United States v. Toll

• Decision Date: 03 November 2015
• Docket Number: No. 13–14540.,13–14540.
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Craig Stanley TOLL, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

804 F.3d 1344

UNITED STATES of America, Plaintiff–Appellee

v.Craig Stanley TOLL, Defendant–Appellant.

No. 13–14540.

United States Court of Appeals, Eleventh Circuit.

Nov. 3, 2015.

Kathleen Mary Salyer, Madeleine R. Shirley, Evelyn Baltodano–Sheehan, Wifredo A. Ferrer, Lois A. Foster–Steers, Kimberly A. Selmore, U.S. Attorney's Office, Miami, FL, for Plaintiff–Appellee.

Richard Carroll Klugh, Jr., Law Offices of Richard C. Klugh, Miami, FL, for Defendant–Appellant.

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

Before WILLIAM PRYOR, JULIE CARNES, and SILER,^* Circuit Judges.

Opinion

WILLIAM PRYOR, Circuit Judge:

This appeal requires us to decide whether the district court abused its discretion by allowing a lay witness to testify about the financial statements of the company that employed him as its controller and whether sufficient evidence supports Craig Toll's ten convictions for participating, as chief financial officer of the same company, in schemes to defraud investors and the United States. The government presented evidence that Toll maintained two sets of financial statements and used one set to mislead investors and the United States. And the controller testified that, when the two sets of statements were prepared, he believed only the other set complied with Generally Accepted Accounting Principles. A jury convicted Toll of two counts of conspiracy to commit wire fraud, one count of conspiracy to engage in financial transactions with criminally derived property, three counts of wire fraud, one count of major fraud against the United States, and three counts of making false statements to a federal agency. The district court did not abuse its discretion by admitting the controller's testimony, and the government presented sufficient evidence to convict Toll. We affirm.

I. BACKGROUND

Toll served as the chief financial officer of InnoVida. He had a master's degree in business administration from the Wharton School of Business, and he had previously worked as an audit partner for a large accounting firm and as chief financial officer for a Fortune 500 company.

InnoVida was a holding company for several subsidiary companies. It manufactured panels for rapidly built structures, and it marketed them as energy efficient. But InnoVida never earned significant revenues from selling these panels. It instead made most of its revenue by selling “factories in a box,” which were joint ventures to build factories to manufacture the panels.

Toll, with the help of others, prepared two sets of unaudited financial statements for InnoVida. The main difference between the statements was how the sets recognized revenue from the factories in a box. And that difference meant that each set reported a major difference in profitability.

One set of statements recognized revenue on a deferred basis. That is, when InnoVida received revenue for a factory, it was offset with a liability that reflected the progress of construction on the factory. As construction of the factory progressed, more of the revenue was recorded as earned. This first set of statements reported that InnoVida was losing millions of dollars.

The other set of statements recognized revenue in full as soon as InnoVida received payment for a factory, even if construction was incomplete. This second set of statements was labeled “pro forma.” It reported substantial profits.

Together with Claudio Osorio, the owner and majority shareholder of InnoVida, Toll participated in two schemes, the first of which involved private investors. Osorio and others solicited individuals to invest directly in InnoVida or enter into joint ventures for “factories in a box.” InnoVida structured the joint ventures so that the investors would own fifty percent of the equity in exchange for their capital contributions, and InnoVida would own the other fifty percent in exchange for providing equipment. When it provided that equipment, InnoVida marked up the price by about 100 percent.

Toll and Osorio misrepresented some facts to investors and omitted others. They provided the investors with the pro forma statements reporting substantial profits, but no one told the investors about the other set reporting significant losses. They also told some investors that Osorio was not receiving a salary, but Osorio funneled substantial corporate funds to a personal account. And neither Toll nor Osorio revealed that InnoVida used deposits from some investors to pay others.

