U.S. v. Coffman

• Decision Date: 27 August 1996
• Docket Number: Nos. 95-3217,95-3909,s. 95-3217
• Citation: 94 F.3d 330
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Robert COFFMAN, Jerry Beller, and Thresher T. Rippey, Defendants-Appellants. & 95-3995.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 330

94 F.3d 330

UNITED STATES of America, Plaintiff-Appellee, v. Robert COFFMAN, Jerry Beller, and Thresher T. Rippey,

Defendants-Appellants.

Nos. 95-3217, 95-3909 & 95-3995.

United States Court of Appeals, Seventh Circuit.

Argued May 24, 1996.

Decided Aug. 27, 1996.

Rehearing and Suggestion for Rehearing En Banc Denied in Nos. 95-3217

and 95-3909 Sept. 19, 1996.

Barry Rand Elden, Chief of Appeals, James Conway (argued), Office of the United States Attorney, Criminal Appellate Division, Chicago, IL, for United States.

William H. Theis (argued), Chicago, IL, for Robert Coffman.

William A. Barnett, Jr., Chicago, IL, Matthew Horan (argued), Fort Smith, AR, for Jerry Beller.

Robert G. Clarke (argued), Chicago, IL, for Thresher T. Rippey.

Before POSNER, Chief Judge, and ROVNER and DIANE P. WOOD, Circuit Judges.

POSNER, Chief Judge.

The appellants, Beller, Coffman, and Rippey, along with two other persons, were convicted by a jury of six counts of wire fraud, in violation of 18 U.S.C. § 1343, and were sentenced to prison terms ranging from 13 to 18 months. The statute forbids the use of the telephone or other modes of transmission by wire for the purpose of executing a "scheme or artifice to defraud." (The mail-fraud statute, 18 U.S.C. § 1341, is similar, except that the method of execution is the mail rather than transmission by wire.) Here is the scheme the government proved: On May 9, 1989, Stoller, one of the defendants who is not an appellant, placed an unsolicited phone call to Smith Barney's Chicago office. He told the broker who answered the call, McCausland by name, that he wanted to sell several million dollars of stock through Smith Barney, including restricted stock of the Firestone Development Company. McCausland smelled a rat. It is unusual for someone to want to sell millions of dollars of stock through whoever just happens to pick up the phone at a brokerage house with which the caller appears to have had no previous dealings. And restricted stock, which as the parties use the term (it bears a different meaning in securities law) is stock that cannot be sold until a future date stated on the stock certificate, is usually issued to corporate insiders, and Stoller had not indicated that he was one. McCausland reported his suspicions to his superiors, who called in the FBI, which designated an agent to pose as an employee of Smith Barney. The next day Stoller met with McCausland and represented himself as controlling a pool of assets that included $30 million worth of stock of FDC. FDC had been created by Beller in 1987. It had never had any value, but Beller had represented its value to be tens and at times hundreds of millions of dollars and had also misrepresented that a member of the Firestone tire family was the chairman of the board.

Stoller offered to put up $1 million in restricted stock of FDC as collateral for a loan of $300,000; the restriction would expire in about six weeks. He gave McCausland a sheaf of papers purporting to demonstrate the financial solidity of the persons and firms involved in the transaction, including a fax to Stoller from defendant Coffman, dated March 7, 1989, representing FDC as having assets of $35 million, and phony balance sheets of Coffman, who was to be the borrower of the $300,000 (Stoller acting as the broker in exchange for a fee of $100,000), and of the firm on behalf of which Coffman was supposedly borrowing. According to these balance sheets, Coffman had a net worth of $76 million and his firm $266 million. In fact, neither he nor his firm had any assets.

McCausland and the FBI played along with this nonsense, and on May 22 he and the agent met with the defendants (all but Beller, who however participated in the meeting by telephone) purportedly to finalize the transaction. At the meeting Rippey said that FDC was active in the telecommunications, real estate, and convenience store markets; actually it was an empty shell. He also said that after the loan of the $300,000 was completed there would be another $30 million in FDC stock available for collateralizing future loans by Smith Barney. Coffman explained that the $300,000 loan would be the seed money for an ambitious project. All these were lies. When the time came to disburse the loan, the FBI broke up the meeting and arrested the defendants present; Beller was arrested later. The six counts of which the defendants were convicted were based on the March 7 fax from Coffman, other wire communications purporting to demonstrate the defendants' wealth, and Beller's telephonic participation in the May 22 meeting.

