U.S.A. v. Davuluri, 99-3070

• Citation: 239 F.3d 902
• Decision Date: 07 February 2001
• Docket Number: No. 99-3070,99-3070
• Parties: (7th Cir. 2001) United States of America, Plaintiff-Appellee, v. Surya Prasad L. Davuluri, Defendant-Appellant
• Court: U.S. Court of Appeals — Seventh Circuit

Page 902

239 F.3d 902 (7th Cir. 2001)

United States of America, Plaintiff-Appellee, v. Surya Prasad L. Davuluri, Defendant-Appellant.

No. 99-3070

In the United States Court of Appeals For the Seventh Circuit

Argued January 16, 2001

Decided February 7, 2001

Appeal from the United States District Court for the Northern District of Illinois, Western Division. No. 98 CR 50033--Philip G. Reinhard, Judge. [Copyrighted Material Omitted] Before Flaum, Chief Judge, and Posner and Coffey, Circuit Judges.

Flaum, Chief Judge.

Surya Prasad L. Davuluri appeals his convictions for wire fraud, mail fraud, and interstate transportation of a security taken by fraud, as well as his sentence. He claims that the evidence was insufficient to demonstrate his intent to defraud, that he obtained the security by fraud, or that the security was worth the minimum statutory requirement. He appeals his sentence on the grounds that he does not qualify for an abuse of a position of trust enhancement. For the reasons stated herein, we affirm the defendant's convictions and sentence.

I. Background

Davuluri, burdened by loans and promises to repay people whose money he had previously lost investing in the markets, approached Dr. Namburu Ramanajaru ("Dr. Raju"), a cardiologist living in Illinois, with an offer to engage in commodities trading on the doctor's behalf. Dr. Raju initially rebuffed this proposal, but accepted after Davuluri stressed his commodities expertise (including falsely claiming to have studied "financial engineering" at the University of Michigan) and emphasized that no more than ten percent of the $50,000 he was urging Dr. Raju to invest would be at risk. In his testimony, other factors that Dr. Raju listed that induced him to agree to Davuluri's proposal were their shared cultural heritage (both are from the Andrha Pradesh region of India) and Davuluri's claim that a Hindu priest had recommended that he talk to the cardiologist. Dr. Raju agreed to provide $50,000 for Davuluri to begin trading on the doctor's behalf. What Davuluri was to receive for his services was a disputed issue at trial. Dr. Raju testified that the two had an agreement to split any profits fifty-fifty and additionally that Davuluri could obtain a loan from the doctor's fifty percent. Davuluri claims that the only agreement was that he could obtain a loan from the profits, all of which would go to Dr. Raju.

Davuluri opened an account at the Detroit, Michigan office of Merrill Lynch and impersonated Dr. Raju without the latter's knowledge in all of Davuluri's dealings with Merrill Lynch employees. By claiming to be Dr. Raju, Davuluri instructed Merrill Lynch to increase the net worth and risk capital amounts listed on the doctor's financial forms without the real Dr. Raju's consent or knowledge, eventually reaching numbers twenty- five to thirty times greater than those that the cardiologist had actually written. Such adjustments permitted Davuluri to trade a larger number of contracts. Davuluri also forged Dr. Raju's signature on one of these forms.

Davuluri's first day of trading exposed Dr. Raju to a risk of losing $21,000, far greater than $5,000, the maximum amount Davuluri had told Dr. Raju that he could lose. The trading went well at first, with the account increasing in value to over $200,000. During these times, Dr. Raju received statements from both Davuluri and Merrill Lynch, which he did not fully understand. Davuluri and the doctor also talked over the phone about the profits being generated and Davuluri's family back in India. Dr. Raju apparently exercised no control over Davuluri's activities and had no input in the latter's trading decisions.

The account began to sour when Davuluri began selling Japanese Yen contracts. Unfortunately for Davuluri, the value of the Yen started to increase to unprecedented highs. Because of the inflated numbers on Dr. Raju's financial forms, Davuluri had been able to sell a large number of these contracts. Thus, he took a huge hit with the Yen climbing upward, and the account went $400,000 into the negative. Davuluri initially hid these losses from Dr. Raju and continued to tell him that his account was performing excellently. However, when Merrill Lynch issued a margin call, Davuluri returned to Dr. Raju, told him about the losses, and informed the doctor that if he did not transfer $400,000 to Merrill Lynch the account would be liquidated. By emphasizing that the additional funds would be safe and not at risk, Davuluri cajoled Dr. Raju into writing a $400,000 check on an account at Fidelity Investments ("Fidelity") that was in the name of the cardiologist's wife. The check had two signature lines but Dr. Raju signed only one. The doctor testified that others had previously accepted checks with only his signature and that Fidelity always honored such checks. Davuluri took the check from the doctor in Illinois and hand-delivered it to Detroit, but Merrill Lynch, which had already liquidated the account without informing Davuluri or Dr. Raju, refused the doctor's check. The account sustained a loss of $785,907, which was apportioned between Merrill Lynch and Dr. Raju in arbitration.

