U.S. v. Herron

• Decision Date: 06 August 1987
• Docket Number: No. 86-1413,86-1413
• Citation: 825 F.2d 50
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Claudy Ray HERRON and Johannes Faul, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 50

825 F.2d 50

56 USLW 2146

UNITED STATES of America, Plaintiff-Appellee, v. Claudy Ray HERRON and Johannes Faul, Defendants-Appellants.

No. 86-1413.

United States Court of Appeals Fifth Circuit.

Aug. 6, 1987.

Frank Jackson, Bruce Anton, Dallas, Tex., for Herron, Faul.

Marvin Collins, U.S. Atty., Terry K. Ray, Sidney Powell, Asst. U.S. Attys., Dallas, Tex., for U.S.

Appeals from the United States District Court for the Northern District of Texas.

Before GARZA, WILLIAMS and GARWOOD, Circuit Judges.

ON PETITION FOR REHEARING

(Opinion May 4, 5th Cir.1987, 816 F.2d 1036)

GARZA, Circuit Judge:

The petition for rehearing is GRANTED. The previous panel opinion appearing at 816 F.2d 1036 is withdrawn. The following opinion shall be substituted in its place:

Johannes Faul and Claudy Ray Herron, defendants-appellants, challenge the sufficiency of the evidence to support their wire fraud convictions for fabricating and participating in a scheme designed to facilitate a large cash deposit in an American bank without triggering a Currency Transaction Report (CTR). Faul also challenges his conviction for conspiracy to defraud the United States. However, this Court considered sua sponte whether the facts alleged in the indictment constitute a cognizable violation of the wire fraud statute, 18 U.S.C. Sec. 1343. We find that the indictment did not set forth a prosecutable wire fraud offense and therefore reverse the wire fraud convictions entered below. We affirm Faul's conviction under 18 U.S.C. Sec. 371 for conspiracy to defraud the United States.

BACKGROUND

Internal Revenue Service (IRS) informant Nathan Shay first approached a banker, David J. Fisher, in August of 1985 to inquire about depositing large sums of cash in Fisher's bank. Shay claimed he and a partner had invested in a high technology bean-sprout farm which was generating a substantial amount of cash. Shay told Fisher that he wanted to deposit the proceeds from the farming venture in a manner that would prevent the bank from filing a CTR with the U.S. Treasury Department. ¹

1] Fisher consulted with other bank officers and then declined to become involved. Fisher did inform Johannes Faul, known to Fisher as a financial consultant, about Shay's desire to make large deposits and avoid detection by the Treasury Department. Faul met with Shay and his partner "Thomas Kent" ² and proposed a number of plans wherein Faul would obtain a percentage of the total cash involved by arranging to have the currency deposited in a domestic bank without a CTR being filed. This was what Shay and Kent wanted because, they said, they had not paid taxes on the approximately one million dollars they wanted to deposit in a bank account without "raising any red flags" to the IRS.

Faul told Claudy Ray Herron about Shay's situation during a conversation held in August of 1985. Later, on October 21, 1985, Herron placed a phone call from Faul's office in Dallas to Edward Steph in London, England. Steph was a boyhood friend of Herron's and a London financial consultant. Herron told Steph that there were some people in the United States who wanted to move millions of dollars overseas and establish a banking relationship there. Faul then discussed this matter over the telephone with Steph and John-Seager Green, who was Steph's partner and banker. Green indicated that the minimum amount had to be $500,000, not the $100,000 amount Faul had suggested, and he asked Faul if the funds were legitimate. On October 23, 1985, Faul met with Kent to discuss the plan to launder the money through England. The money would go to London and then to Switzerland to be deposited in a Swiss bank; this bank would then wire the money back disguised as a loan or issue certified checks to be brought back and deposited in the United States. Herron was to be used to transport the money to London.

Steph and Green arrived in Dallas on November 3, 1985, travelling on tickets prepaid by "expense account" money Faul had obtained from Kent. Since Fisher had decided not to open an account for Shay and Kent, Faul introduced Kent to Gary Tipton, another Texas banker, in an effort to provide Kent and Shay with a place to deposit their overseas cashier's checks. Faul advised Kent not to tell Tipton about the laundering plan; instead, Kent should make Tipton think the money had originated from overseas instead of being transferred there from the United States. If Tipton knew that the wire transfer or certified checks were generated from money originally within the United States, he, like Fisher, would have recognized the scheme as one attempting to avoid detection by the IRS. Kent did as instructed by Faul and made ambiguous representations about the origin of the funds he wanted to deposit. Tipton agreed to accept Kent as a client, and Kent deposited $1,000 in Tipton's bank on November 6, 1985, to open up the account into which the overseas checks ultimately would be deposited. On the same day, Faul asked Kent to sign a letter drafted by Faul which set forth an "agreement" between the two. Faul told Kent it was On November 21, 1985, Fisher, Faul, Herron, Steph and Green were indicted for various violations of federal law. Through a superseding indictment, charges were brought only against Fisher, Faul and Herron, and dropped as to Steph and Green, both of whom were called to testify as government witnesses. Count 1 charged Fisher, Faul and Herron with conspiring to defraud the government by impeding and defeating Treasury Department efforts to collect CTRs. Count 3 charged Herron and Counts 2-5 charged Faul with wire fraud. Count 6 charged Fisher with misprision of a felony and Faul with aiding and abetting him.

