U.S. v. Rewald

• Decision Date: 13 November 1989
• Docket Number: No. 85-1353,85-1353
• Citation: 889 F.2d 836
• Parties: , 29 Fed. R. Evid. Serv. 145 UNITED STATES of America, Plaintiff-Appellee, v. Ronald R. REWALD, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 836

889 F.2d 836

103 A.L.R.Fed. 159, 29 Fed. R. Evid. Serv. 145

UNITED STATES of America, Plaintiff-Appellee, v. Ronald R. REWALD, Defendant-Appellant.

No. 85-1353.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 23, 1988.

Decided Nov. 13, 1989.

A. Brent Carruth, Van Nuys, Cal., for defendant-appellant.

John F. Peyton, Jr., Asst. U.S. Atty., District of Hawaii, Honolulu, Hawaii, Theodore S. Greenberg, U.S. Dept. of Justice, Crim. Div., Washington, D.C., for plaintiff-appellee.

Appeal from the United States District Court for the District of Hawaii.

Before ALARCON, HALL, and KOZINSKI, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Defendant-Appellant Ronald R. Rewald was convicted on ninety-four counts of a criminal indictment charging mail fraud, interstate transportation of stolen securities or money, false statement to a federal officer, perjury, falsely representing accounts as being insured by the Federal Deposit Insurance Corporation (FDIC), securities fraud, failure to maintain books and records as required by the Securities and Exchange Commission (SEC), fraud by an investment advisor, income tax evasion, and subscribing to a false document. Rewald committed these crimes by swindling hundreds of investors in his investment firm out of millions of dollars. His principal defense at trial, and now on appeal, is that the Central Intelligence Agency (CIA) told him to spend the investors' money extravagantly so as to cultivate relationships with foreign potentates and wealthy businessmen who would be useful intelligence sources. We reject all of Rewald's arguments save one, which requires a remand to the district court for further proceedings.

I

In 1978, Rewald and a partner, Sunlin L.S. Wong, formed an investment firm named Bishop, Baldwin, Rewald, Dillingham and Wong (Bishop Baldwin), located in Honolulu, Hawaii. Rewald, a charming and captivating salesman, immediately began luring investors into Bishop Baldwin's "investment savings account" with a promised guaranteed return of twenty percent and an additional five to seven percent, depending on Bishop Baldwin's earnings. The investors ultimately numbered 400, and their investments--sometimes an individual's life savings--totaled $22 million. After a group of investors filed an involuntary bankruptcy petition, a court-appointed bankruptcy trustee took over Bishop Baldwin on August 4, 1983, finding it virtually without assets to repay the $17 million owing to investors.

Rewald's misrepresentations about Bishop Baldwin and its investment savings account were bold and imaginative. He claimed that Bishop Baldwin was one of the largest and most venerable investment firms in Hawaii, with roots dating back sixty-five years. He falsely described the firm's clientele as having included, among others, the last four presidential administrations and Elvis Presley, with individual investors having an average worth of $4 million. Rewald told of a two-year waiting list to become Bishop Baldwin clients and a reported ninety percent rejection rate of those who applied.

Rewald sometimes described the investment savings accounts as merely a break-even accommodation for the firm's wealthiest clients. Despite this laissez-faire front, Bishop Baldwin's investment consultants aggressively sought money from any and all sources, motivated by huge commissions of up to fifty percent. In addition to the enormous rate of return, Rewald promised investors that Bishop Baldwin pursued an "ultraconservative investment policy" and that the investment savings accounts were guaranteed by the FDIC, Lloyds of London, or some other insurer.

A key aspect of the fraud scheme was to discourage investors from withdrawing their funds. Rewald told investors that their "earnings" were tax free unless withdrawn. In addition, Bishop Baldwin maintained the facade of investor prosperity through periodic mailings of letters and reports to investors, purportedly documenting the firm's glowing financial performance.

Rewald conceded at trial that he had made these and numerous other false promises to investors and that he spent investor money on countless luxuries, including the purchase of a polo club. His sole defense was that the CIA had directed him to create Bishop Baldwin and to operate it for the CIA's benefit, and that the CIA had promised to reimburse Bishop Baldwin for all these expenses because they were incurred in initiating and maintaining intelligence contacts. In short, he argued that he lacked the criminal intent necessary for conviction.