The second scheme involved a loan from the Overseas Private Investment Corporation, an agency of the United States. A managing director of the Investment Corporation explained that its “mission is to help people in [developing] countries to improve their economic position while, at the same time, helping U.S. businesses to grow their markets and develop their business.” Osorio and Toll obtained a $10 million loan from the Investment Corporation for a purported project in Haiti. The Investment Corporation disbursed $3.2 million of the loan, and Osorio and Toll used the majority of it for improper purposes, such as repaying other investors and funding Osorio's personal account. When InnoVida sought the remainder of the loan, the Investment Corporation requested records to verify that InnoVida had complied with the terms. InnoVida provided the Investment Corporation with false documents about its use of the loan proceeds, about its equity contribution to the Haiti project, and about purported contracts it secured in Haiti. Suspecting fraud, the Investment Corporation never disbursed the remaining proceeds.

A federal grand jury indicted Toll and Osorio for their participation in both schemes. It indicted Toll for two counts of conspiracy to commit wire fraud, 18 U.S.C. § 1349, fifteen counts of wire fraud, id. § 1343, one count of major fraud against the United States, id. § 1031(a), three counts of making false statements to a federal agency, id. § 1001(a)(3), and one count of conspiracy to engage in a monetary transaction with criminally derived property, id. § 1956(h).

At trial, the government introduced evidence to prove Toll's participation in, and knowledge of, both schemes. Lewis Carness, the controller at InnoVida, testified about how the accounting department operated. Although Toll initially was a signatory for most of the bank accounts, he was removed in 2009 and had to receive bank statements from another employee, Elba Gamboa. This change occurred after Osorio's wife, who did not have an official title but managed some aspects of InnoVida, became upset with Toll and Carness for installing an expensive accounting system. She reduced both of their salaries, instructed Carness to report directly to her, and tried “to isolate” Toll from the company.

Carness explained that the accounting department prepared two sets of financial statements. When the prosecutor asked Carness to explain what “deferred revenue” is, Toll objected. The district court overruled the objection and stated, “[H]e's not testifying as an expert. I'll allow him to testify as to what happened, his involvement with it, but not as an expert.” The government then asked Carness to explain the “deferred revenue” section of the financial statements.

Later, without objection from Toll, Carness testified that, when he prepared the statements, he believed that the ones using deferred revenue complied with the Principles and the ones using full recognition of revenue did not:

Q. The statements that [used deferred revenue,] ... [w]ere those statements done according to what we call GAAP, G–A–A–P?

A. It was done according to our best interpretation of the GAAP rules relating to it. It was our understanding that when we went through the audit, the auditors would review those methods to validate them. We had early discussions with them about the methods and received preliminary, you know, agreement from them about the methods used.

....

Q. Okay. Those entries [using full recognition of revenue] were never booked into the accounting system?

A. No.

Q. Okay. Why not?

A. Because the accounting system is supposed to ... reflect the method of accounting that you use for GAAP purposes, for purposes of providing financials for the audit. This was merely an alternate presentation of financials.

Q. And ... was this alternate presentation according to GAAP?

....

A. To the ... best of my knowledge, it was not.

The prosecutor then asked Carness to explain what the phrase “Generally Accepted Accounting Principles” meant, and Toll objected. The district court allowed Carness to testify “based on his experience.” Carness explained his understanding of the Principles:

It's a general guideline for accountants to use based on pronouncements by a nongovernmental body called the Financial Accounting Standards Board.... [T]here are various levels, ranging from pronouncements by that body all the way down to industry standards and norms.... It's not a set of rules like the IRS has regulations.

....

GAAP standards were done so that companies would treat transactions consistently between entities so that their financials could be comparable.

Later, the prosecutor asked Carness if InnoVida was “a profitable company,” to which Toll again objected. The district court overruled the objection, and Toll replied, “I believe not on a GAAP basis.”

The government presented other evidence about how InnoVida used the two sets of statements for different purposes. The set of statements reporting losses was recorded in the official accounting system, and when Toll discussed the possibility of an external audit with Ernst & Young, he provided them with this set. But the set reporting profits was provided to the board of directors of InnoVida, to its investors, and to the Investment Corporation. Besides the label “pro forma,” those statements had no notations that could have explained the underlying assumptions or that the statements differed from those kept in the official accounting system.

Ryan Freedman invested...