United States v. Olive

• Decision Date: 22 September 2015
• Docket Number: No. 13–6174.,13–6174.
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Richard OLIVE, Defendant–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

804 F.3d 747

UNITED STATES of America, Plaintiff–Appellee

v.Richard OLIVE, Defendant–Appellant.

No. 13–6174.

United States Court of Appeals, Sixth Circuit.

Argued: Nov. 18, 2014.

Decided and Filed: Sept. 22, 2015.

Rehearing En Banc Denied Nov. 17, 2015.^*

ARGUED:Robert H. Dietrick, Washington, D.C., for Appellant. Cecil W. VanDevender, United States Attorney's Office, Nashville, Tennessee, for Appellee. ON BRIEF:Robert H. Dietrick, Washington, D.C., for Appellant. Kathryn W. Booth, United States Attorney's Office, Nashville, Tennessee, for Appellee.

Before: NORRIS, MOORE, and GIBBONS, Circuit Judges.

NORRIS, J., delivered the opinion of the court in which GIBBONS, J., joined, and MOORE, J., joined in the result. MOORE, J. (pp. 759–67), delivered a separate opinion concurring in the judgment.

OPINION

ALAN E. NORRIS, Circuit Judge.

Defendant Richard Olive appeals his nine-count conviction for financial crimes committed while he served as President and Executive Director of National Foundation of America (“NFOA”), a corporation organized in Tennessee. Specifically, a jury found him guilty of three counts of mail fraud in violation of 18 U.S.C. § 1341 ; four counts of wire fraud in violation of 18 U.S.C. § 1343 ; and two counts of money laundering, 18 U.S.C. § 1957. The district court sentenced him to 372 months of incarceration and three years of supervised release, and ordered him to pay restitution in the amount of $5,992,181.24.

On appeal, he challenges the sufficiency of the indictment, two evidentiary decisions made by the trial court, and three aspects of the sentencing calculation. He also argues that one of the money laundering counts should have been merged with the fraud counts.

I.

Because defendant challenges the sufficiency of the indictment, we begin by summarizing its allegations.

The Indictment

A grand jury returned a nine-count indictment on March 1, 2012. It alleged that defendant used NFOA in a scheme to defraud:

Beginning in or about January 26, 2006 and continuing until in or about May 2007 ... Richard Olive, and others known and unknown to the Grand Jury, devised and intended to devise a scheme and artifice to defraud annuitants and others, and to obtain money or property by means of materially false pretenses, representations, and promises, and by acts of concealment of the scheme, and in furtherance thereof, used the United States mail and interstate wires....

....

It was ... part of the scheme that Richard Olive, through highly compensated insurance agents across the country, offered and sold investment contracts labeled as NFOA's “Installment Plan Agreement.” Although Olive and the brokers did not generally refer to these as charitable gift annuities, the NFOA installment plans were marketed as offering similar features and benefits. Potential customers could purchase an installment plan with either cash or by transferring existing annuities, real estate, or securities to NFOA. The vast majority of NFOA's customers were persons who owned an existing annuity.

The indictment further charged that defendant made other misrepresentations: in February 2006, he told an insurance agent that NFOA had been in business for several years and had significant assets; he stated that NFOA had been recognized as a non-profit charitable foundation pursuant to Section 501(c)(3) of the tax code when, in fact, defendant had merely applied for tax-exempt status, an application that was ultimately denied in February 2008; and, finally, he and the brokers with whom he worked failed to inform customers that NFOA was operating despite cease-and-desist orders issued by several states.

Once customers transferred their annuities to NFOA, defendant would typically surrender them, thereby triggering financial penalties and reducing the value of the annuity. Although defendant guaranteed his customers fixed payments under an NFOA installment plan, the reality was different:

Olive knew that NFOA paid its brokers commissions well above the industry rate, lost a significant portion of the obtained annuities' value due to their early surrender, and diverted a portion of funds to Olive's and others' personal benefit. Because of those costs and the lost value of the annuities, Olive knew that NFOA had far too few assets under its control to guarantee the income in the amounts promised.

Having outlined the scheme to defraud, the indictment then detailed the specific instances of mail and wire fraud. With respect to the money laundering counts, the indictment alleged that defendant withdrew $641,051.17 from NFOA on April 4, 2007 in order to purchase a Las Vegas condominium (Count 8) and used NFOA funds to pay an insurance agent $30,028.33 (Count 9).

