U.S. v. Cherif

• Decision Date: 30 August 1991
• Docket Number: No. 90-2118,90-2118
• Parties: Fed. Sec. L. Rep. P 96,210 UNITED STATES of America, Plaintiff-Appellee, v. Danny O. CHERIF, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 692

943 F.2d 692

Fed. Sec. L. Rep. P 96,210

UNITED STATES of America, Plaintiff-Appellee, v. Danny O. CHERIF, Defendant-Appellant.

No. 90-2118.

United States Court of Appeals Seventh Circuit.

Argued Feb. 13, 1991.

Decided Aug. 30, 1991.

Michael R. Pace (argued), Barry R. Elden, Asst. U.S. Attys., Office of the U.S. Atty., Crim. Receiving, Appellate Div., Chicago, Ill., for plaintiff-appellee.

Douglass G. Hewitt, Michael P. Mullen (argued), Burke, Wilson & McIlvaine, Chicago, Ill., for defendant-appellant.

Before MANION and KANNE, Circuit Judges, and GRANT, Senior District Judge. ^*

MANION, Circuit Judge.

Danny O. Cherif worked in the International Financial Institutions Department of the First National Bank of Chicago ("First Chicago") from October 1979 until December 1987. In late 1987, First Chicago eliminated Cherif's job as the result of an internal reorganization. Disgruntled by his firing and with the hope of making some easy money, Cherif devised a scheme to get back at First Chicago. That scheme, as we noted in a related case, was "simple [and] cunning." SEC v. Cherif, 933 F.2d 403, 406 (7th Cir.1991). While an employee at First Chicago, Cherif had been issued a magnetic identification card ("keycard") that allowed him to enter the bank after normal business hours. Cherif was to surrender his keycard when his employment ended on December 31, 1987. However, in early January 1988 Cherif persuaded Kelly Reiter, a secretary at First Chicago with whom he was romantically involved, to type a memorandum to the bank's data entry department ostensibly from Francois Van Reepinghen, a senior vice president in the International Financial Institutions Department. The memorandum falsely told the data entry department that Cherif needed an active keycard to enter the bank to complete a special project. Cherif forged Van Reepinghen's signature to the memorandum, and based on Van Reepinghen's apparent request the data entry department reactivated Cherif's keycard. Cherif repeated this trick in late August 1988 to prevent the data entry department from deactivating the keycard at that time.

In a period of over a year after his employment ended, Cherif was able to use his keycard over 30 times on nights and weekends to enter the bank. Once in the bank, Cherif would head for the bank's Specialized Finance Department. The Specialized Finance Department, which shared the same floor of the bank as Cherif's old department, financed extraordinary business transactions such as corporate restructurings, tender offers, and leveraged buyouts. In connection with proposed transactions, the Specialized Finance Department would accumulate information from various sources and generate its own information. While the information included publicly available information concerning things such as a company's business and financial performance, the information received and generated also included specific information about a company's future business strategy, management structure, and future financial performance. The Specialized Financial Department also generated documents known as "deal memos" for each transaction, which described the proposed transactions in detail, and "deal lists" which listed the various transactions the department was considering. First Chicago treated all this information as confidential, and went to some lengths to keep the information confidential. For example, First Chicago required all its employees to sign an "integrity policy" by which employees agreed not to disclose confidential information to unauthorized people. Cherif was aware of this policy, having signed it several times himself while a First Chicago employee.

Before his termination in December, 1987, Cherif had traded sporadically, and generally unsuccessfully, in the stock market. Cherif's "luck" changed markedly after his forays into the Specialized Finance Department, principally because he would obtain confidential information about proposed deals the Specialized Finance Department was considering, and trade almost exclusively in the stocks of companies involved in those deals. Cherif executed these trades in brokerage accounts located at Charles Schwab & Co., Quick & Reilly, and Berthel, Fisher & Fleishman Financial Services. Cherif opened all three accounts in early-to-mid 1988, before or shortly after he began to use his reactivated keycard to enter the bank. Cherif opened the account at Quick & Reilly in the name of and with a $100,000 check from Khaled Sanchou, a Tunisian resident and Cherif's cousin by marriage. However, Cherif, who was authorized to trade in the account, was the only person to trade in the account and received all trading statements and confirmations from the account. The gains in the Schwab, Quick & Reilly, and Berthel, Fisher accounts totaled well over $200,000.

