US v. McMillan
| Decision Date | 11 March 2010 |
| Docket Number | No. 08-31148.,08-31148. |
| Citation | 600 F.3d 434 |
| Parties | UNITED STATES of America, Plaintiff-Appellee-Cross-Appellant, v. Robert McMILLAN; Barry S. Scheur, Defendants-Appellants-Cross-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
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Gaven Dall Kammer, Asst. U.S. Atty., New Orleans, LA, Vijay Shanker (argued), Dept. of Justice, Crim. Div., Washington, DC, for U.S.
Herbert V. Larson, Jr. (argued), Sara A. Johnson, Schonekas, Winsberg, Evans & McGoeu, L.L.C., New Orleans, LA, for Robert McMillan.
Shaun G. Clarke (argued), Gerger & Clarke, Houston, TX, James A. Brown, Kerry Ann Murphy, Liskow & Lewis, New Orleans, LA, for Barry Scheur.
Jeffrey A. Lovitky, Washington, DC, for American Council of Blind, Nat. Educational and Legal Defense Serv. for Blind.
Before REAVLEY, DAVIS and STEWART, Circuit Judges.
Barry Scheur and Robert McMillan appeal their convictions for conspiracy and substantive mail and wire fraud offenses in connection with the failure of a health maintenance organization (HMO) known as The Oath for Louisiana, Inc. They challenge the timeliness and sufficiency of the superseding indictment, and they raise several claims of trial error. The Government cross-appeals the reasonableness of the sentences imposed. We conclude that the superseding indictment did not broaden the charges against the defendants and was both timely and sufficient. We reject the defendants' remaining claims and conclude that the district court did not abuse its discretion at sentencing. We therefore AFFIRM the district court's judgments in all respects.
This case concerns a scheme by defendants Barry Scheur and Robert McMillan to fraudulently represent the financial condition of The Oath for Louisiana, Inc., a Louisiana-licensed HMO. The Oath, as an HMO or plan, collected premiums and insured the medical expenses of its subscribers. The Government charged that the defendants devised a scheme to defraud and obtain money or property by filing false financial reports with the Louisiana Department of Insurance indicating that the HMO met minimum statutory net worth requirements in order to ensure the continued operation of the plan and the collection of premiums and management fees at a time when The Oath did not satisfy state requirements.
Scheur, a successful health care consultant from Massachusetts, acquired the HMO in January 2000 from a group of hospitals that had been running the plan as Southeastern Medical Alliance. Prior to the acquisition, Southeastern Medical Alliance had been losing money, and Scheur had been acting as its consultant to help improve its financial difficulties. Scheur agreed to take over ownership as part of an effort to turn around the HMO, and the prior owners made a capital contribution to the company of approximately $14 million as part of the transfer. After renaming the company, Scheur became its Owner, President, and Chief Executive Officer. A separate consulting firm controlled by Scheur, known as the Scheur Management Group, provided management services to The Oath and received fees of $200,000 to $350,000 per month. Scheur Management Group hired McMillan to help manage The Oath. He held various positions in the company, including Vice President, Chief Operating Officer, and Chief Financial Officer. Two other businesses controlled by Scheur acted as The Oath's parent company.
Louisiana law requires all HMOs in the state to file quarterly and annual financial reports containing information about assets and liabilities, as well as accounts receivable and capital contributions. The state mandates that each plan maintain a minimum statutory net worth of $3 million as a cushion for claims. Financial reports are filed by mail and signed by company officials as true and correct. The state uses these reports, which are available to the public, to monitor the financial health of the plans operating in Louisiana and to ensure that HMOs can pay claims from medical services providers for care given to the plans' insureds. If an HMO suffers financial trouble, the Department of Insurance can take several remedial steps, such as placing the plan on administrative supervision, which is a period of intense financial monitoring; ordering a restructuring of the plan; or placing it into receivership and liquidating all assets to pay off its liabilities.
