976 F.2d 1257 (9th Cir. 1992), 90-50629, United States v. Lothian

Docket Nº:90-50629.
Citation:976 F.2d 1257
Party Name:UNITED STATES of America, Plaintiff-Appellee, v. Matthew Edward LOTHIAN, Defendant-Appellant.
Case Date:October 05, 1992
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1257

976 F.2d 1257 (9th Cir. 1992)

UNITED STATES of America, Plaintiff-Appellee,

v.

Matthew Edward LOTHIAN, Defendant-Appellant.

No. 90-50629.

United States Court of Appeals, Ninth Circuit

October 5, 1992

Argued and Submitted April 6, 1992.

Page 1258

Chad S. Hummel, Gibson, Dunn & Crutcher, Los Angeles, Cal., for defendant-appellant.

Mark D. Larsen, Asst. U.S. Atty., Los Angeles, Cal., for plaintiff-appellee.

Appeal from the United States District Court for the Central District of California.

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Before: BOOCHEVER, NORRIS, and NOONAN, Circuit Judges.

BOOCHEVER, Circuit Judge:

Matthew Lothian appeals his conviction on twenty counts of mail fraud, wire fraud, and interstate transportation of property obtained by fraud in violation of 18 U.S.C. §§ 1341, 1343, and 2314. The charges arose out of Lothian's participation in a fraudulent boilerroom telemarketing scheme selling investments in precious metals. On appeal Lothian asks that we overturn his conviction on eleven counts that charge him with conduct occurring during his absence from the scheme, arguing that he had withdrawn from the scheme during this period. He further argues as to all twenty counts that the evidence of fraudulent intent was insufficient to support his conviction and that the district court erred in admitting evidence concerning other fraudulent schemes that involved his co-defendants but not Lothian. 1 We reverse Lothian's conviction on four counts charging him with conduct that occurred during his absence from the scheme, but affirm his conviction on the remaining counts.

BACKGROUND

Because Lothian contends that there was insufficient evidence to sustain his conviction, we summarize the relevant facts from the evidence introduced at trial in the light most favorable to the government. See United States v. Adler, 879 F.2d 491, 495 (9th Cir.1988). In May 1985 Matthew Lothian and Barry Goldberg began soliciting investors in precious metals by telephone from Goldberg's residence in Laguna Hills, California. Their enterprise was known as B.N. Goldberg & Associates ("BNGA"). Goldberg, the owner of BNGA, was the architect of the scheme and had recruited Lothian, with whom he had worked at a commodities brokerage, to join him. Lothian and Goldberg conferred daily on every aspect of the enterprise. Their sales pitch to potential customers was rife with misrepresentations. Lothian and Goldberg lied about BNGA, which they characterized as an established and reputable brokerage with a strong track record and a separate research department staffed with market experts. A brochure that they mailed to potential customers contained out-and-out falsehoods concerning BNGA's past performance and asserted that BNGA had predicted and helped clients cash in on the silver run of the early 1980s, a period in which BNGA had not even existed. Lothian and Goldberg also lied about themselves, using fictitious names on the telephone and misrepresenting their qualifications and experience as commodities brokers.

Finally, Lothian and Goldberg lied about what they would do with the money customers sent in. Customers were told that sending BNGA twenty percent of the current market price of the precious metal would secure their rights to the metal at that price; in other words, a twenty percent "down payment" would secure their position in the commodities market. Goldberg and Lothian told customers that if the price of the metal went up, the customer would be able to profit by selling the position. Customers were also told that they had the alternative of taking possession of the metal by paying the remaining eighty percent of the current market price. Commodities brokers who sell precious metal investments on margin, as BNGA was doing, typically secure investors' market positions by "hedging," buying a contract or option for the metal the investor has ordered in the futures market. During the time Lothian and Goldberg were operating out of Goldberg's residence, however, they did not use the money to hedge. Instead, it was diverted as income for Lothian and Goldberg and to pay BNGA's start-up expenses.

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In October 1985 BNGA moved to offices in Laguna Beach, California, and expanded its operation by hiring a large sales staff. Goldberg managed the overall operations of BNGA, most importantly customer funds. Lothian served as the sales manager, training the sales staff in the pitch that he and Goldberg had perfected. He continued to consult with Goldberg on a daily basis concerning all aspects of BNGA's business. From October to December 1985 BNGA did hedge, albeit inadequately. In December 1985 BNGA was unable to meet a margin call, forcing the liquidation of a substantial portion of its customers' positions. Shortly thereafter Lothian resigned from BNGA, telling Goldberg that he was going to Europe to begin a new business venture.

