Loewy, Neil M. Schuster, Miami, FL, Thomas John Butler, (Court-Appointed), Thomas Butler, P.A., Miami Beach, FL, William M. Ravkind (Court-Appointed), Ravkind & Associates, LLC, Dallas, TX, for Defendants-Appellants.

Kathleen M. Salyer; Anne R. Schultz and Jeanne Marie Mullenhoff, Asst, U.S. Attys., Miami, FL, for U.S.

Appeal from the United States District Court for the Southern District of Florida.

Before TJOFLAT, FAY and SILER,[*] Circuit Judges.

TJOFLAT, Circuit Judge:

A Southern District of Florida jury found Larry Schwartz, Edward Meyer, Raphael Raymond Levy, and Ronalee Orlick1 guilty of offenses they committed in carrying out a fraudulent scheme to sell high-yield promissory notes, issued by companies Schwartz and Levy owned, to individual investors.2 The scheme had a life of about four years; it came to an end shortly before Schwartz's company filed for bankruptcy. As investors became aware that their notes might become worthless, they demanded payment. Most were too late; the losses they suffered totaled in excess of $30 million.

The district court accepted the jury's verdicts and sentenced the defendants to lengthy prison terms. They now appeal. Schwartz appeals his convictions on the ground that the district court committed a Bruton3 violation when it permitted the prosecutor to introduce into evidence an out-of-court statement by codefendant Meyer that implicated him in most, if not

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all, of the charged offenses. Meyer appeals the district court's refusal to dismiss the charges against him on the ground that the Government used statements he made under a grant of immunity to obtain his indictment. Levy and Orlick challenge the sufficiency of the evidence to convict.4 We consider these individual appeals in the above order, after describing the sale of the high-yield promissory notes, the crimes charged in the indictment, and the case's post-indictment history.



1. First Capital Services sells “capital notes" to individual investors to raise money for its factoring business.

Larry Schwartz formed First Capital Services (“FCS" ) on December 23, 1992. From the beginning, FCS specialized in the purchase of discounted accounts receivable, or invoices, a financing practice called factoring.5 Schwartz was FCS's president and one of its two directors.6

Edward Meyer started at FCS in October 1994 as a special projects manager. He served as controller from about January 1995 to October 1999. As controller, he maintained the financial books and records of the company, including the general ledger, cash disbursement journal, and accounts payable ledger.

Starting in 1996, FCS sold “senior capital notes" to individual investors to raise money for factoring accounts receivable. FCS sold the notes to investors directly and through outside brokers.

FCS provided the brokers with a tri-fold sales brochure advertising the terms and options for “Capital Funding/Senior Capital Notes." One panel of the brochure titled “Safety and Yield[:] the Capital Note Advantages" provided an overview of the notes. It stated: “Notes [are] backed by Federal, State or Local Government receivables, and Insured Corporate Receivables." The next paragraph stated: “All funds are held in a segregated Capital Note Account used only for the purchasing of Government backed and Insured corporate receivables." This was followed by a bulleted list of the note's attributes: 9.25 annual percentage rate (“APR" );7 6-

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month term; fixed principal; fixed interest rate; liquid; monthly interest payments; ownership of receivables by First Capital evidenced by a first lien on a UCC-1 filing; no sales charge; and $25,000 minimum. There was a footnote linked to “liquid" that stated: “Note may be redeemed by lender prior to maturity date. Early redemptions will incur a one month interest penalty."

Another panel of the brochure was titled “About First Capital Services." It stated, among other things, that FCS had been in the “business of financing government backed and insured receivables since 1992, and as of December 1997 has purchased in excess of $225,000,000 in accounts receivable." It further stated:

[t]o assure and maintain the highest level of safety of principal, Continental Insurance Company part [sic] of the 65 Billion Dollar CNA/Continental insurance group conducts its own independent due diligence on all receivables and all debtor companies. FIRST CAPITAL SERVICES, INC. WILL ONLY FINANCE RECEIVABLES THAT ARE UNDERWRITTEN AND INSURED BY THE CONTINENTAL INSURANCE COMPANY. (Government backed receivables are exempt from this requirement.).

