United States v. Binday

• Citation: 804 F.3d 558
• Decision Date: 26 October 2015
• Docket Number: Docket Nos. 14–2809–CR,14–2832–CR,14–2873–CR.
• Parties: UNITED STATES of America, Appellee, v. Michael BINDAY, aka Sealed Defendant 1, James Kevin Kergil, aka Sealed Defendant 2, Mark Resnick, aka Sealed Defendant 3, Defendants–Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

804 F.3d 558

UNITED STATES of America, Appellee

v.Michael BINDAY, aka Sealed Defendant 1, James Kevin Kergil, aka Sealed Defendant 2, Mark Resnick, aka Sealed Defendant 3, Defendants–Appellants.

Docket Nos. 14–2809–CR

14–2832–CR

14–2873–CR.

United States Court of Appeals, Second Circuit.

Argued: April 13, 2015.

Decided: Oct. 26, 2015.

Paul Shechtman, Zuckerman Spaeder LLP, New York, N.Y., for Defendant–Appellant Michael Binday.

Roger Lee Stavis (Adam Felsenstein, on the brief), Gallet Dreyer & Berkey, LLP, New York, N.Y., for Defendant–Appellant James Kevin Kergil.

Janeanne Murray, Murray Law, LLC, Minneapolis, MN, for Defendant–Appellant Mark Resnick.

Sarah E. McCallum, Assistant United States Attorney (Eun Young Choi, Karl Metzner, Assistant United States Attorneys, on the brief), for Preet Bharara, United States Attorney for the Southern District of New York, N.Y.

Before CABRANES, SACK and LYNCH, Circuit Judges.

Opinion

GERARD E. LYNCH, Circuit Judge:

Defendants Michael Binday, James Kevin Kergil, and Mark Resnick appeal from judgments of conviction in the United States District Court for the Southern District of New York (Colleen McMahon, Judge) for conspiracy to commit mail and wire fraud, 18 U.S.C. § 1349, mail fraud, 18 U.S.C. § 1341, and wire fraud, 18 U.S.C. § 1343. Kergil and Resnick were also convicted of conspiracy to obstruct justice through destruction of records, 18 U.S.C. § 1512(k). The convictions arise from an insurance fraud scheme whereby defendants, who were insurance brokers, induced insurers to issue life insurance policies that defendants sold to third-party investors, by submitting fraudulent applications indicating that the policies were for the applicants' personal estate planning.

Defendants argue primarily that the government did not prove that they contemplated harm to the insurers that is cognizable under the mail and wire fraud statutes. That basic argument takes several forms, including a sufficiency of the evidence challenge, a constructive amendment claim, and a jury instruction challenge. Defendants also contend that their sentences are procedurally unreasonable because the district court used an erroneous loss amount in calculating their Guidelines sentence ranges. Additionally, Resnick and Kergil challenge their obstruction of justice convictions on various grounds.

We conclude that there was sufficient evidence that defendants contemplated a cognizable harm under the mail and wire fraud statutes; that the indictment was not constructively amended because the allegations in the indictment and the government's proof at trial substantially correspond; and that some aspects of the defendants' challenge to the jury instruction are waived, while the remainder fail on the merits. We reject defendants' challenges to their sentences and to the obstruction of justice convictions.

Accordingly, for the reasons given herein, we affirm the judgments of conviction and remand the case for the limited purpose of revising the restitution amount as agreed by the parties.

BACKGROUND

I. Defendants' Scheme¹

Defendants-appellants are insurance brokers who participated in an insurance fraud scheme involving “stranger-oriented life insurance” (“STOLI”) policies.² A STOLI policy is one obtained by the insured for the purpose of resale to an investor with no insurable interest in the life of the insured—essentially, it is a bet on a stranger's life. Notably, every relevant state's law provides that, after a life insurance policy has been issued, an insured may resell that policy to an investor, who would become the policy's beneficiary and assume payment of the premiums.³ Thus, with respect to transferability, the difference between non-STOLI and STOLI policies is simply one of timing and certainty; whereas a non-STOLI policy might someday be resold to an investor, a STOLI policy is intended for resale from before its issuance. While life insurers are required by law to permit resale of policies originally obtained for estate planning purposes, they are not obligated to issue policies intended for resale from the outset.

