885 F.2d 656 (10th Cir. 1989), 87-1582, United States v. Cardall
|Docket Nº:||87-1582, 87-1587, 87-1589, 87-1592, 87-1594 and 87-1625.|
|Citation:||885 F.2d 656|
|Party Name:||UNITED STATES of America, Plaintiff-Appellee, v. Richard Taylor CARDALL, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Barry CROWTHER, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Joseph A. HOLMAN, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Stanley L. WILLMITT, Defendant-Ap|
|Case Date:||September 06, 1989|
|Court:||United States Courts of Appeals, Court of Appeals for the Tenth Circuit|
Rehearing Denied Oct. 19, 1989.
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Craig S. Cook, Salt Lake City, Utah (Edward T. Wells, Salt Lake City, Utah, with him on appellant's brief-in-chief), for defendant-appellant, Richard Taylor Cardall.
William W. Downes, Jr., Houpt, Eckersley & Downes, Salt Lake City, Utah, for defendant-appellant, Barry Crowther.
Randall Gaither, Salt Lake City, Utah, for defendant-appellant, Joseph A. Holman.
James N. Barber, Salt Lake City, Utah, for defendant-appellant Stanley L. Willmitt.
Sumner J. Hatch, Salt Lake City, Utah, submitted on the briefs for defendant-appellant, Gerald L. Turner.
Edwin F. Guyon, Salt Lake City, Utah, for defendant-appellant, Farrell Anderson.
Mervyn Hamburg, Atty., Dept. of Justice, Washington, D.C. (Brent D. Ward, U.S. Atty. for D. Utah, with him on the brief), for plaintiff-appellee.
Before McKAY, SETH and SEYMOUR, Circuit Judges.
McKAY, Circuit Judge.
Defendants Richard Taylor Cardall, Barry Crowther, Joseph A. Holman, Stanley L. Willmitt, Gerald L. Turner, and Farrell Anderson appeal their convictions for mail fraud, wire fraud, the interstate transportation of money taken by fraud (ITSP), bankruptcy fraud, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).
In order to facilitate our analysis, we first outline the scheme to defraud and the interrelated entities and individuals involved.
1. FSI: Fiscal Services, Inc. (FSI) operated between 1979-80 as a payables "factoring" company 1 located in Salt Lake City, Utah. Although FSI was not the target of this indictment and trial, it was a predecessor company to the "clearing house operation," which is the subject of this trial. 2 During trial, the prosecution
offered extensive evidence of the fraudulent operation of FSI under Fed.R.Evid. 404(b) in order to show pattern or plan in this fraudulent scheme. 3
2. The Clearinghouse Operation: The clearinghouse operation consisted of an interrelated collection of payables factoring and consulting companies--International Clearing House, Universal Clearing House, Business Consultants, Inc., Payable Accounting Corporation, and Accounting Services Company.
3. FAS/BCI: Fiscal Advisory Services (FAS), which also operated between 1979-80, was the predecessor company to Business Consultants, Inc. (BCI). In 1980, BCI was organized to act as a consultant to and handle accounting and related services for the clearinghouse operation. In exchange, BCI received two percent of the funds channeled through the clearinghouses.
4. Clearinghouses: General Clearing House and National Clearing House, two California-based "clearinghouses," formed an integral part of the fraudulent scheme. In 1980, they were served with a cease and desist order which was later made enforceable in Utah. As a result, the operations were renamed, respectively, Universal Clearing House (UCH) and International Clearing House (ICH), and Salt Lake City became the new base of operation.
After its organization, FSI solicited payable company clients with promises that they would receive substantial revenues from a combination of creditor discounts and investments from tax-free revenue bonds. 4 FSI also solicited prospective clients by leading them to believe that a number of well-known businesses "factored" their accounts payables through the company entities. 5 By mid-1980, FSI was phasing out. It was not soliciting new clients, and old clients began making demands for reimbursement. FSI occasionally satisfied demands for payment with investor funds from the successor clearinghouse operation.
