United States v. Lange

• Decision Date: 15 August 2016
• Docket Number: 14–4443–cr,August Term 2015,14–4559–cr,Docket Nos. 14–2442–cr
• Citation: 834 F.3d 58
• Parties: United States of America, Appellant–Cross–Appellee, v. William C. Lange, AKA Kris Lange, Joseph G. Pascua, Frank E. Perkins, Defendants, Kristofor J. Lange, Defendant–Appellee–Cross–Appellant, Brad A. Russell, Defendant–Appellant.
• Court: U.S. Court of Appeals — Second Circuit

834 F.3d 58

United States of America, Appellant–Cross–Appellee,

v. William C. Lange, AKA Kris Lange, Joseph G. Pascua, Frank E. Perkins, Defendants,Kristofor J. Lange, Defendant–Appellee–Cross–Appellant,Brad A. Russell, Defendant–Appellant.¹

Docket Nos. 14–2442–cr

14–4443–cr

14–4559–cr

August Term 2015

United States Court of Appeals, Second Circuit.

Argued: February 17, 2016

Decided: August 15, 2016

Winston M. Paes , Assistant United States Attorney (David C. James, Alixandra E. Smith, Assistant United States Attorneys, on the brief), for Robert L. Capers, United States Attorney for the Eastern District of New York, Brooklyn, NY, for Appellant–Cross–Appellee.

Richard D. Willstatter , Green & Willstatter, White Plains, NY, for Defendant–Appellee–Cross–Appellant.

James M. Branden , Law Office of James M. Branden, New York, NY, for Defendant–Appellant.

Before: Jacobs, Chin, and Droney, Circuit Judges.

Chin

, Circuit Judge:

In 2014, following a six-week trial, a jury found defendants Brad A. Russell and Kristofor J. Lange (“Kristofor”) guilty of conspiracy to commit wire fraud and securities fraud (Count Two) in violation of 18 U.S.C. § 371

and substantive securities fraud (Count Three) in violation of 15 U.S.C. §§ 78j(b) and 78ff. The jury also found Russell guilty of conspiracy to commit wire fraud in connection with a separate but related scheme (Count One) in violation of 18 U.S.C. § 1349. Both defendants moved for a judgment of acquittal. The district court (Irizarry, C.J. ) granted Kristofor's motion with respect to Count Three, finding insufficient evidence to establish venue in the Eastern District of New York, and otherwise denied the motions.

The Government appeals from the June 5, 2014 order vacating Kristofor's conviction on Count Three. Kristofor and Russell challenge their convictions on several grounds, including sufficiency of the evidence as to venue on Counts Two and Three and the propriety of the jury instructions. For the reasons set forth below, we affirm Kristofor's and Russell's convictions, reverse the district court's order acquitting Kristofor on Count Three, and remand to the district court with instructions to reinstate Kristofor's conviction on Count Three and resentence Kristofor accordingly.

BACKGROUND

I. The Facts

Because Kristofor and Russell challenge their convictions based on the sufficiency of the evidence to support venue in the EDNY, we view the evidence “in the light most favorable to the government, crediting ‘every inference that could have been drawn in its favor.’ ” United States v. Tzolov, 642 F.3d 314, 318 (2d Cir. 2011)

(quoting United States v. Rosa , 17 F.3d 1531, 1542 (2d Cir. 1994) ).

The charges in this case arise out of defendants' involvement with William Lange (“Bill”), Kristofor's father and Russell's brother-in-law. Bill concocted schemes to defraud investors in two of his companies: (1) Harbor Funding Group, Inc. (“HFGI”) and (2) Black Sand Mine, Inc. (“BSMI”). Through these schemes, Bill and his co-conspirators defrauded HFGI investors of over $9 million and BSMI investors of some $780,000.

A. HFGI

In 2006, Bill formed HFGI as a mortgage company to process investor loans. When that business failed to prosper, he transferred its assets to another company in 2007 and announced a new strategy. HFGI would target individuals, land developers, and construction companies in need of capital for redevelopment projects in the Gulf–Opportunity Zone, which covered the region devastated by Hurricane Katrina, including Alabama, Louisiana, and Mississippi. Bill created a Board of Directors for HFGI, composed of himself, Stacey Lange (his wife), Russell, and Joseph Pascua, his long-time business partner.

In February 2008, HFGI began offering financing to investors. It issued letters of intent (“LOIs”) representing that it had secured lender approval and commitments to fund projects within thirty days. These representations were false: HFGI had neither lender approval nor lender commitments to fund projects and was not capable of providing meaningful funding.

