U.S. v. Bledsoe

• Decision Date: 12 March 1982
• Docket Number: Nos. 80-1998,s. 80-1998
• Citation: 674 F.2d 647
• Parties: UNITED STATES of America, Appellee, v. Carl L. BLEDSOE, Jr., Appellant. UNITED STATES of America, Appellee, v. Thomas B. MOFFITT, Jr., Appellant. UNITED STATES of America, Appellee, v. Russell E. PHILLIPS, Appellant. UNITED STATES of America, Appellee, v. Ronald STAFFORD, Appellant. UNITED STATES of America, Appellee, v. Quentin Darence CLONINGER, Appellant. to 80-2001 and 80-2114.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 647

674 F.2d 647

UNITED STATES of America, Appellee, v. Carl L. BLEDSOE, Jr., Appellant.

UNITED STATES of America, Appellee, v. Thomas B. MOFFITT, Jr., Appellant.

UNITED STATES of America, Appellee, v. Russell E. PHILLIPS, Appellant.

UNITED STATES of America, Appellee, v. Ronald STAFFORD, Appellant.

UNITED STATES of America, Appellee, v. Quentin Darence CLONINGER, Appellant.

Nos. 80-1998 to 80-2001 and 80-2114.

United States Court of Appeals,

Eighth Circuit.

Submitted Sept. 14, 1981.

Filed March 12, 1982.

J. Whitfield Moody, U. S. Atty., Thomas M. Larson, Asst. U. S. Atty., Kansas City, Mo., Peter B. Shaeffer, Senior Trial Counsel, Chicago Regional Office, U. S. Securities and Exchange Commission, Chicago, Ill., Cynthia A. Clark, Asst. U. S. Atty., Kansas City, Mo., for appellee.

C. Brooks Wood, Kansas City, Mo., for appellant Bledsoe.

Mark W. Slatkin, Kansas City, Mo., for appellant Moffitt.

Thomas M. Bradshaw, Kansas City, Mo., for appellant Phillips.

Dennis J. C. Owens, Kansas City, Mo., for appellants Stafford and Cloninger.

Before LAY, Chief Judge, and HEANEY and ROSS, Circuit Judges.

LAY, Chief Judge.

The central issues in this case are (1) the requisite characteristics and proof of an "enterprise" under 18 U.S.C. § 1962(c), the Racketeer Influenced and Corrupt Organization Act (RICO) and (2) the propriety of joining charges of securities fraud against one defendant which are not alleged to be overt acts in furtherance of the conspiracy nor as predicate acts of racketeering in a RICO count with separate charges of securities fraud and conspiracy and RICO charges against four other defendants.

The Government originally sought and obtained an indictment variously charging 22 defendants. Count one charged all 22 defendants with conspiracy to violate RICO in violation of 18 U.S.C. § 1962(d) and alleged the commission of 93 overt acts in furtherance of the conspiracy. Count two charged all defendants with violation of RICO, 18 U.S.C. § 1962(c). This count alleged that defendants were associated with an enterprise, described as a group of individuals associated in fact to fraudulently sell securities of agricultural cooperatives in Missouri, Oklahoma, and Arkansas, and that defendants participated in the affairs of this enterprise through a pattern of racketeering activity. Count two detailed the acts constituting the pattern of racketeering as to each defendant in paragraphs 159 through 209 and in separate counts three through one hundred and sixty-one which were incorporated into count two by reference. The predicate acts of racketeering consisted of the fraudulent sale of securities of two Missouri cooperatives, United Farmers Association of America (UFA-Mo.) and Progressive Farmers Association (PFA); an Oklahoma cooperative, United Farmers Association of America (UFA-Ok.); and an Arkansas cooperative, Consumer-Farmers Association (CFA). Counts three through sixty-eight charged all five appellants and fifteen others with violating 15 U.S.C. §§ 77q(a) and 77x and 18 U.S.C. § 2 by fraudulently selling PFA securities. Counts 69 through 161 charged defendants Phillips, Cloninger, Bledsoe and two others, but not Moffitt and Stafford, with violating 18 U.S.C. §§ 2 and 1341 by devising a scheme to defraud in the sale of PFA securities.

Counts 162 through 169 charged Phillips with evading personal income taxes and failure to file corporate tax returns. Counts 170 through 175 charged Phillips with violating 15 U.S.C. §§ 77q(a) and 77x by fraudulently selling securities of a Missouri corporation, Progressive Investors (PI).

Trial of 11 defendants commenced on October 2, 1979. The Government elected to try only Phillips, Bledsoe, Cloninger, and Donald Burks on counts 45 and 66 which were renumbered as counts three and four. ¹ However, original counts three through one hundred and sixty-one remained incorporated in count two as predicate acts of racketeering. The Government elected not to join any of the tax charges and only two of the fraud charges against Phillips alone, counts 172 and 174 which were renumbered as counts five and six. For various reasons, only five defendants remained when the case was submitted to the jury on August 14, 1980. On August 25, 1980, the remaining five defendants were found guilty under all the counts with which they were charged. All five have appealed.

