U.S.A. v. Baker et al

Decision Date20 September 2000
Docket NumberNo. 99-3840,99-3840
Parties(7th Cir. 2000) United States of America, Plaintiff-Appellee, v. Everette O. Baker, d/b/a Bettye's Touch Above, d/b/a Fantasyland Theater & Arcade, d/b/a/ Fantasyland Night Club, d/b/a Fantasyland Massage Parlor, d/b/a Fantasy Massages, d/b/a Fantasy Massage Parlor, d/b/a American Printing & Publishing Company, Defendant-Appellant
CourtU.S. Court of Appeals — Seventh Circuit

Appeal from the United States District Court for the Southern District of Illinois. No. 97 CR 30079--William D. Stiehl, Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before Flaum, Chief Judge, and Manion and Williams, Circuit Judges.

Manion, Circuit Judge.

Everette Baker operated massage parlors that were fronts for his prostitution business. In addition to cash, his operation used credit card and automatic teller machine (ATM) transactions. He used the proceeds from his prostitution business to maintain and expand that business, as well as several other legal "adult businesses." He was convicted of money laundering and conspiracy to commit money laundering and in addition to being sentenced to fifteen years in prison, was ordered to forfeit millions of dollars. We affirm Baker's convictions, sentence, and the forfeiture order.

I. Background

From 1989 to 1997, Baker operated a complex of interrelated sex businesses in Brooklyn, Illinois, including striptease bars, adult bookstores and movie theaters, and x-rated video arcades. The cornerstone of Baker's "Fantasyland" complex, however, was the "massage parlors" that were fronts for prostitution. The businesses were related in that customers who indulged in the legal adult businesses would fulfill their fantasy in another building in the compound where the prostitutes disguised as masseuses held forth. Customers would select a "masseuse" from a line-up and then rent a room by paying a "house charge" up front. After the customer and the "masseuse" went into a room, the customer would select the type of "massage" he wanted. The prostitutes never discussed specifics with the customers; they simply told the customers that the more they were willing to pay, the more "sensual" the massage would be. Customers would pay the prostitutes with "tips." Both the room rentals and "tips" were often paid by credit card or ATM transactions.

Over the years, Baker employed hundreds of prostitutes, so likely everyone in Brooklyn who cared knew what was going on. Indeed, two daughters of the chief of police, and at one time the brother and the cousin of the mayor, were on Baker's payroll. Around the holidays, Baker provided a sort of "Christmas bonus"--free "massages" to various municipal employees as a show of gratitude for allowing him to operate in Brooklyn without much (if any) interference. And Baker had good reason to be appreciative. His "adult businesses" (both legal and illegal) were extremely lucrative. Baker had gross revenues during this time of about nine million dollars. It was obviously a fairly extensive operation, with various managers helping Baker with the business (e.g., collecting money, reconciling accounts, stocking on-site ATMs).

To disguise his activities, he set up dummy checking accounts and credit card clearinghouse accounts at area banks under the name of American Printing and Publishing Company. He deposited the proceeds from his prostitution and other ventures into these accounts and wrote checks on the accounts to pay his operating expenses, such as utilities and payroll. Baker not only plowed the proceeds from his sex empire back into his businesses to maintain their operation, he reinvested the proceeds by building additional "massage parlors" and other adult businesses in the Fantasyland complex. Between January 1990 and December 1996, the massage parlors accepted credit cards for prostitution services. "In May of 1995, the defendant, keeping up with modern times and for the convenience of his customers, installed an ATM machine in the Fantasyland massage parlor and adjacent topless nightclub." See United States v. Baker, 82 F. Supp.2d 936, 939 (S.D. Ill. 1999). In 1996 Baker stopped accepting credit card payments after he learned that other people "in the business" had faced federal prosecution for money laundering.