One of Dr. Raju's friends urged him to notify law enforcement authorities about Davuluri's conduct. He did and the ensuing FBI investigation led to a five count indictment against Davuluri. Count I alleged mail fraud, 18 U.S.C. sec. 1341, Counts II-IV alleged wire fraud, 18 U.S.C. sec. 1343, and Count V alleged transporting in interstate commerce a fraudulently taken security worth $5,000 or more, 18 U.S.C. sec. 2314. The prosecution presented the evidence described above, and the jury found Davuluri guilty of all five counts. At sentencing, the district court imposed a two level enhancement for abuse of a position of trust. The district court cited Davuluri's discretionary authority over Dr. Raju's account, Davuluri's claims of financial expertise, and Davuluri's exploitation of cultural ties to Dr. Raju to justify the enhancement.

II. Discussion

Davuluri appeals both his convictions and his sentence. He attacks Counts I-IV by claiming that the evidence was insufficient to prove that he formed the specific intent to defraud Dr. Raju. He contends that the Count V conviction is invalid because he did not obtain Dr. Raju's check by fraud and the check was valueless. In the alternative, Davuluri claims the district court erred in imposing the abuse of a position of trust sentencing enhancement because he did not have a formal position of trust, like a broker, nor did he form close personal ties with Dr. Raju.

A. Intent to Defraud

Under the standard formulation of the elements of wire or mail fraud, the government must prove: (1) the defendant's participation in a scheme to defraud; (2) the defendant's intent to defraud; and (3) the defendant's use of the mail (for 18 U.S.C. sec. 1341) or wires (for 18 U.S.C. sec. 1343) in furtherance of the fraudulent scheme. See United States v. Ross, 77 F.3d 1525, 1542 (7th Cir. 1996). Davuluri argues that the government failed to prove the second element, intent to defraud, beyond a reasonable doubt. In evaluating his claim, we view the evidence in the light most favorable to the prosecution and vacate the conviction only if no rational trier of fact could have found the elements of the crime beyond a reasonable doubt. See United States v. Swan, 224 F.3d 632, 636 (7th Cir. 2000).

This circuit's cases have defined intent to defraud as "acting willfully and with specific intent to deceive or cheat, usually for the purpose of getting financial gain for one's self or causing financial loss to another." United States v. Moede, 48 F.3d 238, 241 (7th Cir. 1995), quoted in, e.g., United States v. Paneras, 222 F.3d 406, 410 (7th Cir. 2000). Davuluri argues that the evidence is uncontested that he always intended only to earn profits for Dr. Raju, rather than imposing any kind of loss on him. He also claims that he sought no benefit for himself, contending that Dr. Raju's testimony regarding the fifty-fifty split of profits is inherently unbelievable and that their only agreement was that Davuluri could obtain a temporary loan from the profits.

Davuluri's arguments are unavailing, since a rational jury could find beyond a reasonable doubt that he imposed a large risk of loss on Dr. Raju. Exposing the victim to a substantial risk of loss of which the victim is unaware can satisfy the intent requirement. See United States v. Catalfo, 64 F.3d 1070, 1077 (7th Cir. 1995); Moede, 48 F.3d at 242. That Davuluri sincerely intended his scheme to generate a profit is irrelevant. See United States v. Masquelier, 210 F.3d 756, 759 (7th Cir. 2000); United States v. Cosentino, 869 F.2d 301, 307 (7th Cir. 1989). The evidence shows that Davuluri told Dr. Raju that no more than $5,000 of the money in the account would ever be at risk, yet Davuluri's trading immediately put Dr. Raju at risk of losing over $21,000 and the total loss caused by Davuluri was over $785,000. Davuluri was a knowledgeable trader and the jury could have inferred that he knew the high levels of risk to which he was subjecting the account. On this basis, a reasonable jury could infer that Davuluri deceived Dr. Raju and exposed Dr. Raju to a much greater risk than what he had promised the cardiologist.

Davuluri also relies on United States v. Walters, 997 F.2d 1219 (7th Cir. 1993), but this argument is similarly unconvincing. The section of Walters on which Davuluri relies stands for the proposition that the government must prove that money or property was transferred from the victim to the defendant as part of a fraudulent scheme in order to convict under the mail or wire fraud statutes. Id. at 1227. In the instant case, a transfer occurred when Davuluri fraudulently obtained $50,000 of Dr. Raju's funds by promising him that this money would not be exposed to the level of risk that Davuluri's trading entailed; thus, Walters does...