U.S. v. Diamond, 02-1070.

• Decision Date: 10 August 2004
• Docket Number: No. 02-1070.,02-1070.
• Citation: 378 F.3d 720
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Arlene F. DIAMOND, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

378 F.3d 720

UNITED STATES of America, Plaintiff-Appellee, v. Arlene F. DIAMOND, Defendant-Appellant.

No. 02-1070.

United States Court of Appeals, Seventh Circuit.

Argued April 9, 2004.

Decided August 10, 2004.

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Appeal from the United States District Court for the Central District of Illinois, Michael P. McCuskey, J.

Colin S. Bruce, Office of the United States Attorney, Urbana, IL, Esteban F. Sanchez (argued), Office of the United States Attorney, Springfield, IL, for Plaintiff-Appellee.

Donald K. Schott, Alexis L. Pheiffer (argued), Quarles & Brady, Madison, WI, for Defendant-Appellant.

Before BAUER, EASTERBROOK, and KANNE, Circuit Judges.

BAUER, Circuit Judge.

Arlene F. Diamond was convicted of mail fraud, wire fraud, conspiracy to commit mail and wire fraud, conspiracy to conduct monetary transactions with the proceeds of illegal activities, and conducting monetary transactions with proceeds of illegal activities. She appeals; we reverse in part and affirm in part.

I. Background

In 1994, Clyde Hood, a man who claimed to be one of only eight people experienced enough to trade international "Prime Bank Notes" announced that he had received a message from God who told him to use his expertise in the secretive and lucrative trading of Prime Bank Notes to "help the little people." Accordingly, Hood would allow investors to make as many hundred dollar loans as they liked to Omega Trust and Trading, Ltd. The money would be used to facilitate trades in Prime Bank Notes. Each unit, at one hundred dollars a piece, was promised a fifty-to-one return in less than a year. Furthermore, an investor could roll over his or her profits by reinvesting them into Omega, guaranteeing millions of dollars in return for a small initial investment.

That was the pitch. Like most things that sound too good to be true, it was; it was a scam. Hood was actually a retired electrician who had come up with the idea for a Prime Bank Notes scam through his association with other scam artists. Sad to relate, God had not spoken to Hood. The whole thing was completely fabricated.

Nevertheless, Hood worked hard in creating an image of legitimacy. For example, he created a database of the investors to facilitate communication between the investors (more properly, victims) and himself. Later, he set up a recorded message hotline to keep investors up to date on the status of Omega. The status of Omega was always the same; pay-out was just around the bend. Other written communications stated the same, often times including religious references and biblical quotations.

To accomplish this fraud, Hood enlisted the help of others. These individuals would market the scam and explain to potential investors that they could join Omega by sending their monies to Clyde Hood in cash, money order, or cashier's check. The investor would then receive a "Private Party Loan Agreement" that purported to represent his or her interest in the Omega funds.

One such marketeer was Michael Kodosky. Arlene F. Diamond invested in Omega under Kodosky. She frequently contacted the hotline and Kodosky to check on the status of her investment. At some point between 1996 and 1999 — specifically when makes no difference to this opinion — Diamond began marketing the Omega scam. In 1998 she met with Hood and asked him about the ongoing investigation into Omega and told Hood that she knew it was an illegal scam. She also told Hood that she knew a way to circumvent the law. She had two additional meetings with Hood which made it even clearer that she was aware that the Omega Trust and Trading transactions were fraudulent.

By the time she returned home from the first meeting with Hood, Diamond was sending out her own Private Party Loan Agreements, maintaining her own investor database and telling investors to make their checks payable to her as opposed to Hood.

By late 1998 or early 1999, after Diamond's third meeting with Hood, she was involved in the Omega scam up to her eyebrows. Various investors were told that they could receive their Omega updates from Diamond and that she was coordinating Omega activities for California. One such individual was Reverend Jody Boyd. Boyd, a retired minister who was earning income by housecleaning and passing out free supermarket samples, was informed that Diamond and Hood were setting up another Omega-like fund in Belize. Boyd declined to invest in that venture. When Boyd called again in the summer or fall of 1999, Diamond told Boyd that she had just attended a victory party for Omega. She asserted that George W. Bush and one of the Rockerfellers were in attendance, as they were on the Omega board of trustees. Pay-out was again delayed — this time because George Bush, Senior wanted his son to get the credit for the economic boom inherent in creating so many millionaires.