While local officials apparently weren't inclined to interfere with Baker's illegal enterprise, the federal prosecutors had seen enough. In January 1997, his operation was raided. Baker reacted by transferring ownership of his businesses to his son, but he continued to maintain de facto control over the operation. Although prostitution is not a federal offense, money laundering is if the laundering is carried out using the means of interstate commerce. Baker allowed customers to pay for "massages" with credit card and ATM transactions which went across state lines to clearinghouses (the proceeds of which were deposited into dummy accounts). Baker thus used interstate wires to further and facilitate his prostitution business. In late 1997, the United States indicted Baker on fifteen counts of money laundering under 18 U.S.C. sec. 1956(a)(1)(A)(i), six counts of engaging in monetary transactions in criminally- derived property under 18 U.S.C. sec. 1957, and one count of conspiracy to launder money under 18 U.S.C. sec. 1956(a)(1)(A)(i) & (h). It also requested a forfeiture of millions of dollars under 18 U.S.C. sec. 982. See Baker, 82 F. Supp.2d at 937.

A jury convicted Baker of all counts except for the forfeiture count (which Baker agreed to have the court resolve on the briefs). The court sentenced Baker to 120 months on the money laundering charges and 180 months on the conspiracy charge (to run concurrently). In determining Baker's sentence, the district court increased his offense level by seven by including as relevant conduct millions of dollars of income from his "massage parlor" business as funds that were involved in his conspiracy to launder money (it did not include money from Baker's legal sex businesses, although it concluded that this money too was involved in Baker's money laundering conspiracy). The district court also increased Baker's offense level by five for leading a criminal enterprise of five or more persons. And it increased his offense level by two for obstruction of justice, which was based on transferring ownership of the businesses to his son.

As to forfeiture, the government sought to recover the "Fantasyland" complex and $7.5 million as proceeds from Baker's conspiracy to launder the monies from his prostitution business. Baker countered that only $2,590 should be subject to forfeiture as the amount of the specific credit card transactions that the indictment had set forth. The district court ordered Baker to forfeit all the monies that had been involved in the federal activities, not just the credit card transactions the government had proved. See Baker, 82 F. Supp.2d at 941-42. The court found that Baker's bank accounts were used to facilitate his federal crimes and therefore the millions of dollars that had passed into and out of these accounts were subject to forfeiture. Id. at 942-43. After deleting some entries to avoid double-counting, it ordered Baker to forfeit about $4.4 million as well as the real estate where the "Fantasyland" compound was located. See id. at 944.

II. Discussion

Baker appeals his conviction, arguing that the indictment was constructively amended by the district court's jury instructions and the government's comments during closing argument. He also appeals his sentence enhancements, arguing that it was improper for the court to include millions of dollars from his prostitution business, to find that he led five or more people in a criminal enterprise, and to find that he obstructed justice. Finally, he appeals the forfeiture order.

A. The Indictment

Baker contends that his conviction must be overturned because the indictment in this case was constructively amended in violation of the Fifth Amendment. The Fifth Amendment to the Constitution provides in relevant part that "No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury." U.S. Const. Amend. V. A constructive amendment of an indictment violates the Fifth Amendment, United States v. Willoughby, 27 F.3d 263, 266 (7th Cir. 1994), and "occurs when either the government (usually during its presentation of evidence and/or its argument), the court (usually through its instructions to the jury), or both, broadens the possible bases for conviction beyond those presented to the grand jury." United States v. Cusimano, 148 F.3d 824, 829 (7th Cir. 1998). Thus, a "constructive amendment occurs where the offense proven at trial was not included within the parameters of the indictment." United States v. Remsza, 77 F.3d 1039, 1043 (1996). But not every variation from the verbiage of the indictment, either in terms of proof or jury instructions, constitutes a constructive amendment. See Willoughby, 27 F.3d at 266 (It "is important to note that not all variations in proof that contradict or supplement verbiage in the indictment rise to the level of constructive amendments."); United States v. Pigee, 197 F.3d 879, 886 (7th Cir. 1999) ("We believe that the variances in the court's instruction on Count 6 were so minor that they would not generate any risk that Lipscomb would be convicted of a crime not charged."). The proof at trial or jury instructions must go "beyond the parameters of the indictment in that it establishes offenses different from or in addition to those charged by the grand jury." Pigee, 197 F.3d at 886.

In this case, one of the bases for Baker's convictions, the federal money laundering statute, provides that

Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity,...

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