Prior to trial, Rewald filed an affidavit outlining his alleged relationship with the CIA, claiming to be a covert CIA agent. He said that all his actions relevant to the indictment were carried out on the orders of the CIA. Specifically, Eugene Welch, Chief of the CIA Domestic Collection Division's (DCD) Honolulu Office, instructed him and Sunlin Wong to set up the Bishop Baldwin firm for the CIA's benefit. Rewald also stated that he was provided with fake degrees in business administration and law from Marquette University. His mission was to cultivate social and business contacts with wealthy and well-placed businessmen and government officials.

Rewald's affidavit also stated that the CIA expanded its use of Bishop Baldwin to include transferring funds through the firm's investment savings accounts to covert foreign intelligence operations. The CIA also used the accounts to shelter funds of highly placed foreign diplomats and businessmen who sought to "export" currency to the United States. Rewald's most dramatic accusation was that the CIA used Bishop Baldwin to facilitate arms sales to several foreign countries.

II

While Rewald did not take the stand, extensive evidence of his relationship with the CIA was introduced at trial, primarily through the testimony in the government's case-in-chief of several former CIA officials. Welch of the Honolulu DCD office was the first to meet Rewald. The DCD's mission is to collect intelligence data on foreign persons and matters from private American citizens (known as "contacts") who voluntarily offer to assist the CIA. These contacts sometimes will telephone the DCD with unsolicited information that the contact feels would be of assistance to American intelligence officials. The DCD's telephone number is listed under "Central Intelligence Agency" in the telephone book, and officers such as Welch are known as overt agents, because they are publicly acknowledged to be CIA officials. A contact usually develops information from meeting a foreign citizen while traveling abroad.

After a long career in the CIA, Welch moved to Honolulu in September 1976 to become chief of the DCD's field office there. This office had one clerical employee and one professional employee--the chief. Welch had never been to Hawaii before moving there in 1976, and as he approached retirement he considered Hawaii a desirable assignment. Before moving to Hawaii Welch had not heard of Rewald. Indeed, he had not heard of Rewald until June 30, 1978, when he received a telephone call from him at the office.

Rewald told Welch that he recently had returned from visiting a Far Eastern country that he thought would be of intelligence interest. Rewald asked to meet Welch, expressing great sympathy for the CIA and the intelligence community at large. Believing Rewald to be a potentially helpful contact, Welch agreed to meet him for lunch. At their meeting on July 6, 1978, Rewald told Welch that he owned a chain of retail sporting goods stores and that he planned to travel extensively throughout the Far East, including China and Japan, to establish manufacturing sources for sporting goods. Rewald said his company was called Consolidated Mutual Investment Corporation (C.M.I.), and that it originated in Wisconsin, although it had failed there. Rewald also said that he had been a professional football player with the Cleveland Browns, that he had B.A. and M.A. degrees from Marquette University, and a Ph.D. from the Massachusetts Institute of Technology. Rewald said he had assisted the CIA in monitoring radical student groups while in college.

After lunch, Welch returned to the office and filled out a standard "name check" request form. This form is sent to CIA headquarters in Langley, Virginia, and it requests a search of the person's name in the files of certain federal agencies, including the F.B.I., for derogatory information. Basically, the name check entails only a preliminary search for information readily available in established channels. Once a name check is approved from headquarters, a field officer is permitted to alert a contact to the CIA's "requirements," or issues of particular interest to the CIA, relating to a particular foreign country or region. The contact can be made privy to classified information, up to the level of "secret."

Welch included on the name check form the biographical data Rewald had supplied at lunch. Welch also made an entry on Rewald's "source contact card," documenting their meeting and discussion for Welch's files. Welch created this contact card for Rewald on June 30, after Rewald called for the first time.

Welch telephoned Rewald near the end of July to see if he had made the travel plans he mentioned at lunch. Welch also told Rewald that he would be retiring and that his successor would be Jack Kindschi. Soon afterwards, Kindschi traveled to Honolulu to familiarize himself with the area and the office. Welch was still chief of the Honolulu office. It was Welch's responsibility to introduce Kindschi to established contacts in Honolulu. While Rewald was not an established contact, Welch thought that his planned foreign travels would make him a useful source in the future. Welch also was impressed by Rewald's patriotism and his great enthusiasm for the role of the intelligence community.

In July, Rewald had invited Welch and Kindschi to his house for...