Trial Testimony

Defendant founded NFOA in January 2006 and applied to the IRS for recognition of its Section 501(c)(3) status the same month. He learned the “business model” from his tenure as a development advisor and executive at National Community Foundation, which offered products similar to those later marketed by NFOA. The company purported to be a charitable organization that supported humanitarian services. As mentioned in the indictment, NFOA encouraged financial advisors¹ to sell its products by offering a 9% commission, which exceeded the industry average.

Two months after its founding, NFOA had three employees: defendant, his wife Susan, and Kenny Marks, who wrote promotional materials for the company, including video scripts. After its first year, it had five employees: Richard and Susan Olive, David Vincent, and defendant's two stepdaughters, Breanna Galatte and Jenilee Vander Elst. Defendant's wife worked in the office and also did marketing. Vander Elst served as a receptionist. The company primarily drummed up business through mailings to financial advisors. Gallatte and Vincent fielded calls from them, explaining the ins and outs of their products. To do so, Vincent and Gallate relied upon a software program and script developed by defendant and his wife. According to Gallatte's testimony, she and Vincent were told not to deviate from the script when talking to financial advisors. Among the things included in the script was an assertion that NFOA was a tax-exempt Section 501(c)(3) organization. If a financial advisor's questions went beyond the scope of the script, he or she was referred to defendant.

As discussed earlier, NFOA's primary business was exchanging a customer's existing annuity for one of the company's installment plans, which promised higher returns. Annuities typically have an accumulated value and a surrender value. If surrendered early, the owner receives a substantially lower cash payout. Defendant typically surrendered annuities that it received from customers early. Over the course of its existence, NFOA completed contracts that exchanged client annuities worth approximately $19.3 million and surrendered them for $16.5 million.

On January 17 and March 7, 2007, the IRS contacted NFOA asking for additional information related to its application for Section 501(c)(3) status. The company retained an attorney, David Kamer, who advised defendant that NFOA should not be represented as being a 501(c)(3) enterprise when its application was still pending. Rather, he recommended that the company inform its clients of the situation and note the adverse tax consequences that would attend a denial of 501(c)(3) status. Despite this advice, defendant told others, including financial advisors, that a determination letter was not required for clients to recognize a charitable deduction.

As time passed, NFOA purchased real property with a portion of its assets. These properties included a Jiffy Lube franchise in Georgia, land in Tennessee that included a cell phone tower, an office condominium in Franklin, Tennessee, and a condominium in Las Vegas, Nevada. The last of these transactions forms the basis of a money laundering charge (Count 8). The Las Vegas condominium was purchased for the defendant's family vacations and to entertain financial advisors. However, it was never used for this purpose because the State of Tennessee took control of NFOA on May 24, 2007, after determining that it was undercapitalized.

At trial, the district court admitted into evidence cease-and-desist orders issued against NFOA by several states, as long as they were in effect during the time period covered by the indictment. Orders were admitted from the states of Washington, Texas, Iowa, Florida, Alabama, Kansas, California, and Michigan. The orders alleged that NFOA was operating illegally because it was not licensed to sell insurance and/or was unlawfully selling securities. They also charged that NFOA incorrectly claimed that it enjoyed tax-exempt status under Section 501(c)(3). Financial advisors testified that knowledge of the orders would have affected their willingness to market NFOA products.

II.

We now turn to the issues raised by defendant, beginning with the sufficiency of the indictment.

A. Sufficiency of the Indictment

As a general proposition, this court reviews the sufficiency of an indictment de novo. United States v. Gibson, 409 F.3d 325, 331 (6th Cir.2005). Pursuant to Federal Rule of Criminal Procedure 34, the trial court must arrest judgment if the indictment does not charge an offense. Fed.R.Crim.P. 34(a). However, where, as here, “a challenge to an indictment is brought for the first time after the defendant has been convicted, the indictment is ‘construed liberally in favor of its sufficiency.’ ” Gibson, 409 F.3d at 331 (quoting United States v. Gibson, 513 F.2d 978, 979 (6th Cir.1975) ); see also United States v. Lloyd, 462 F.3d 510, 513 (6th Cir.2006) (“Where an indictment goes unchallenged until appeal, ... a conviction must not be reversed unless the indictment cannot be reasonably construed to charge a crime.”) (citing United States v. Gatewood, 173 F.3d 983, 986 (6th Cir.1999) ).

Prior to trial, defendant filed a motion styled, “Motion to Dismiss or Strike the False Statements Alleged...