U.S. v. Kail

• Decision Date: 29 October 1986
• Docket Number: No. 85-5190,85-5190
• Parties: 21 Fed. R. Evid. Serv. 1219 UNITED STATES of America, Appellee, v. Harold B. KAIL, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 441

804 F.2d 441

21 Fed. R. Evid. Serv. 1219

UNITED STATES of America, Appellee, v. Harold B. KAIL, Appellant.

No. 85-5190.

United States Court of Appeals Eighth Circuit.

Submitted April 16, 1986.

Decided Oct. 29, 1986.

Kenneth Swinger, Fort Lauderdale, Fla., for appellant.

Donald M. Lewis, Asst. U.S. Atty., Minneapolis, Minn., for appellee.

Before ROSS and ARNOLD, Circuit Judges, and HANSON, ^* Senior District Judge.

HANSON, Senior District Judge.

Kail appeals his conviction on fifteen counts of mail fraud, in violation of 18 U.S.C. Sec. 1341. Kail was sentenced on May 30, 1985 to serve a total of seven years imprisonment and ordered to pay restitution in the amount of $501,738. We affirm the decision of the district court. ¹

I. BACKGROUND.

From April 1983 to March 1984 Kail was president of Coin & Stamp Gallery, Inc., a Minnesota corporation dealing in the sale of investment quality coins. Kail was responsible for hiring personnel, and in this capacity recruited several brokers and other employees from his former employer, Investment Rarities, Inc. The brokers contacted their former Investment Rarities clients, usually by mail, and informed them that they now worked at Coin & Stamp Gallery. One letter, drafted by Kail, described him as "one of the most knowledgeable numismatic experts in the country." The brokers informed customers that Coin & Stamp Gallery dealt in the finest investment quality coins which would provide a much better investment than the lower-grade coins and bullion offered by Investment Rarities. Throughout all of their dealings with their customers, Coin & Stamp Gallery brokers emphasized the investment potential of rare silver and gold coins, although Kail did caution them that they were not to sell the coins as securities or represent that profit was guaranteed.

Customers purchased coins from Coin & Stamp Gallery brokers based upon the representations that this would be an excellent investment in that the coins were sold at their fair market value. The fair market value of coins sold to customers was often confirmed by letter. In addition, Coin & Stamp Gallery assured its clients that it would repurchase coins at their current market value if the client wanted to sell them later. Subsequent appraisals of the coins purchased by Coin & Stamp Gallery clients, however, established that many of the coins had been purchased at a price far in excess of the fair market value, making them almost worthless as an investment vehicle. In most instances the price listed on the broker's inventory sheets was two to three times higher than the price at which Kail originally purchased the coins, therefore misleading the sales personnel as to the true value of the coins they were selling.

After individual customers had brought numerous complaints about the fraudulent transactions, the government conducted additional appraisals of the coins. To determine the market value of a particular coin and its condition ("mint state"), the appraisers routinely consulted The Coin Dealer Newsletter, commonly referred to as "the gray sheet." The gray sheet reports on a weekly basis the wholesale and retail price of coins traded nationwide by hundreds of coin dealers. Dealers commonly mark up the retail price of coins 20 to 30 percent above cost.

Not only were the coins being sold at prices far above their market value, they were also being sold at prices significantly higher than those recommended by Kail's chief supplier, George Manter. Although he initially sold coins to Kail, Manter decided to provide coins to Kail on a consignment basis, and with Kail decided the maximum price at which they would be sold. However, coins consigned by Manter appeared on the Coin & Stamp Gallery inventory with grades and sales prices much higher than agreed to. For example, in October 1983 Manter consigned a 5-piece silver dollar set at an agreed-to price of $1,950; the Coin & Stamp Gallery inventory sheet listed the set at $12,000.

To his brokers' questioning as to why Coin & Stamp Gallery prices were so much higher than those of comparable coins listed in the gray sheets, Kail insisted that his profit margin was low and that the coins he sold were of particularly rare quality. However, doubts among Coin & Stamp Gallery brokers increased in early 1984 after several customers complained and requested refunds of their purchases. In several instances, Kail refused to repurchase coins at the request of customers.