STOLI policies became a popular investment in the mid 2000s for hedge funds and others eager to bet that the value of a policy's death benefits would exceed the value of the required premium payments. In response, many insurance companies—including those that issued the policies relevant here—adopted rules against issuing STOLI policies and took steps to detect them. But insurance brokers such as the defendants—who received commissions from insurers for new policies that they brokered—had a financial incentive to place STOLI policies by disguising them to the insurer as non-STOLI policies. By matching a potential insured with a STOLI investor, a broker could generate a commission on a policy that would not have been issued had the insurer known the policy's true purpose.

In 2006, defendant Michael Binday assembled a network of independent brokers to assist his company, Advocate Brokerage, Inc. (“Advocate Brokerage”), in placing STOLI policies through such deceit. The team included defendant Mark Resnick, who worked as a field agent, and defendant James Kergil, who supervised a group of field agents. Under Binday's direction, field agents recruited older persons of modest means to act as “straw buyers” of the STOLI policies. The straw buyers were enticed to participate by promises of six-figure payments once the policies were sold to third-party investors—promises which defendants in some cases honored and in others did not. Binday explained to the field agents that he sought straw buyers should who were “between 69 and 85 years' old,” and “in good enough health to get preferred health or standard health [premium] rates,” but who would not live “too long, to the point where the investors ... would be paying the premium too long.” J.A. at 699, 736.

After securing a straw buyer, defendants arranged for the necessary medical tests and submitted the results to multiple insurers for a preliminary assessment of the “risk class” in which the straw buyer would fall. (It is not alleged that the medical records were falsified.) Defendants also submitted those medical records to companies that used them to prepare reports predicting the straw buyer's life expectancy. Based on those reports and the insurance companies' preliminary assessments, Binday generated “illustrations” for prospective STOLI investors that projected the expected premium payments necessary to fund a given value of policy until the straw buyer's death. The investors could then select from among the different straw buyers and policies, and the defendants would proceed to apply for the policy.⁴

Defendants typically sought policies worth between $3 million and $4 million: large enough to yield a lucrative commission, but, as Kergil explained to one witness, small enough to “stay under the radar” because “anything over three to four million would require excessive documentation such as tax returns, stock reports, bank statements, that type of thing.” J.A. at 734. “[E]xcessive documentation” would be fatal to defendants' scheme, which depended on vastly inflating the straw buyer's wealth without detection. Such inflation would cause the insurer to believe that the straw buyer was capable of paying the substantial premiums (typically more than $100,000 annually) herself—of course, if she was not, that would suggest that payment actually would be made by a third-party investor.⁵ After having the straw buyer sign a blank application, defendants supplied false financial information, supported by fraudulent documents prepared by an accountant relative of Binday's and supposedly verified by an independent third-party inspector, who in reality simply “assumed [that the information] was correct.” J.A. at 721.

Along with falsifying the straw insured's financial information, defendants lied in response to the insurers' questions aimed at detecting STOLI policies, including the purpose of the policy, how the premiums would be paid, and whether the applicant had discussed selling the policy. Defendants also lied to the insurers by providing required certifications that, to their knowledge, the policies were not STOLI. For example, each defendant certified to Lincoln Life Insurance Company that the premiums would not be paid by financing from third parties, that there was no agreement to transfer ownership of the policy, and that the policy “does not violate the stated intent and spirit of the Lincoln Policy Regarding Investor Owned Life Insurance.” J.A. 1077–78.

Over the course of the scheme, defendants submitted at least 92 fraudulent applications, resulting in the issuance of 74 policies with a total face value of over $100 million. These policies generated for defendants a total of roughly $11.7 million in commissions, which ranged from 50–100% of the first year's premium payments and typically surpassed $100,000 on any given policy.⁶

II. Indictment

On February 15, 2012, defendants were charged in a five-count indictment in the Southern District of New York. The indictment charged each defendant with one count of conspiracy to commit mail and wire fraud in violation of 18 U.S.C. § 1349 ; one count of mail fraud in violation of 18 U.S.C. § 1341 ; and one count of wire fraud in violation of 18 U.S.C. § 1343. It also charged Kergil and Resnick with conspiracy to obstruct justice through the destruction of records in violation of 18 U.S.C. § 1512(k) and Binday with obstruction of justice in violation of 18 U.S.C. § 1512(c). The obstruction of justice charge against Binday was dismissed before trial.

The indictment alleged that defendants defrauded insurers by causing them to issue STOLI policies through misrepresentations regarding: the applicants' financial information; the purpose of procuring the policy and the intent to resell the policy; the fact that the premiums would be financed by third parties; and the existence of other policies or applications for...