From February 2008 through early 2009, HFGI made loan commitments, requiring borrowers to pay a ten-percent deposit. The deposits were supposed to be held in escrow, to be refunded if the loan was not issued. Instead, HFGI diverted the deposits for other purposes: investing in leveraged funds, paying salaries, and covering personal expenses. Over the course of the scheme, HFGI financed only one house to completion, and it failed to provide funding for hundreds of projects it had committed to finance. In total, HFGI diverted over $9 million from its clients' escrow accounts before shutting down and changing its phone number.

1. Kristofor's Involvement in HFGI

In 2006, Kristofor began working as an administrative assistant for his father at HFGI.² Kristofor was not centrally involved in the HFGI scheme, but did attend a number of staff meetings where the lack of funding and messaging to clients was discussed. Kristofor testified in the grand jury that he knew HFGI “wasn't working” and that as a result “we closed it down ... and started another company.” Gov't App. at 71. His grand jury testimony was admitted into evidence at trial.

2. Russell's Involvement in HFGI

Russell joined HFGI in 2006, working primarily as a loan processor. As a member of the Board, Russell attended a number of Board meetings and general staff meetings where HFGI's strategy to secure funding for Gulf–Opportunity Zone development projects was discussed.

As a loan processor, Russell was responsible for preparing and keeping custody of the loan documents for HFGI's clients. In this role, he was copied on emails with attachments from HFGI's escrow attorney reflecting the transfer of escrow funds to HFGI. Two land developers, whose clients were defrauded in the HFGI scheme, testified to Russell's participation in the scheme. One testified that when she met with the Board to discuss potential loans, Russell was present and spoke about the logistics of processing loans. She testified further that Russell was her primary contact, sending her accountings of her clients' escrow deposits, wiring instructions, and LOIs promising financing. Another testified to similar communications with and receipt of loan documents from Russell. Both testified that they repeatedly asked Russell about the delays in funding, and that he responded by claiming ignorance and directing them to Bill. Russell never told them that HFGI did not have the funds or a lender to finance projects, and did not reveal that their clients' deposits had been withdrawn from escrow. By late 2009, when HFGI could no longer maintain the scheme and was over $9 million in debt, Russell, at Bill's direction, changed the office phone number.

B. BSMI

After HFGI ceased operations, Bill's companies were strapped for cash. Bill announced to his employees that they would start a new company, BSMI, to mine precious metals in Alaska. BSMI made multiple material misrepresentations to induce investors to purchase BSMI stock, including that: (1) HFGI had loaned BSMI $900,000; (2) BSMI had $850,000 available in total assets; and (3) investors' money would be used for expenses such as fuel, food, transportation, labor, and insurance. In fact, investor funds were used primarily to pay BSMI salaries and for personal expenses of BSMI co-conspirators. BSMI also concealed (1) Bill's involvement in BSMI by not disclosing his involvement in marketing materials and having him impersonate his son Kristofor, the BSMI Vice President, when speaking with investors³ and (2) BSMI's connection to HFGI. These misrepresentations were made to investors both orally (via in-person presentations, over the phone, or via internet webinars) and in written materials (business plans, PowerPoint presentations, private placement memoranda, and an email newsletter). Victims invested $780,000 in BSMI.

1. Kristofor's Involvement in BSMI

Kristofor was Vice President of BSMI and a member of the BSMI Board of Directors. He attended key internal BSMI meetings, participated in meetings where BSMI solicited investors, and made sales calls to potential investors off a call list circulated by Russell. Kristofor allowed his father to pose as him when addressing investors. At times, Kristofor was present when his father impersonated him on the phone.

The BSMI business plan also contained material misstatements regarding Kristofor's past business, marketing, and mining experience. For example, the business plan stated that he (1) was an officer at First Choice Financial, another company owned by Bill, (2) had extensive mining experience, (3) was familiar with environmental issues and high-tech mining equipment, (4) worked for a finance company in marketing and was an officer of the company, and (5) worked for a consulting company using his marketing expertise to develop nationwide offices. Kristofor reviewed and approved his biography before it was included in the business plan. Many of the statements about his background were false or inaccurate. For example, Kristofor's mining experience was limited to the time he spent helping his father as a child at Alaska mines, where he “helped with clean up,” “helped move the rocks,” and “play[ed] with [his] BB gun.” Trial Tr. at 3315-16. Moreover, he was not an officer of First Choice Financial and functioned at HFGI largely as an administrative assistant.

2. Russell's Involvement in BSMI

Russell was a salaried employee of BSMI and, unlike Kristofor, was not an officer of the company. Russell's duties at BSMI included setting up and managing the company website and office email addresses, preparing, editing, and formatting the BSMI marketing materials—including the business plan, placement memoranda, the PowerPoint presentation, and electronic newsletters—and culling and distributing the call solicitation lists of potential investors. Russell reviewed, edited, and provided comments on the BSMI business plan, which contained...