United States v. Walker

• Decision Date: 25 March 2016
• Docket Number: No. 14–3287.,14–3287.
• Citation: 818 F.3d 416
• Parties: UNITED STATES of America, Plaintiff–Appellee v. Robert Allen WALKER, Defendant–Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

818 F.3d 416

UNITED STATES of America, Plaintiff–Appellee

v.Robert Allen WALKER, Defendant–Appellant.

No. 14–3287.

United States Court of Appeals, Eighth Circuit.

Submitted: Oct. 23, 2015.

Filed: March 25, 2016.

Rehearing and Rehearing En Banc Denied May 9, 2016.

Benjamin Langner, AUSA, argued and on the brief, Minneapolis, MN, ( David J. MacLaughlin, AUSA, Minneapolis, on the brief), for Plaintiff–Appellee.

Aaron James Morrison, argued and on the brief, Minneapolis, MN, for Defendant–Appellant.

Before LOKEN, MURPHY, and COLLOTON, Circuit Judges.

LOKEN, Circuit Judge.

Robert Allen Walker was president, chief executive officer, and chairman of the board of Bixby Energy Systems ("Bixby") from its formation in 2001 until his ouster in May 2011 following the company's financial collapse. After an eight-week trial, the jury convicted Walker of four counts of mail fraud, eight counts of wire fraud, conspiracy to commit mail and wire fraud, witness tampering, and three counts of tax evasion, violations of 18 U.S.C. §§ 1341, 1343, 1349, 1512(b)(1), and 26 U.S.C. § 7201. Walker appeals, arguing the evidence was insufficient because the government failed to prove he had the requisite intent to defraud Bixby investors, and the district court¹ committed procedural sentencing errors in calculating fraud loss and assessing a two-level enhancement for abuse of a position of trust. We affirm.

I. Sufficiency of the Evidence.

Walker argues the trial evidence established that he was a naive businessman who had no intent to defraud, an essential element of the seventeen counts of conviction. "In reviewing the sufficiency of the evidence, we consider the evidence in the light most favorable to the jury's verdict, accepting all reasonable inferences that support the verdict." United States v. Brown, 627 F.3d 1068, 1072–73 (8th Cir.2010), cert. denied, ––– U.S. ––––, 132 S.Ct. 274, 181 L.Ed.2d 163 (2011). "We must uphold the conviction unless no reasonable jury could find the defendant[ ] guilty." United States v. Marquez, 462 F.3d 826, 828 (8th Cir.2006) (quotation omitted).

Prior to forming Bixby, Walker invented an air-chamber mattress, a precursor to the Sleep Number bed. Venture capitalists acquired his family business, renamed it Select Comfort Corporation, improved the mattress design, forced Walker out, and made a successful Initial Public Offering ("IPO"). After leaving Select Comfort, Walker turned his attention to corn-burning stoves and formed Bixby. Bixby produced functioning corn-burning stoves for a few years but never turned a profit. In 2006, the stoves became uneconomical due to unseasonably warm winters and higher corn prices resulting from government-mandated use of ethanol in gasoline.

In mid 2007, Walker turned Bixby's focus from corn-burning stoves to inventing and marketing a machine that would turn coal into synthetic natural gas and a valuable carbon byproduct. From 2007 to 2011, Bixby attempted unsuccessfully to manufacture two different coal-gasification machines in North Carolina and later in Indiana, and to market the non-existent machines in China, all the while paying Walker and his daughter large salaries and expense reimbursements. Bixby's outside directors moved to replace Walker in early 2011. He then worked with Bharat Kothari, an investor from Chicago, to create the appearance that a humanitarian fund in the Philippines would provide needed capital by buying $100 million of Bixby preferred stock. That scheme failed, and Walker was forced to resign. This prosecution followed the company's collapse.

Dozens of witnesses testified at the lengthy trial, and the parties submitted hundreds of documents into evidence. The government's extensive case-in-chief included testimony by eighteen Bixby investors; Dennis DeSender, Bixby's chief financial officer and leading fund-raiser, who had pleaded guilty to tax evasion and securities fraud; numerous other Bixby officers, employees, and attorneys; two accountants who participated in an independent audit of Bixby; Jeff Wiseman, the president of Bixby's Chinese client; an IRS agent and a postal inspector; and Kothari. If believed by the jury, this extensive evidence established that:

— Walker induced persons to invest in Bixby by falsely claiming that he took Select Comfort public and was responsible for its financial success, when in fact he was ousted as Select Comfort's CEO and had no role in its later revival. Many investors testified that Walker's claimed history as a successful businessman was a primary reason for their decision to invest in Bixby.