Cherif was not the only person to profit from trading on the information he obtained from the bank. Cherif shared the information with (possibly among others) William Bronec, Jr. Bronec had been a fellow employee of Cherif's until 1985, and was one of Cherif's best friends. Bronec invested in several stocks based on information Cherif had obtained from the bank. Cherif told Bronec about how he had been obtaining information by entering the bank with his reactivated keycard. Cherif also showed Bronec a deal list he had taken and a deal memo that Reiter had obtained for him. Bronec and his father made over $9,700 in their own accounts from stocks Cherif recommended. Cherif also traded in Sanchou's Quick & Reilly account on Bronec's behalf, and made over $6,300.

Cherif's scheme unraveled in May 1989 when the SEC and FBI began investigating his trading. As part of this investigation, FBI agents interviewed Cherif. During this interview, Cherif told the agents that Reiter "did not know anything about this stuff" and that he had never discussed his scheme or his stock transactions with Reiter. Cherif also told the agents that a $6,700 check he had given Bronec from the Sanchou account was a "gift for financial consulting" that Bronec had done. In fact, however, Cherif had told Reiter about his forays into the bank and his use of the information he obtained in trading stocks, and the check to Bronec was for profits Cherif had made in trading on the Sanchou account with Bronec's money.

Meanwhile Bronec, apparently figuring that a clear conscience, self-preservation, or both were more important than friendship, decided to cooperate with the FBI. Early in the morning on May 19, Bronec met with Cherif to discuss their predicament. Unbeknownst to Cherif, Bronec was wearing a tape recorder to this meeting. At the meeting Cherif told Bronec among other things that, "if they find I have an active ID I mean, I'm probably screwed," and "I'm the one that did it all...." The FBI arrested Cherif in his home shortly after his meeting with Bronec.

A grand jury indicted Cherif on multiple counts of mail and wire fraud, 18 U.S.C. §§ 1341 and 1343, one count of conspiracy to commit mail and wire fraud, 18 U.S.C. § 371, and one count of lying to FBI agents, 18 U.S.C. § 1001. (The district court dismissed counts charging Cherif with bank burglary, 18 U.S.C. § 2113(a), and obstructing justice, 18 U.S.C. § 1503.) The indictment also charged Bronec with conspiring to commit mail and wire fraud, a charge to which Bronec pleaded guilty. After trial, the jury convicted Cherif of conspiracy, lying to the FBI agents, and numerous counts of mail and wire fraud. The district court sentenced Cherif to 24 months in prison. Cherif appeals both his conviction and sentence, raising a grab-bag of issues.

I.

The mail and wire fraud statutes make it a federal crime for a person who "having devised ... a scheme or artifice to defraud or obtain money or property by means of false or fraudulent pretenses, representations, or promises" to use the mail or interstate wire communications facilities "for the purpose of executing" the scheme. 18 U.S.C. §§ 1341 & 1343. The indictment against Cherif charged that he devised a scheme to defraud First Chicago and its clients of confidential business information by fraudulently reactivating his keycard and using it to enter the bank to obtain the information. The indictment further alleged that Cherif used the information to obtain money by trading in the stock market based on that information. The mailings and wirings used to execute the scheme, according to the indictment, were the various mailings and wirings necessary to execute the stock trades.

Cherif contends that the indictment did not state a violation of the mail and wire fraud statutes and that the evidence was insufficient to show that he violated those statutes. Cherif posits several reasons why this is so. First, Cherif contends there was no scheme to defraud because he obtained the bank's information by trespass or burglary, not by fraud. This contention cannot be serious. Cherif was able to enter the bank only because he fraudulently retained his keycard. Cherif forged Van Reepinghen's signature to phony memoranda not once but twice: first, in January 1988 when he originally tricked the bank into reactivating his keycard, and a second time in August 1988, when he tricked the bank into extending the time he could keep his keycard. Moreover, every time he used the keycard Cherif, in effect, falsely represented that he was a bank employee entitled to be in the bank. "The words 'to defraud' in the mail fraud statute have the 'common understanding' of 'wronging one in his property rights by dishonest methods or schemes ...' " Carpenter v. United States, 484 U.S. 19, 27, 108 S.Ct. 316, 321, 98 L.Ed.2d 275 (1987) (quoting McNally v. United States, 483 U.S. 350, 358, 107 S.Ct. 2875, 2880, 97 L.Ed.2d 292 (1987)). Cherif's access to and ability to obtain the bank's information depended on outright lies, misrepresentations, and forgery; that is enough to constitute a scheme to obtain the...