Despite Scheur's efforts as a "turnaround" specialist, The Oath continued to suffer financially and to incur increasing losses with each passing quarter. Because of these losses The Oath became in danger of falling below the $3 million capital surplus threshold. Beginning with the third quarter of 2000, the defendants caused to be filed false financial reports showing that the plan met or exceeded the minimum statutory amount by listing speculative or nonexistent receivables as assets. They also recorded as assets receivables "due from parent," which were supposed to be capital infusions from the parent company but which the parent company in reality did not have the ability to provide and which never materialized. The "due from parent" and other speculative assets did not meet the state criteria to be reported as assets and were invalid. These purported assets were included in quarterly financial statements for the third quarter of 2000 and the first and second quarters of 2001. Without these invalid assets reported on its financial statements, The Oath would not have met the minimum statutory net worth requirements.
As part of the scheme, Scheur also obtained a personal loan from a bank in New Orleans for $1.2 million in February 2001. This money was wire transferred to the account of The Oath's parent company in Massachusetts before being transferred back to New Orleans and deposited into The Oath's account. The defendants reported the transaction in The Oath's 2000 annual financial report to the state insurance department as a capital infusion from the parent in order to raise The Oath's net worth above the $3 million threshold. In reality, there was never a real capital infusion because the defendants expected The Oath to pay Scheur back, which it did in April 2001.
Had the transfer of funds to The Oath been reported correctly there would have been no effect on The Oath's net worth because there would have been an increase in cash assets along with a corresponding increase in liabilities. Instead, it was reported as a straight cash infusion of equity. Then when Scheur's personal loan became due, the defendants withdrew the money from The Oath's account in New Orleans, wired it to a Scheur Management Group account in Massachusetts, and then transferred it back to the original lending bank in New Orleans, allowing Scheur to recoup his money and pay off the loan. They recorded the flow of money to Scheur Management Group on The Oath's internal books as a pre-payment of the management fees for April, May, and June of 2001 even though The Oath continued to pay its monthly management fees, thus double-paying the management company. To cover up this fact, in May 2001 the defendants reclassified the transaction from a pre-payment of fees to an account receivable in the form of a loan from The Oath to the parent company. To support the transaction they later created loan documents and corporate resolutions in September 2001, which were backdated to the original transaction date of April 2001.
Through such financial machinations, the defendants were able to keep The Oath operating free from regulatory interference and to continue collecting management fees from The Oath and insurance premiums from insureds even though the plan was not meeting the state requirements for net worth. The state Department of Insurance became concerned about The Oath's financial condition, and it instructed the company to remove from its balance sheet suspicious payables from the parent company that were listed as assets.
In September 2001 the insurance department placed The Oath on administrative supervision. It also ordered that the monthly management fee paid to Scheur Management Group be reduced. In April 2002, however, with losses continuing to mount, the Department placed The Oath into receivership and began liquidation proceedings. At that time, The Oath's liabilities exceeded its assets by more than $40 million, much of which was owed to medical services providers. By that time, Scheur Management Group had been paid fees from The Oath of approximately $6.1 million.
The Government began the instant prosecution in November 2005 with an indictment charging the defendants with conspiracy and mail fraud, in violation of 18 U.S.C. §§ 371 and 1341. It later filed superseding indictments in 2006 that added additional counts of mail fraud and charges for wire fraud, in violation of 18 U.S.C. § 1343.
The defendants moved to dismiss the indictment on the ground that the only victim alleged therein was the state Department of Insurance, and the only "property" that could have been fraudulently obtained was a license to do business in Louisiana, which was not a cognizable mail fraud offense under the Supreme Court's decision in Cleveland v. United States.1 After initially denying the motion, the district court reconsidered and granted it. The court held that the indictment had not set forth allegations that specific victims were defrauded of specific property.
On April 27, 2007, less than six months after the dismissal, the Government obtained a new indictment against the defendants, charging one count of conspiracy to commit mail and wire fraud, five counts of substantive mail fraud, and eight counts of substantive wire fraud. The new indictment was substantially similar to the dismissed indictment but specified that the defendants had devised a scheme to defraud and obtain money and property "from The Oath, The...
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