United States v. Hawkins

• Decision Date: 29 July 2015
• Docket Number: 13–3338,No. 13-3336.,No. 13-3335.,Nos. 13–3335,13–3339.,13–3337,13–3336,s. 13–3335,13-3336.,13-3335.
• Citation: 796 F.3d 843
• Parties: UNITED STATES of America, Plaintiff–Appellee v. Isreal Owen HAWKINS, Jr., Defendant–Appellant. United States of America, Plaintiff–Appellee v. Teresa Brown, Defendant–Appellant. United States of America, Plaintiff–Appellee v. Johnny Heurung, Defendant–Appellant. United States of America, Plaintiff–Appellee v. William Miller, Defendant–Appellant. United States of America, Plaintiff–Appellee v. Martin Roper, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

796 F.3d 843

UNITED STATES of America, Plaintiff–Appellee

v.Isreal Owen HAWKINS, Jr., Defendant–Appellant.

United States of America, Plaintiff–Appellee

v.Teresa Brown, Defendant–Appellant.

United States of America, Plaintiff–Appellee

v.Johnny Heurung, Defendant–Appellant.

United States of America, Plaintiff–Appellee

v.William Miller, Defendant–Appellant.

United States of America, Plaintiff–Appellee

v.Martin Roper, Defendant–Appellant.

Nos. 13–3335

13–3336

13–3337

13–3338

13–3339.

No. 13-3336.

No. 13-3335.

United States Court of Appeals, Eighth Circuit.

Submitted: April 13, 2015. Filed: July 29, 2015. Rehearing and Rehearing En Banc Denied Sept. 2, 2015 in Nos. 13–3337 & 13–3339. Rehearing and Rehearing En Banc Denied Sept. 17, 2015 in Rehearing and Rehearing En Banc Denied Nov. 18, 2015 in

Stephen C. Moss, Asst. Fed. Public Defender, Kansas City, MO, argued (Laine Cardarella, Fed. Public Defender, on the brief), for appellant Isreal Owen Hawkins, Jr.

Russell J. Shankland, Shook, Hardy & Bacon LLP, Kansas City, MO, argued, for appellant Teresa Brown.

David A. Kelly, Kelly, Symonds & Reed, LLC, Lee's Summit, MO, argued, for appellant Johnny Heurung.

David Guastello, The Guastello Law Firm, Kansas City, MO, argued, for appellant William Miller.

Jack F. West, Kansas City, KS, argued, for appellant Martin Roper.

Daniel M. Nelson, Asst. U.S. Atty., Kansas City, MO, argued (Tammy Dickinson, U.S. Atty., Kathleen D. Mahoney, Asst. U.S. Atty., on the brief), for appellee.

Before BYE, BEAM, and SMITH, Circuit Judges.

Opinion

BEAM, Circuit Judge.

Isreal Hawkins, Teresa Brown, Johnny Heurung, William Miller, and Martin Roper were convicted of various crimes related to their involvement in promoting and/or selling stock for Petro America Corporation (Petro America), an unregistered company that had no value. The defendants appeal their convictions and challenge rulings the district court¹ made with respect to various pre-trial and post-trial motions, juror selection, and numerous evidentiary issues. Heurung also appeals his sentence. We affirm.

I. BACKGROUND

On June 15, 2011, a grand jury sitting in the Western District of Missouri issued a superseding indictment (the “Indictment”) charging the defendants and seven additional alleged coconspirators with conspiracy to commit securities fraud and wire fraud, in violation of 18 U.S.C. § 371. The Indictment further charged Hawkins with aiding and abetting securities fraud, in violation of 15 U.S.C. § 77q and 18 U.S.C. § 2 ; aggravated currency structuring, in violation of 31 U.S.C. §§ 5324(a)(3) and (d)(2) ; money laundering, in violation of 18 U.S.C. § 1957 ; and two counts of wire fraud, in violation of 18 U.S.C. § 1343. In addition to the conspiracy charges, Brown was charged with one count of securities fraud and six counts of wire fraud; Heurung was charged with two additional counts of wire fraud; and Miller was charged with one count of money laundering and one count of wire fraud. The remaining counts in the Indictment related to the seven other alleged coconspirators, all of whom pled guilty to various charges. Hawkins, Brown, Heurung, Miller and Roper maintained their innocence and proceeded to trial. Hawkins' defense theory was that Petro America was a legitimate company and that the government was prosecuting the codefendants so that it could confiscate the company's substantial assets. The remaining defendants acknowledged that Petro America was a sham but claimed they had believed in good faith that the company was real and that they could promote and/or sell its stock. A jury found each defendant guilty on all charged counts.²