(Emphasis in original).

A third panel of the brochure was dedicated to a list of “Debtor Clients," including “Government" entities such as the “Federal Government," “Department of Navy," “Department of Transportation," “State of Florida," “State of Georgia," “City of New York," and “Broward County," and reliable “Corporate" entities such as “Wal-Mart," “3M," “General Electric," “AT&T," “Heinz," and “Florida Power & Light."

Yet another panel urged potential investors that upon “review[ing] this brochure," “[c]ommon sense will tell you this investment is an ideal combination of handsome returns, rock-solid safety, and liquidity." 8

Upon sending a check to FCS, investors received a “Corporate Funding Note" in the mail that detailed the terms of their investment and reiterated the representations made in the brochure. In particular, the note stated: “For the sole purposes of purchasing insured corporate receivables or government backed accounts receivables [sic]." Unlike the brochure, the note referred to the investor as “lender" and FCS as “borrower." Paragraph four of the note stated that “[t]he terms of this note cannot be changed nor may the note be discharged in whole or in part except by a writing executed by the lender." 9

2. U.S. Capital takes over FCS's individual investor note program and buys FCS corporate notes.

In 1997, the senior capital notes program came under investigation by the Florida Department of Financial Services, subsequently called the Florida Department of Banking and Finance. The Department was concerned that the notes should be registered as securities, and it had several conversations with FCS.

On December 4, 1997, FCS sent a letter to note holders, stating that it was

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“pleased to announce important changes to the senior capital note program." 10 The letter mentions that an “offering memorandum" explaining the changes would follow; the memorandum never made it to a note holder.

On December 22, 1997, Raphael Raymond Levy formed U.S. Capital Funding, Incorporated (“U.S. Capital" ), a Florida corporation. Up to that point, Levy had been selling FCS senior capital notes through his companies-American Benefits Services, Incorporated (“American Benefits" ), and Asset Based Management. U.S. Capital was evidently formed for the purpose of enabling FCS to continue the senior capital note program. U.S. Capital would sell its own promissory notes to individual investors and invest the proceeds in FCS “corporate" notes, which were substantially identical to the notes FCS had issued to individual investors, except that FCS issued them only to U.S. Capital. This plan was effectuated as follows.

On December 31, 1997, FCS, through its counsel, sent a letter to the Florida Office of the Comptroller stating that it would stop selling and renewing senior capital notes. Some months later, Schwartz reaffirmed that position to Korinne Harper, a Department investigator, telling her that the existing FCS senior capital notes would mature in July 1998 without renewal.

In February 1998, Levy's daughter, Ronalee Levy Orlick, began managing U.S. Capital's office and at some point she began exercising signatory authority. By early 1999, she was the company's president. Levy remained U.S. Capital's owner and director throughout the course of the charged conspiracies. 11

By April 1998, senior capital note holders, without solicitation, began receiving renewal notes issued in the name of U.S. Capital instead of FCS.12 The renewal notes had the same terms as the original and stated: “The undersigned, U.S. Capital Funding, Incorporated, borrower, hereby promises to pay to the order of [investor]." U.S. Capital also began marketing its own notes, “U.S. Capital notes," to individual investors directly-by placing ads in newspapers-and through independent brokers, often insurance agents, who were given sales brochures substantially identical to those previously used by FCS. Levy assured brokers and investors that the money generated from notes would be used to invest in FCS's factoring program as described on the brochures; he described U.S. Capital as FCS's “exclusive broker." Investors wrote their checks to U.S. Capital, which deposited their money into its account and issued them promissory notes identical to those formerly issued by FCS, except that U.S. Capital was the borrower. Orlick signed most of the notes and accompanying literature explaining the note program.

In 1998, U.S. Capital used the bulk of investor funds raised from its note program to purchase FCS corporate notes, which indicated FCS as the borrower and U.S. Capital as the lender. The rate of return on those notes was 10% per six

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months, or 20% annually, and the notes stated that the principal...

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