The appellants argue that the evidence was insufficient to convict them because their misrepresentations, which primarily involved grossly exaggerating their wealth, could not have influenced Smith Barney in deciding whether to lend them the $300,000, and this for three reasons: 1. The wealth of the borrower is immaterial to a margin loan, that is, a loan collateralized by stock owned by the borrower. Smith Barney does not run a credit check on a margin borrower or require a loan application indicating the borrower's financial status. All it checks on is the value of the stock. 2. Margin loans cannot lawfully be made on restricted stock. 3. Smith Barney is a sophisticated business, and no sophisticated business would be taken in by the defendants' preposterous misrepresentations. A person worth $76 million does not pay a broker (Stoller) $100,000 to borrow $300,000.

None of these reasons holds water. 2 is simply false. No law or business custom forbids the making of margin loans collateralized by restricted stock. Of course, the restriction, by reducing the liquidity of the stock, reduces its value as collateral. Here, however, the borrower was seeking only a third of the purported value of the stock, and the restriction was due to expire in only six weeks. As for 1, the more affluent the borrower, and the greater the prospect of lucrative future business with the borrower and his associates, the less likely the lender is to conduct a searching investigation into the actual value of the stock tendered as collateral. Moreover, the misrepresentation of the value of FDC stock (it had no value) was clearly material to a decision whether to lend money on the security of it. As for point 3, the most substantial point and the one the defendants press hardest, if they intended to obtain money by lying about the collateral and their financial status and prospects, it is not a defense that the intended victim was too smart to be taken in. McCausland was unusually alert. Had he not been, the scheme might have succeeded. But even if the prospects for success were as poor as the defendants argue--even if they were quite negligible--the defendants would not be off the hook.

The statute punishes the scheme (more precisely, the use of the telephone or cognate means of communication to conduct the scheme) rather than the completed fraud. E.g., United States v. Richman, 944 F.2d 323, 331 n. 9 (7th Cir.1991). It punishes, in short, the attempt to defraud. United States v. Utz, 886 F.2d 1148, 1150 (9th Cir.1989) (per curiam). Attempts are punished even when the chance of success is dim--even when the facts are such that, unbeknownst to the defendant, the attempt could not possibly succeed. United States v. Cotts, 14 F.3d 300, 307 (7th Cir.1994); United States v. Dominguez, 992 F.2d 678, 682 (7th Cir.1993). If it could not succeed because the completed act at which the defendant aimed is not criminal--as where a 13-year-old boy attempts to commit rape in a state in which you must be 14 to be charged with rape, Foster v. Commonwealth, 96 Va. 306, 31 S.E. 503, 505 (1898)--then a defense of impossibility will lie; it is not a criminal attempt to try to do what the criminal law does not forbid you to do. But if the attempt is merely thwarted, and if completed in accordance with the defendant's understanding of the circumstances would have resulted in a crime, then the attempt is culpable even though it is certain that it would not have succeeded. Cotts--a case involving a conspiracy to kill a fictitious informant (of course not known to the defendant to be fictitious)--is a dramatic example of this principle, and the present case is well within its orbit. There may be attempts so feeble, such as sticking a pin into a voodoo doll of your enemy in an effort to kill him that the attempter is entitled to be acquitted, as a harmless fool. Attorney General v. Sillem, 2 H. & C. 431, 525-26, 159 Eng.Rep. 178, 221 (Exch.1863); American Law Institute, Model Penal Code § 5.05(2) (1962). The defendants' scheme, though harebrained, was not that harebrained. Cf. State v. Smith, 262 N.J.Super. 487, 621 A.2d 493, 505 (1993).

It is true that many cases, including some in this court, say that a scheme to defraud is not within the reach of the mail- or wire-fraud statutes unless a reasonable person would be deceived by the defendants' misrepresentations. E.g., Spiegel v. Continental Ill. Nat'l Bank, 790 F.2d 638, 646 (7th Cir.1986); United States v. Brown, 79 F.3d 1550, 1557-59 (11th Cir.1996); United States v. Brandon, 17 F.3d 409, 425 (1st Cir.1994). But it is hard to believe that this language is intended to be understood literally, for if it were it would invite con men to prey on people of below-average judgment or intelligence, who are anyway the biggest targets of such criminals and hence the people most needful of the law's protection--and most needful or not are within its protective scope. United States v. Biesiadecki, 933 F.2d 539, 544 (7th Cir.1991); United States v. Brien, 617 F.2d 299, 311 (1st Cir.1980). "Taking advantage of the vulnerable is a leitmotif of fraud." Emery v. American General Finance, Inc., 71 F.3d 1343, 1347 (7th Cir.1995). It would be very odd for the law to protect only those who, being able to protect themselves, do not need the law's protection. In fact picking on the vulnerable...