A. Summary of the Petro America Scam

Between September 2008 and November 2010, more than 12,000 investors purchased Petro America's stock, at a cumulative cost of at least $10.2 million. During this time period, Hawkins, Heurung and others relentlessly represented to shareholders and prospective investors that Petro America was an oil, gas and mining company that had acquired numerous assets collectively worth hundreds of billions of dollars and that the company's stock would soon be traded on a public exchange. In reality, Petro America had no board of directors, engaged in no profitable business activities, kept abysmal financial records, and never took any substantial steps to “go public.” Further, Petro America's assets essentially amounted to ownership of a small company whose stock was traded on the pink sheets,³ typically for fractions of a penny, and a vaguely defined stake in a packaging company that never earned Petro America a cent of profit. Instead, it appears that all of Petro America's income came from the sale of the company's stock to private investors, that only a small portion of the investors' funds were used for legitimate business purposes, and that Hawkins syphoned off most of the company's money into his own pocket. The record further indicates that Hawkins gifted millions or billions of shares to his coconspirators, who in turn sold the stock to private investors and kept most or all of the proceeds. In sum, the government's evidence overwhelmingly established that Petro America was a sham entity that had no real value and that Hawkins, along with several of his coconspirators, used the company as a vehicle to dupe thousands of unwitting investors out of millions of dollars.

Hawkins founded Petro America in the summer of 2007. Hawkins incorporated Petro America in Kansas and subsequently registered the company in Missouri as a foreign corporation. In or around September 2008, Hawkins and several coconspirators, including Brown, Miller, and Roper, began selling Petro America's stock to private investors, many of whom resided in Missouri. It is undisputed that the coconspirators' sale of stock in Missouri was unlawful because Hawkins had not registered the stock with the Securities Division of the Missouri Secretary of State (“Securities Division”) nor qualified for an exception from, or an exemption to, registration. See Mo.Rev.Stat. Ann. §§ 409.1–102, 409.3–301, and 409.4–401 (collectively stating it is unlawful for a person to offer or sell an unregistered security in Missouri unless the security is a federally covered security or fits within an enumerated exemption and that persons transacting business as a broker-dealer of securities generally must be registered with the state). This fact came to light in early October 2008 after the Securities Division began receiving complaints from consumers around the country about an email that Roper sent out on September 20, 2008. Roper's email claimed that Petro America was an oil and gas company that was worth $68 million, that the company would go public within six months, and that investors would make $200,000 off a $100 dollar investment. The email also instructed investors to send funds directly to Roper and provided his address and a Missouri phone number.

The Securities Division began investigating Petro America in early October 2008. As part of this process, officials from the Securities Division interviewed Roper, who admitted that he knew Petro America's stock was not registered, that he was not registered to sell securities, and that sending the email was a “mistake.” Roper also indicated that he was familiar with securities law and had even taken a series of examinations that are prerequisites to becoming a registered broker of securities in the State of Missouri. See Mo.Code Regs. Ann. tit. 15, § 3051.030(2)(A).

On November 12, 2008, the Securities Division issued a Cease and Desist Order (the “Order”) that prohibited Petro America, Hawkins, Roper, their agents, and anyone “with knowledge of [the] Order” from offering or selling or aiding in the offering or selling of Petro America's securities in Missouri until the company registered its securities or qualified for an exemption to registration. The Order explicitly stated that Hawkins and Roper had used unlawful means to promote and sell the company's stock, including (1) making misleading statements about the value of the stock; and (2) omitting to state numerous material facts, such as information related to the company's financial condition, the background of the company and its officers, and that the company's stock was not registered. See Mo.Rev.Stat. Ann. § 5–501(2). The Securities Division mailed the Order to Petro America, Hawkins, and Roper and posted the Order on the Missouri Secretary of State's website. Although Hawkins and Roper initially tried to challenge the Order, they quickly abandoned these efforts and took a number steps to resolve their issues with the Securities Division, including paying fines and consenting to the Order. The record establishes, however, that Hawkins never took substantial steps to register Petro America's stock or qualify for an exemption to registration in Missouri or any other jurisdiction.⁴

It is undisputed that each of the defendants read the Order shortly after it was issued and that the Order remains in effect to this day.⁵ Nevertheless, between November 2008 and November 2010 the defendants collectively flouted virtually every mandate contained in the Order. Hawkins, apparently in an attempt to get around the Order, began “gifting” shares to various coconspirators, including Brown, Miller and Roper, who continued to support Petro America and promote the company's stock. The coconspirators in turn sold their shares to investors, and some of the coconspirators, including Brown, also kicked back a portion of their profits to Hawkins. The record indicates that Brown derived $3,047,202 by selling Petro America stock to thousands of investors and that she transmitted more than $1,000,000 of these proceeds back to accounts that Hawkins personally owned or controlled. Similarly, Miller and Roper derived $165,431 and $93,420, respectively, from the sale of Petro America stock to dozens of investors.⁶ Based on the evidence it is unlikely that Heurung sold Petro America stock to private investors....