I. Facts.

In May of 1972, Phillips incorporated Progressive Investors, an ordinary business corporation. Through PI, Phillips offered and sold a security called an Estate Builder. The Estate Builder was an unsecured annuity contract in which PI agreed to make a lump sum payment to an investor after a period of years provided the investor made certain installment payments. PI did not engage in any investment program or substantial business of any kind. Income raised from security sales was diverted primarily to Phillips' personal use through a number of personal corporations. Phillips, assisted by a small sales staff, made false statements and failed to disclose material facts in the sale of PI securities. Moffitt was involved in the sale of PI securities, but none of the other defendants were connected in any way to PI securities business nor was Moffitt named in counts five and six which charge Phillips with fraud in the sale of PI securities.

During the summer of 1972, Phillips consulted with Donald H. Gibson, an attorney who was an unindicted co-conspirator and the Government's principal witness in this case, concerning the sale of securities through agricultural cooperatives. Phillips described PI's securities sales. Gibson advised that co-ops were exempt from various registration requirements. Defendant Cloninger was present at several of these meetings. However, Cloninger is not alleged to have had any interest in the cooperative which Phillips and Gibson eventually formed.

Phillips and Gibson agreed to form the cooperative and evenly share its profits. In October of 1972, UFA-Mo. was incorporated as a non-stock, not-for-profit, agricultural cooperative. UFA-Mo. had no significant business operations other than the sale of a security called an Estate Builder. In April of 1973, Phillips left UFA-Mo. Gibson continued to operate the cooperative until approximately June of 1975.

In May 1973, Phillips incorporated PFA, a Missouri agricultural cooperative. Phillips recruited a board of directors composed primarily of farmers with little business experience. PI entered into a consulting agreement with PFA. Cloninger came to PFA in the spring or summer of 1973 to assist in its sale of securities. In November 1973, defendants Bledsoe and Burks were hired to manage PFA's security sales. PI thereafter assigned 25% of its interest in the consulting agreement to corporations controlled by Bledsoe, Burks, and Cloninger. Phillips, Bledsoe, Burks, and Cloninger made a secret agreement to evenly share all profits derived from PFA. Burks became president of PFA. Around the same time, PFA hired Moffitt and Stafford as salesmen. PFA originally sold Estate Builders and later also sold bonds and stock.

In April 1974, PI purchased a tract of land in Stone County, Missouri which was designated Table Rock Heights. Phillips obtained an inflated appraisal of the land. Phillips then began to contact PI investors to urge them to convert their securities into mortgage notes through additional payments. The mortgage note was a PI promissory note secured by a deed of trust for a lot in PI's tract. In actuality, no lots existed.

PFA had several legitimate business operations although evidence indicated that none proved profitable. In early 1975, PFA acquired land in Table Rock Heights through a merger with National Business Corporation (NBC). NBC was created to act as a conduit through which to move the land from PI to PFA. The merger also transformed PFA into a stock cooperative. Phillips, Bledsoe, Cloninger, and Stafford received substantial shares of the newly issued PFA stock.

In May 1975, Phillips suggested to Gibson that they form a partnership to organize cooperatives in other states. Phillips wanted Gibson to insulate him by not disclosing his interest in new co-ops and by serving as a channel through which Phillips would obtain his share of any profits. Gibson and Moffitt traveled to Arkansas, Texas, and Oklahoma to investigate the feasibility of organizing cooperatives in those states. Gibson, Moffitt, and Paul Canaday agreed to form UFA-Ok. and share its proceeds. Phillips and Gibson agreed to share Gibson's one-third interest, but Moffitt was unaware of Phillips' involvement. Phillips gave PFA materials to Gibson and UFA-Ok. was modeled after PFA. UFA-Ok. sold a security labeled Estate Builder. Stafford sold UFA-Ok. securities. Cloninger participated in one meeting with two officers of UFA-Ok. and Phillips at which the co-op's accounting procedures were discussed. He was not shown to have participated in any sales of UFA-Ok. securities or shared any of the co-op's profits.

In November of 1975, Gibson and Ron Elia agreed to share profits earned by an Arkansas cooperative. Gibson agreed to share his profits with Phillips. Consumer-Farmers Association was incorporated on January 23, 1976, as an Arkansas agricultural cooperative. Moffitt sold CFA securities called Estate Builders. UFA-Mo., UFA-Ok. and CFA each operated in tandem with separate "management companies" which played a role similar to that played by PI in relation to PFA. These companies were used to divert revenue to the principal operatives or their personal corporations. CFA's sale of securities was enjoined by the Arkansas Securities Commission in the spring of 1976. UFA-Ok. was similarly restrained by the Oklahoma Securities Commission in October of 1976.

In the fall of 1975, Progressive Farmers Association-Farmers Marketing Association (PFA-FMA) was incorporated. Burks was PFA-FMA's original president and was succeeded by Bledsoe when Bledsoe succeeded...