After Lothian's resignation, Goldberg hired a new sales manager, Lester Thompson. Thompson came to BNGA from another precious metals brokerage, First American Currency. First American recently had been closed by postal inspectors, and Thompson brought with him to BNGA First American's accountant and many of its salespeople. He also imported to BNGA First American's sales program, which, unlike BNGA's former program, subjected customers' accounts to margin calls when the price of metal fell and forced liquidations when customers could not meet the margin call. Under Thompson's guidance, BNGA decreased the amount it was hedging in the metals market and hedged only intermittently. On Thompson's recommendation, BNGA began to sell investments in foreign currency but did not hedge these positions. Thus BNGA increasingly gambled that the market would go down and that customers would not meet the resulting margin calls, thereby relieving BNGA of liability to its customers. Thompson developed a new customer brochure, including new misrepresentations, based on materials used by First American Currency. In the spring of 1986, Thompson, Goldberg, and BNGA's accountant purchased Schoolhouse Coins, another fraudulent enterprise, using $75,000 of BNGA funds.

Lothian failed in his European business venture and returned to California sometime in the spring of 1986. Goldberg testified that during Lothian's absence Lothian had had "nothing whatsoever" to do with BNGA. Lothian was broke upon his return and Goldberg loaned him money, which Lothian later repaid. Lothian returned to work at BNGA as a salesman and later served as a manager, assisting Thompson.

When Goldberg became concerned about the mounting liability of the company to clients whose market positions had not been secured with the funds that they had sent in, Thompson suggested that Goldberg sell BNGA. In August 1986 Goldberg sold BNGA to one of the salespeople, Mark Ott, who then operated it under the name of M.S. Sawyer & Co. ("Sawyer"). Sawyer continued BNGA's fraudulent business practices, and Lothian continued to work as a sales manager. When customers ordered their accounts liquidated in September 1986, Sawyer was unable to pay them and the business closed.

A federal grand jury indicted Lothian, Goldberg, Thompson, Ott, and three sales agents on charges of mail fraud, wire fraud, interstate transportation of property obtained by fraud, and failure to file income tax returns. No conspiracy count appeared in the indictment. Goldberg and another defendant entered pleas of guilty. The other defendants were tried together before a jury in July 1990. The jury returned guilty verdicts on all charges against Lothian, Thompson, and Ott. Lothian was sentenced to a year and a day in prison with five years probation and was ordered to pay restitution to the victims of the fraudulent scheme. Lothian timely appeals his conviction.

DISCUSSION

Lothian's defense at trial was based on lack of fraudulent intent and withdrawal. Lothian argued to the jury that before he resigned in December 1985 BNGA was a legitimate operation properly securing its clients' positions in the market, that he could not be held liable for conduct occurring during his absence, and that when he

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returned to BNGA in the spring of 1986 he was unaware of the fraudulent practices that Thompson had introduced. He bases his appeal on similar grounds. First, he argues that his resignation from BNGA constituted withdrawal and that the government failed to establish his criminal liability for acts committed during his absence. Second, he contends that the evidence of his fraudulent intent was insufficient to support his conviction on any of the counts. Finally, he argues that the admission of evidence concerning other fraudulent schemes with which he was not associated was unfairly prejudicial.

I. Withdrawal

Lothian attacks his conviction on eleven of the twenty counts on a theory of withdrawal: five counts of mail fraud (counts 1-5), three counts of wire fraud (counts 13, 15, 16), and three counts of interstate transportation of property obtained by fraud (counts 23, 24, 27). These counts involve uses of the mails and wires and interstate transport between late December 1985, when Lothian resigned his position at BNGA, and early May 1986, when Lothian contends he returned to BNGA. Lothian argues that he is entitled to acquittal on these counts because the government failed to rebut his prima facie showing of withdrawal. Alternatively, he argues that he is entitled to a new trial based on the court's failure properly to instruct the jury on the withdrawal defense. In reviewing the district court's denial of Lothian's motion for acquittal, we view the evidence in the light most favorable to the prosecution to determine whether "the jury reasonably could have found the defendant guilty beyond a reasonable doubt." United...

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