On March 6, 1984 postal inspectors, investigating complaints of mail fraud, executed a search warrant at the Coin & Stamp Gallery offices. Among the business records seized was the Coin & Stamp Gallery commission ledger in which Kail's wife, Maggi, had recorded the actual purchase price of the coins. Postal inspectors also seized Coin & Stamp Gallery's inventory of coins. This inventory, including thousands of coins, was examined by two coin experts retained by the government. Their appraisals revealed that Kail had assigned sale prices to coins substantially higher than their fair market value.

II. DISCUSSION.

A. Search Warrant.

Kail asserts that the trial court erred in denying his motion for suppression of evidence seized at Coin & Stamp Gallery because the affidavit accompanying the search warrant did not contain sufficient substance to allow the magistrate to determine probable cause and because the warrant was lacking in sufficient particularity and therefore constitutionally defective. The district court denied the motion to suppress, finding initially that there was sufficient probable cause to support the issuance of the warrant.

A magistrate issuing a search warrant is to "make a practical, common-sense decision whether, given all the circumstances set forth in the affidavit before him, ... there is a fair probability that contraband or evidence of a crime will be found in a particular place." Illinois v. Gates, 462 U.S. 213, 238, 103 S.Ct. 2317, 2332, 76 L.Ed.2d 527 (1983). In reviewing the magistrate's determinations, the court insures that the magistrate had a "substantial basis" for concluding that probable cause existed. Id. at 238-39, 103 S.Ct. at 2332.

The affidavit attached to the search warrant in this case reveals a substantial basis with which the magistrate could have concluded that the defendant's conduct was probably fraudulent and in violation of the federal mail fraud statute. The affidavit relates several specific examples of individuals who had been sold coins at prices far in excess of their fair market value. Three customers named in the affidavit indicated that Coin & Stamp Gallery refused to honor its commitment to refund coin purchases. The affidavit also includes information from interviews with Coin & Stamp Gallery employees who stated that numerous complaints had been received regarding the firm's pricing practices. Finally, the affidavit states in detail how the United States Mail was used in furtherance of the defendant's transactions, and describes the types of records kept by the business and how they were retained in the corporate offices. We would therefore conclude that the affidavit attached to the search warrant stated a substantial basis with which the magistrate could determine there was probable cause to issue the search warrant.

Kail also attacks as lacking sufficient particularity the warrant's description of the five categories of business records to be seized. The district court disagreed, and stated that the "scope of the documents sought by the warrant was ... not unreasonable or excessive, and therefore did not authorize an exploratory search."

The search warrant authorized inspectors to seize: (1) evidence of mailings of coins in bullion shipments; (2) books, records, papers and documents relating to the sale and purchase of coins and bullion; (3) accounting ledgers or records, checkbooks, monthly statements, cancelled checks, and deposit slips; (4) inventory records, records of safety deposit boxes safety deposit keys and coins; and (5) customer files, client lists, letters and mailings from clients, checks, cash, coins or bullion shipments sent as payment for purchases and advertising materials. The fourth amendment requires that a search warrant describe with sufficient particularity the things to be seized in order to prevent "a general, exploratory rummaging in a person's belongings." Coolidge v. New Hampshire, 403 U.S. 443, 467, 91 S.Ct. 2022, 2038, 29 L.Ed.2d 564 (1971). The degree of specificity required in applying the particularity requirement "is flexible and may vary depending on the circumstances and the types of items involved." Marvin v. United States, 732 F.2d 669, 673 (8th Cir.1984), quoting United States v. Apker, 705 F.2d 293, 299 (8th Cir.1983). For use involving a scheme to defraud, therefore, a search warrant is sufficiently particular in its description of the items to be seized "if it is as specific as the circumstances and nature of activity under investigation permit." United States v. Wuagneaux, 683 F.2d 1343, 1349 (11th Cir.1982), cert. denied, 464 U.S. 814, 104 S.Ct. 69, 78 L.Ed.2d 83 (1983). While the search warrant in this case was broad in the sense that it allowed inspectors to seize almost all of the business records of Coin & Stamp Gallery, we would conclude that under the particular facts of this case the scope of the warrant was justified. This is because it would not be possible through a more particular description to separate those business records that would be evidence of fraud from those that would not since there was probable cause to believe that fraud permeated the entire business operation. We would therefore affirm the district court's finding that the warrant was sufficiently particular.

In denying the defendant's motion to suppress, the district court concluded that "[t]he reliance of the postal inspectors on the magistrate's determination of probable cause was objectively reasonable." In...