"no big deal"--he indicated that he needed the letter to satisfy Steph and Green, who had voiced concern over the propriety of the proposed transaction. ³ Thereafter, Faul assured Green that the transaction was legal and showed him the letter endorsed by Kent. Green then decided he would carry the money instead of Herron. At a Dallas motel, Kent gave Green a suitcase containing $500,000 in cash. It is uncontroverted that Faul specifically told Green to declare the money at the U.S. Customs gate when departing the country. Kent accompanied Green to the airport and watched him check the suitcase in at an airlines counter. Green did not declare the money even though Faul had instructed him to do so. After Kent and Green waited in the passengers' lounge for some time, they went through an adjoining jetway to board the aircraft. At this point a customs agent approached the two men and arrested Green.

Following a jury trial, Fisher was acquitted of all charges. Herron was acquitted of the conspiracy charge but was convicted of wire fraud. Faul was found guilty on Counts 1, 3, 4, 5 and 6, but was found not guilty on Count 2. Faul's subsequent motion for a judgment of acquittal was granted as to Count 6 but denied as to the remaining counts. Faul and Herron filed a timely appeal.

DISCUSSION

Our primary concern here is whether the indictment alleges a cognizable violation of the wire fraud statute. We also examine Faul's conviction for conspiracy to defraud the United States.

The Scheme to Defraud

The government's theory of wire fraud at trial was that Faul and Herron schemed to defraud the Treasury Department and IRS out of information contained on the CTR forms. A wire fraud offense under section 1343 requires proof of two In McNally v. United States, --- U.S. ----, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), the Supreme Court examined the "any scheme or artifice to defraud" language contained in 18 U.S.C. Sec. 1341, the mail fraud statute. ⁵ As in Bruno, the public officials in McNally were convicted for participation in a scheme that "defrauded the citizens and government of Kentucky of certain 'intangible rights,' such as the right to have the Commonwealth's affairs conducted honestly." McNally, --- U.S. at ----, 107 S.Ct. at 2877. The Court held that "[t]he mail fraud statute clearly protects property rights," --- U.S. at ----, 107 S.Ct. at 2879, but does not encompass "intangible rights" because the term "defraud" literally means "wronging one in his property rights by dishonest methods or schemes." --- U.S. at ----, 107 S.Ct. at 2881, (quoting Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968 (1924) (emphasis added)). Since the jury "was not required to find that the Commonwealth itself was defrauded of any money or property," Id., the Court reversed McNally's conviction. "Rather than construe the statute in a manner that leaves its outer boundaries ambiguous ... we read section 1341 as limited in scope to the protection of property rights. If Congress desires to go further, it must speak more clearly than it has." McNally, --- U.S. at ----, 107 S.Ct. at 2881.

                essential elements:  (1) a scheme to defraud;  (2) use of, or causing the use of, wire communications in furtherance of the scheme.   Pereira v. United States, 347 U.S. 1, 8, 74 S.Ct. 358, 362, 98 L.Ed. 435 (1954);  United States v. Gordon, 780 F.2d 1165, 1171 (5th Cir.1986);  United States v. Cowart, 595 F.2d 1023, 1031 n. 10 (5th Cir.1979).  While the language of 18 U.S.C. Sec. 1343 4 proscribes "any scheme or artifice to defraud," this is not to suggest that the wire fraud statute is limitless.  This Court explained in United States v. Bruno, 809 F.2d 1097 (5th Cir.1987), that a scheme by public officials to defraud local government effectively impairs "the public's right to the honest and faithful services of its officials [though it] reaches the outer limits of meaning that can be placed on the word 'defraud.' "   Id. at 1105 n. 1.  This statement proved prophetic
                

Before McNally, numerous cases construing the mail fraud and wire fraud statutes recognized two distinct types of fraud. One category included schemes which intend the deprivation of tangible economic interests, i.e., money or property. United...