U.S. v. Brown

• Decision Date: 29 October 1984
• Docket Number: Nos. 82-1581,82-1582,s. 82-1581
• Citation: 739 F.2d 1136
• Parties: 15 Fed. R. Evid. Serv. 1005 UNITED STATES of America, Plaintiff-Appellee, v. Ivan W. BROWN and Gordon M. Kenngott, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1136

739 F.2d 1136

15 Fed. R. Evid. Serv. 1005

UNITED STATES of America, Plaintiff-Appellee, v. Ivan W. BROWN and Gordon M. Kenngott, Defendants-Appellants.

Nos. 82-1581, 82-1582.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 6, 1983.

Decided May 4, 1984.

As Amended on Denial of Rehearing

In Banc and Rehearing July 10, 1984.

Certiorari Denied Oct. 29, 1984.

See 105 S.Ct. 331.

Janet L. Jannusch, Asst. U.S. Atty., Gerald D. Fines-U.S. Atty., Peoria, Ill., for plaintiff-appellee.

Steven Skelton, Bloomington, Ill., Ann C. Tighe, Cotsirilos & Crowley, Ltd., Chicago, Ill., for defendants-appellants.

Before CUMMINGS, Chief Judge, and PELL and WOOD, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

This case is about four people (the two defendants along with two unindicted co-conspirators) who allegedly engaged in a fraudulent loan brokerage business wherein they induced investors into advancing funds for the purchase of so-called "ICC-290 letters of credit," which were not the investments they were represented to be. A jury found both defendants guilty of conspiracy, wire fraud, and interstate transportation of stolen property in violation of 18 U.S.C. Secs. 371, 1343, and 2314. The defendants, Ivan W. Brown and Gordon M. Kenngott, separately raise a number of issues on appeal, some of them overlapping. We affirm their convictions. ¹

I. Background

Around 1971, defendant Kenngott formed a business called Kenngott Financial, Ltd., located in Wisconsin. Kenngott was the corporation's sole employee; he assisted companies in merger acquisitions and in obtaining funds. Kenngott met defendant Brown, also from Wisconsin, in June 1979. Brown operated a similar business known as International Barters. The defendants then began working together in arranging loan packages for client projects. Kenngott would supposedly arrange for the source of the funds, and Brown would arrange for the collateral. Kenngott and Brown then became acquainted with and began doing business with Don Johnson and Joseph Synan, two unindicted co-conspirators who were also engaged in the loan brokerage business: Johnson worked under the name Donald G. Johnson & Associates in Kansas, and Synan operated a number of loan brokerage companies, with "finders" located all over the country, including Illinois. Johnson and Synan referred loan packages from their clients to Kenngott and Brown, and had their clients wire money to Kenngott and Brown to purchase ICC-290 letters of credit, which would allegedly guarantee their loans and make them easier to fund. The catch, as the unwitting victims who wired various amounts ranging from $10,000 to $190,000 soon found out, was that there is no such thing as an ICC-290 letter of credit. The ICC-290 is simply a pamphlet published by and readily available from the International Chamber of Commerce to facilitate international trade by establishing certain standard rules and terminology. After hearing a much more detailed version of the scheme, the jury found both Brown and Kenngott guilty of running a fraudulent loan brokerage business.

Brown and Kenngott now complain: (1) that the district judge erred at the Santiago Rule 104 hearing when he concluded that there was sufficient evidence of a conspiracy to allow the government to introduce statements at trial of alleged co-conspirators Don Johnson and Joseph Synan; (2) that the district judge erred in refusing to give certain jury instructions tendered by the defendants, and that the instructions finally read to the jury failed to adequately state the law; and (3) that the evidence against the defendants was insufficient to support the verdict. In addition, Kenngott alleges that he was deprived of his constitutional right to effective assistance of counsel at trial, and that the district court lacked jurisdiction because of improper venue, and Brown contends that the prosecutor committed prejudicial error in his final argument.

II. Admissibility of Alleged Co-Conspirator Statements

Prior to trial the court held a hearing to determine whether certain co-conspirator statements would be admissible against the defendants at trial. See United States v. Santiago, 582 F.2d 1128 (7th Cir.1978); Fed.R.Evid. 104. Kenngott and Brown dispute the court's finding that the government proved by a preponderance of the evidence that the defendants participated in a conspiracy, and argue that co-conspirator statements were therefore wrongfully admitted. Although the district court did not outline the evidence upon which it based its finding, there is sufficient, although not overwhelming, circumstantial evidence in the record of the Santiago hearing to support the district court's conclusion that it was more likely than not that the two defendants participated along with the two unindicted co-conspirators in a conspiracy to defraud. Direct evidence is not necessary. Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942); United States v. Dalzotto, 603 F.2d 642, 645 (7th Cir.), cert. denied, 444 U.S. 994, 100 S.Ct. 530, 62 L.Ed.2d 425 (1979).

