U.S. v. Beckner

• Decision Date: 02 February 1998
• Docket Number: No. 97-30285,97-30285
• Citation: 134 F.3d 714
• Parties: UNITED STATES of America, Plaintiff-Appellee-Cross-Appellant, v. Donald L. BECKNER, Defendant-Appellant-Cross-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 714

134 F.3d 714

UNITED STATES of America, Plaintiff-Appellee-Cross-Appellant, v. Donald L. BECKNER, Defendant-Appellant-Cross-Appellee.

No. 97-30285.

United States Court of Appeals Fifth Circuit.

Feb. 2, 1998.

Richard B. Launey, Baton Rouge, LA, for U.S.

John R. Martzell, Scott R. Bickford, Regina O. Matthews, Martzell & Thomas, New Orleans, LA, for Beckner.

Appeal from the United States District Court for the Middle District of Louisiana.

Before WISDOM, HIGGINBOTHAM and STEWART, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

The government here urges that a former United States Attorney, engaged to defend an SEC proceeding, joined his client's criminal enterprise. A jury convicted the attorney, Donald L. Beckner, for aiding and abetting his client's fraud. Beckner contends to us that the evidence was insufficient to demonstrate that he knowingly participated in any crime. We agree and reverse.

I.

In 1990, Sam Recile and his companion, V. Rae Phillips, began raising capital for Place Vendome, a shopping mall project in Baton Rouge, Louisiana. In 1991, Recile retained Donald Beckner to assist him in the Place Vendome project. At the time Beckner, a former United States Attorney for the Middle District of Louisiana, was a prominent and well-regarded lawyer in private practice in Baton Rouge. The initial engagement was narrow: Beckner was to handle some problems Recile was having with the press.

However, in April 1991, the SEC initiated an enforcement proceeding against Recile, Phillips, and various related corporate entities. The SEC alleged that Recile was guilty of securities fraud in issuing mortgage notes from the Hannover Corporation of America, the "Hannover notes," to acquire capital for Place Vendome. According to the SEC, in distributing the notes, Recile lied to investors and provided them with worthless security. Recile engaged Beckner as his trial counsel in the SEC enforcement action. On April 12, 1991, a temporary restraining order was issued, enjoining Recile from soliciting funds for Place Vendome. Judge Livaudais of the Eastern District of Louisiana later modified the order to permit Recile to continue to develop the project, so long as he used only his own assets as security. On April 30, 1991, by consent, this court directive was continued as a Preliminary Injunction, and the district court appointed a Special Master to perform an accounting of the funds that Recile had raised to date.

The fact is that Recile was in trouble with the SEC when Beckner arrived on the scene. Nor was he the first lawyer there. Recile employed a variety of "in-house" attorneys who provided him with day-to-day assistance in commercial transactions. Recile was also represented by lawyers in major law firms in Atlanta and Washington, D.C., specializing in securities law.

Beckner was trial counsel. He was not a confidant or everyday advisor to Recile. Specifically, Beckner disclaimed sophistication in matters of corporate finance and the intricacies of securities regulation, asking Recile to obtain that assistance from others. Aware of his own limitations, Beckner routinely sought guidance from the Atlanta and Washington lawyers on technical securities matters. It is also important to keep in mind that the gaps in Beckner's experience, that he disclosed, were not bridged by his two young associates, Glenn Constantino and Henry Olinde. They were newly minted lawyers with virtually no legal experience. As we will see, the two associates proved to be a major source of Beckner's difficulty as it was these two lawyers who cast suspicion upon their boss.

In July 1991, Constantino and Olinde became concerned about certain of Recile's financing practices. Recile had an interest in an office building and residence "compound" called Redwood Raevine. He employed "collateral mortgages" on Redwood Raevine as security for Place Vendome investors, pledging his interest in the property to back the Place Vendome notes. Constantino and Olinde, however, learned from an outside lawyer, Michael Uter, that there were problems with the collateral mortgages. According to Uter, the mortgages were not recorded, they had been pledged to multiple investors simultaneously, and they lacked sufficient equity to secure their obligations. In early July 1991, Constantino and Olinde told Beckner about these complications. Following this meeting, Beckner's firm recorded the mortgages. It also drafted a Joint Collateral Pledge Agreement to rectify the multiple-pledgee problem. When Beckner turned to the sufficiency of the equity, he learned of an MAI appraisal, valuing Redwood Raevine at $2.5 million. By August 1991, Beckner had obtained a list of investors from Recile, indicating that Recile had only pledged $1.8 million against the property, well below the $2.5 million appraisal. This information eased Beckner's concerns about the property's equity.