Another minister, Reverend Greg Bryant accepted a request from Diamond to assist in secretarial work involving Omega. While assisting Diamond, Bryant saw large amounts of correspondence which referred to money sent to Diamond. The amounts were typically between one hundred and eight hundred dollars. He also answered Diamond's phone approximately ten times. These phone calls were usually from people asking about the time frame for Omega's payout. The callers were assured that pay-out was imminent.

By September 1999, Reverend Bryant was duped into investing in Omega. Diamond informed him that she needed the money quickly if it was to be invested. As per her instructions, Bryant sent Diamond two hundred dollars, payable to Diamond's account, New Hope Trust.

In November 1999, Diamond sent Bryant documents to open a trust for his Omega pay-out. The letter was marked, "URGENT!!! RUSH!!! Must be returned immediately!!" The sense of urgency led Bryant to believe that he must make any additional contributions to Omega immediately and he gave her an additional thousand dollars. When Bryant inquired about the status of Omega in early 2000, Diamond told him that pay-out was delayed by satellite limitations caused by sunspots and magnetism.

Later still, possibly in early 2000, Reverend Boyd called Diamond to get an Omega update. Boyd was told that Diamond had just attended another Omega victory party in San Francisco. Shortly after that conversation, Diamond sent Boyd a power of attorney document giving Diamond control over Boyd's finances. Boyd balked at signing such a document.

Linda Stark, who was involved in Omega as an investor since 1998 received the same message as everyone else; pay-out was right around the corner. She received this message a number of times in 1998, 1999, and 2000. By 2000, Stark was instructed by Diamond that additional monies for investment should be deposited into Diamond's New Hope Trust account. Diamond also instructed Stark to send the money in cash via FedEx. The cash was to be wrapped in aluminum foil. Stark did so. After repeated calls about the status of Omega and consistently being told that pay-out was coming soon, Stark concluded that she had been defrauded — she was, of course, right.

One final individual's experiences with Omega deserve some attention because they show the depths of Diamond's exploitation. Neva McKibben met Diamond in 1999 while they were both working in the Omega offices in Mattoon, Illinois. McKibben was responsible for cleaning the offices, for which she received one hundred dollars per week. It was in this capacity that she overheard that Hood was involved in "offshore trading." McKibben asked Hood if she could invest $25,000 from an IRA into Omega. Hood refused to take her money but said that he would invest on her behalf. Diamond, however, lacked such a fine-tuned conscience.

In February 2000, Diamond asked McNibben about her Omega investment and the return Hood told her to expect. When McNibben said that Hood had promised a fifty-to-one return, Diamond told McNibben that she could get two hundred-to-one if she gave Diamond the money instead. Diamond told McNibben not to tell Hood about the arrangement. In less than six months, Diamond had swindled McNibben out of her family's entire retirement savings of $57,600.

By 2000 things were starting to go bad for the conspiracy. That year, various peripheral actors were subpoenaed to testify before a Grand Jury investigating Omega. Diamond schemed to interfere in the investigation by encouraging the witnesses not to testify. In one instance, she supplied a witness with a legal-looking document which purported to excuse him from testifying. Another incident involved Diamond telling a subpoenaed witness that she was an attorney and advised the witness not to testify. When that witness failed to appear before the Grand Jury, she was summoned for a hearing before the Chief Judge of the Central District of Illinois. Diamond met with the witness after the hearing and asked for and obtained a written report on the hearing. Diamond then informed the witness that she would not need to appear before the Grand Jury again.

On August 28, 2000, the same month Diamond was arrested, a search warrant was executed on Diamond's Mattoon, Illinois apartment. Among the items seized were Omega-related documents, a notebook computer, and Diamond's passport. The passport indicated trips to Belize, Canada, and the United Arab Emirates. Among the documents were various Cease and Desist Orders from Hawaii and Missouri. Also included were documents prepared by Diamond that purported to make financial claims against governmental officials — judges, prosecutors, investigators, and such. Various e-mails were recovered. These messages were complaints from investors averring fraud on the part of Omega. Other e-mails from Diamond were responses to inquiries about investing in Omega. In those messages, Diamond told investors to send cashier's checks to New Hope Trust or to send cash wrapped in aluminum foil. There were also Private Party Loan Agreements and copies of...