A. Kenngott focuses his argument around his own asserted innocence, arguing that the unindicted co-conspirator statements were wrongfully admitted against the defendants because the government allegedly failed to present evidence that the defendants themselves were guilty of misrepresentation. After reviewing the record, we find ample evidence of the defendants' active and knowing participation in a conspiracy to defraud.

Don Johnson testified that he began referring clients' loan packages to Brown and Kenngott in the spring of 1979, and that at that time he had conversations with both defendants regarding the "procedures" they used in their loan brokerage business. As Kenngott described his business to Johnson, Kenngott would find actual lenders of funds, and Brown would arrange for necessary collateral. Johnson then had a conversation with Brown, who told Johnson that he used ICC-290 letters of credit to arrange collateral for funding, and that when a client wished to purchase an ICC-290, the money, along with a fee set by Brown, should be sent to Brown.

Joseph Synan testified that he too was engaged in the loan brokerage business, and that he became acquainted with Kenngott and Brown through Don Johnson. Synan described some specific loan packages that he submitted in 1979 to Kenngott and Brown through Johnson. Synan testified that Johnson, Kenngott, and Brown each advised him that ICC-290 guarantees were necessary to obtain funding for the loan packages. Although the money for the ICC-290s was forwarded to Kenngott and Brown, none of the loans came through. Synan requested on the first occasion that the money be returned, but Kenngott and Brown told him that was impossible because the money had already been used to secure the ICC-290s.

Synan subsequently submitted another loan request to Kenngott and Brown through Johnson for a project referred to as Virco. Synan and Johnson both testified in great detail about the Virco project, one of the specific loan packages that led to the indictment against Kenngott and Brown.

In the fall of 1979 Johnson had a telephone conversation with Brown regarding the amount necessary to purchase an ICC-290 for the Virco loan. Brown told him $190,000 would be required. Johnson also had a telephone conversation with Kenngott regarding funding for the Virco loan. Kenngott told him the funders were ready to go as soon as the collateral was in place, and that the lender would be a person from the Middle East. Johnson relayed this information to Synan and referred the Virco package to Kenngott.

Synan testified that he also spoke directly with Kenngott and Brown about the Virco loan. Kenngott told Synan that the loan was a good one, but that it needed an ICC-290 guarantee before it could be processed and funded. Brown told Synan that $190,000 had to be submitted to secure the ICC-290 guarantee. Synan then had two clients send Brown and Kenngott the $190,000. As before, the loan was not forthcoming. Also as before, Kenngott told Synan that it was not possible to get a refund because the money had already been used to secure the ICC-290.

Thierry Verhaegen, an attorney with the United States branch of the International Chamber of Commerce, explained what an ICC-290 really is. He testified that it is a set of guidelines designed to help businessmen export goods overseas by using letters of credit. It is not itself a letter of credit that can be purchased by individuals seeking loans. No portion of the document covers the loaning of money or money-changing.

The evidence at the Santiago hearing established that Kenngott and Brown completely misrepresented and mischaracterized the nature of an ICC-290, and through their misrepresentations induced unwitting investors found by Johnson and Synan to send money to Kenngott and Brown for the so-called ICC-290. None of the investors ever saw their money again, and the loans that the ICC-290s were to provide collateral for never came through. The natural and allowable inference from the testimony and evidence presented is not, as defendants assert, that Kenngott and Brown simply and innocently used terminology in a way not originally intended by the International Chamber of Commerce, but that Kenngott and Brown misrepresented the nature of an ICC-290 as part of their conspiracy to defraud investors. The evidence at the Santiago hearing was circumstantial, as it often is, but it was sufficient to prove that it was more likely than not that Kenngott and Brown created and actively participated in this unique conspiracy to defraud. Cf. United States v. Kaminski, 692 F.2d 505, 512 (8th Cir.1982); United States v. Kreimer, 609 F.2d 126, 132 (5th Cir.1980); United States v. Talbott, 590 F.2d 192, 194 (6th Cir.1978); United States v. Becker, 569 F.2d 951, 959-60 (5th Cir.), cert. denied, 439 U.S. 865, 99 S.Ct. 188, 58 L.Ed.2d...