In the meanwhile, Beckner moved on another front. He began to push his client. On June 23, 1991, Beckner expressed concern in a letter to Recile that a court might construe the notes Recile issued to borrow money to be a sale of a security, prohibited by the Preliminary Injunction. On July 10, 1991, Beckner wrote Recile a second letter. In this letter, Beckner specially instructed Recile to stop issuing "double-your-money-back" notes, notes that would almost certainly be considered securities, even if secured by mortgages on real property. This time, Beckner backed his instruction by threatening to withdraw from his representation of Recile if Recile did not cease this fundraising tactic. During this time when Beckner was increasing his demands upon Recile for lawful conduct, the SEC requested appointment of a receiver.

On July 16, 1991, Beckner filed a memorandum in the SEC litigation in opposition to the appointment of a receiver over Place Vendome. In the memorandum, Beckner argued that the securities laws did not apply to Recile's practice of issuing notes secured by mortgages, thus depriving the SEC of jurisdiction. Beckner cited the fourth prong of a test for "securities" laid out by the Supreme Court in Reves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47 (1990). In Reves, the Court stated that one criterion for determining whether an instrument is a security is whether there exists "another regulatory scheme significantly reduc[ing] the risk of the instrument, thereby rendering application of the Securities Acts unnecessary." Id. at 67, 110 S.Ct. at 952. Beckner argued in the opposition memorandum that "Louisiana law provides protection to parties involved in similar transactions (notes secured by mortgages). There is, thus, a body of law that significantly reduces the notes' attendant risks."

By August 1991 when Beckner acquired a list of the investors in the Place Vendome project, concerns raised by Constantino and Olinde had been met. Nonetheless, Constantino asked Beckner if he could approach the investors on the list and ask them what representations had been made to them by Recile. Beckner instructed Constantino not to do so.

In April 1992, Beckner responded to discovery requests made by the Special Master in the SEC litigation. Although he produced a variety of documents, Beckner filed objections to many of the requests, claiming that they exceeded the scope of the Special Master's authority. Beckner declined to produce other documents on the basis of his clients' Fifth Amendment privilege against self-incrimination. The Special Master never responded with motions to compel.

After the document production, events moved rapidly toward Beckner's withdrawal. The SEC complained that several important investors' files were missing. Beckner communicated this fact to Recile, who reacted by removing Beckner from supervision of the SEC litigation. Following a subsequent document production on June 4, 1992, the Special Master wrote to Beckner to confirm his understanding that all investor files had then been produced. At the same time, another event was unfolding that accelerated Beckner's eroding confidence in his client--the news reports regarding the Assignment of Proceeds.

The collateral mortgages on Redwood Raevine were not the only devices used by Recile to attract investors to Place Vendome. Later, Recile also began using an "Assignment of Proceeds" as a form of security for Place Vendome investors. The Assignment represented that the Place Vendome Corporation had obtained a $300 million loan, and it granted its holders a portion of the proceeds of that loan as security for their investment. In mid-1992, Recile gave Beckner a variety of documents, including sample notes backed by various incarnations of the Assignments of Proceeds. In early June 1992, a reporter contacted Recile to obtain information for a story he was writing about the Place Vendome financing. Recile asked Beckner to help him frame a statement on his behalf for the reporter. Recile's secretary transcribed Beckner's response. According to her written transcription, Beckner stated to Recile that the Hannover notes were not securities and Recile had not violated the Securities Act of 1933 in issuing them. On June 5, 1992, the reporter's story appeared in the newspaper and quoted Beckner as saying that notes secured by the Assignment of Proceeds were not securities and were legally proper. According to every witness of the conversation and the secretary's transcription of Beckner's statement, Beckner had said no such thing. Following the publication of the newspaper article, Beckner promptly wrote a letter to Recile, complaining that he had been misquoted. Beckner stated in the letter that he had meant to defend only the Hannover notes, not any notes backed by an Assignment of Proceeds.

On June 16, 1992, the SEC filed a motion for summary judgment in its enforcement action, including allegations that documents had not been produced. Beckner apparently had enough and on June 22,...