About the time that FSI was phasing out, FAS underwent a name change and shift in emphasis, emerging as BCI. Although the payables factoring program ostensibly remained the cornerstone of the operation, FAS introduced the concept of "undertakers" to the scheme. Undertakers were individual investors who were told that their investments would be used to fund the payments of the payables side of the operation. In exchange, the undertakers were promised an extraordinarily high rate of return (the equivalent of a ninety-six percent annual rate) on their investments. Through the use of an expanded sales program, 6 over 5,300 undertakers in a
number of states eventually invested in excess of $30 million in the clearinghouse operation.
Representations by sales personnel notwithstanding, the payables portion of the program was virtually nonexistent. 7 No one was assigned to develop such a program, and when sales staff asked the principals to identify the payable companies, they refused to do so. 8 Moreover, when sales personnel indicated that they had prospective clients for the payables program, they were rebuffed. 9 Because there was no viable payables program, the payables side of the operation could not generate any income from payables discounts. Absent another source of income to service earnings payments, the operation made payments from funds received from subsequent undertaker investors.
In addition, the principals diverted undertaker funds to a number of high-risk ventures including land, mining, gold, silver and oil. There was also an abortive attempt to enter the reinsurance business through offshore enterprises. Additionally, clearinghouse funds were diverted for the private use of clearinghouse principals and their families. 10
By August 1981 the financial house of cards was beginning to collapse and undertakers failed to receive their monthly "earnings" checks. Sales personnel were told that the lack of immediate funds was due to a combination of regulatory agency harassment, two unsuccessful short-term investments, and the failure to receive a wire transfer of funds from abroad. The operation prepared and distributed a letter to clearinghouse undertakers representing that there were ample assets to cover the principal and earnings due to all investors. The letter assured investors that contract provisions which guaranteed the protection of undertaker investments would be met. Despite missed payments, sales of undertaker contracts continued, although demands for early repayment of undertaker investments were rejected.
In the meantime, the principals discussed the prospect of filing a Chapter 11 petition under the Bankruptcy Code in order to protect the clearinghouses from civil lawsuits to "buy time" for liquidating assets to pay undertakers. Disagreement over this proposed solution eventually led to the disassociation of one of the appellants from the enterprise. The bankruptcy petitions were filed on September 16, 1981. That same evening, FBI agents armed with warrants conducted a search of the BCI/clearinghouse offices. 11
1. Richard Taylor Cardall
Appellant Cardall masterminded the creation of various inter-related entities involved in the scheme. Although Mr. Cardall
was responsible for developing and implementing the scheme and creating the various entities, he was rarely identified as a principal in those ventures. 12 Nevertheless, it is clear that he retained control of the operations, evidenced by his hiring of an FSI salesman whom he later installed as FSI's president. FSI and the clearinghouses identified Mr. Cardall as a "consultant" and paid him fees for his "services".
At Mr. Cardall's instigation, clearinghouse sales personnel were misinformed concerning the existence of ABC companies. He also fraudulently represented the existence of clearinghouse assets 13 and prospective purchasers for the Mexican land deal he had organized. 14
2. Joseph A. Holman
Appellant Holman served as office manager for FAS and as vice president of FSI from its organization until August 1979. Thereafter, Mr. Holman became office manager to BCI, FAS's successor firm. As office manager, Mr. Holman transferred money out of the business accounts, received undertaker contracts, and handled payments from undertaker-investors. Although other individuals had signature authority, Mr. Holman had access to, and control of, facsimile signature stamps which were used in issuing checks on the company's accounts. Mr. Holman also served as a conduit of information between other defendants and sales personnel, and was the person responsible for distributing the misleading August 1981 letter to investors at the time of the clearinghouse default on earnings checks.
3. Gerald L. Turner
Appellant Turner became counsel for FSI in 1979 and met with prospective clients on FSI's behalf. As FSI's attorney, Mr. Turner made representations about the viability and success of the payables program. He also represented the successor companies in bankruptcy. After the bankruptcy judge ordered the freezing of clearinghouse accounts but before the bank holding the funds had received notice of the order, Mr. Turner arranged to have $70,000...
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