— Throughout his time at Bixby, Walker enticed prospective investors and current shareholders with repeated promises of Bixby's imminent IPO, concealing many obvious obstacles that prevented a public offering of Bixby stock. While publicly claiming Bixby was about to go public, Walker privately admitted the company was in no shape to do so. Bixby's directors and attorneys repeatedly told Walker to stop making these false and misleading claims.

— Walker concealed that key Bixby employees and agents were convicted criminals. Walker knew DeSender had been convicted of bank fraud and embezzled from his prior employer. A major Bixby salesman first met DeSender in prison. A Bixby fund-raiser had been convicted of racketeering.

— Walker caused repeated violations of federal securities laws, urging investors to overstate their incomes and assets so Bixby could avoid accredited-investor rules, and violating the rule against paying commissions to unlicensed broker dealers. He also caused Bixby to violate its Private Placement Memoranda by using its funds to pay DeSender millions of dollars in commissions for selling Bixby stock. DeSender kicked back $600,000 of these commissions to Walker personally.

— In 2006, Bixby's Audit Committee engaged independent accountants and lawyers to audit its financial statements. The audit revealed improprieties Walker had concealed. To eliminate this threat, Walker persuaded Bixby shareholders to remove pro-audit directors by lying about Bixby's situation and not disclosing the audit's findings. With the hostile directors gone, Walker terminated the audit and concealed its findings from new outside directors. He had DeSender sign and backdate a "loan document" to explain the newly discovered kickbacks and then persuaded the new board to raise his salary from $130,000 to $325,000, approximately the amount he was no longer receiving in kickbacks from DeSender.

— Walker relied on false public claims regarding Bixby's coal-gasification technology to lull Bixby shareholders and lure prospective investors and potential customers. He publicly claimed the technology was fully developed and verified. He misrepresented his negotiations with Bixby's venture partners in North Carolina and Bixby's effort to produce and market the machines in China. In 2008, he created a promotional video falsely telling shareholders and investors the technology was ready for market, and a phony "white paper" to persuade institutional investors the technology had been independently validated. The video was played at trial; many investors testified it was highly persuasive. A July 2010 press release falsely reported that Bixby had perfected coal-gasification technology that was ready for market.

— There was extensive evidence of Walker's misrepresentations when he took his supposedly ready-for-market coal-gasification technology to China. Though Walker knew Bixby had neither final orders nor a ready technology, he publicly claimed $12 billion in final orders in China and then falsely blamed Chinese customers when the deals fell through.

On appeal, Walker concedes "[t]here was certainly fraud at Bixby." But, he argues, he was simply a "naive businessman." The real villains were Bixby's North Carolina coal-gasification partners and especially DeSender, a "life long conman." To support this contention, Walker focuses on his trial testimony relating to his 2011 attempt "to save Bixby through the $100 million investment from the Manna Foundation" in the Philippines. "It is nothing short of pure fantasy," his Brief argues, "to believe a mysterious humanitarian fund from the Philippines was going to step in and invest $100 million in a small company in Minnesota without doing much more due diligence than speaking with Mr. Walker. But, Mr. Walker believed that fantasy." This episode established, he argues, that he was a naive, well-intentioned dreamer who believed his own claims and therefore did not defraud Bixby's shareholders. The government argued to the jury that Walker simply sensed another threat the board would remove him and contrived an elaborate hoax to preserve his position and remove hostile directors.

"Intent to defraud need not be proved by direct evidence." Brown, 627 F.3d at 1073 (quotation omitted). "Provided the victims suffered some tangible loss—as they did here—the scheme itself often serves as evidence of a defendant's intent to defraud." United States v. Ervasti, 201 F.3d 1029, 1037 (8th Cir.2000) (quotation omitted). The government introduced evidence of massive fraud. Walker responded that he did not intend to defraud those who invested in or did business with Bixby. This was a credibility issue, the province of the jury to resolve. Its adverse determinations "are virtually unassailable on appeal." United States v. Alama, 486 F.3d 1062, 1065 (8th Cir.2007). The district court's statement to Walker near the end of the sentencing hearing aptly summarizes why we decline to disturb any part of the jury's verdict:

You describe [the situation] as a dream that failed. That is not what happened here.... [Y]our behavior can only be viewed not as naive or as a dreamer, but as someone who only cares about [himself].... Greedy narcissists with insatiable fantasies about [get-rich-quick] schemes do what you did here, sir. I know this sounds harsh, but I sat through two months of this testimony and read the statements of nearly

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