U.S. v. Faulkner

• Citation: 17 F.3d 745
• Decision Date: 18 March 1994
• Docket Number: No. 92-8037,92-8037
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. David Lamar FAULKNER, Spencer H. Blain, Jr., James L. Toler and Arthur Formann, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 745

17 F.3d 745

UNITED STATES of America, Plaintiff-Appellee, v. David Lamar FAULKNER, Spencer H. Blain, Jr., James L. Toler and Arthur Formann, Defendants-Appellants.

No. 92-8037.

United States Court of Appeals,

Fifth Circuit.

March 18, 1994.

Rehearing and Suggestion for Rehearing En Banc

Denied April 29, 1994.

Melvyn Carson Bruder, Dallas, TX, Michael E. Tigar, Austin, TX, for David Lamar Faulkner.

William M. Ravkind, Dallas, TX (court-appointed), for Spencer H. Blain, Jr.

William H. Jeffress, Jr., Lisa D. Burget, Barry J. Pollack, Miller, Cassidy, Larroca & Lewin, Washington, DC, for James L. Toler.

Wesley H. Stewart, Denton, TX (court-appointed), for Arthur Formann.

Thomas M. Melsheimer, Asst. U.S. Atty., Marvin Collins, U.S. Atty., Dallas, TX, Robert J. Erickson, Deputy Chief, Cynthia A. Young, Dept. of Justice, Washington, DC, for U.S.

Appeals from the United States District Court for the Western District of Texas.

Before REAVLEY and DAVIS, Circuit Judges and TRIMBLE ^*, District Judge.

REAVLEY, Circuit Judge:

Appellants David Faulkner, James Toler, Spencer Blain, Jr., and Arthur Formann appeal their convictions on various counts arising out of the collapse of several savings and loan institutions, the funds of which were exhausted in the development of condominium projects along what is commonly known as the I-30 corridor in the Dallas area. We reverse a few of the wire fraud convictions but otherwise affirm the district court.

FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Background

All of the appellants, directly or by adoption of each other's arguments, challenge the sufficiency of the evidence to support their convictions. "In deciding the sufficiency of the evidence, we determine whether, viewing the evidence and the inferences that may be drawn from it in the light most favorable to the verdict, a rational jury could have found the essential elements of the offenses beyond a reasonable doubt." United States v. Pruneda-Gonzalez, 953 F.2d 190, 193 (5th Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 2952, 119 L.Ed.2d 575 (1992). Viewing the evidence in a light most favorable to the government, appellants engaged in a scheme during 1982 and 1983 to enrich themselves and others by well over $100 million through the device of fraudulent real estate loans from savings and loan institutions. The scheme involved and indeed required the efforts of numerous participants who served separate roles. Real estate developers would purchase land for condominium development. The properties would then undergo one or more "land flips" at inflated prices. "Syndicators" would locate investors to purchase subdivided tracts at the end of the land flip transactions. The initial and intermediate purchasers would receive huge sums of money in the form of profits from land sales, "commissions" or other fees. Appraisers would submit false appraisals to support the prices and loans for the properties. Lenders who controlled savings and loan institutions would provide loans for the sales and resales of the properties. In the scheme Faulkner and Toler served as real estate developers, Blain as one of the inside loan officers, and Formann as one of the appraisers.

In the late 1970's Faulkner, a real estate developer, purchased a tract of land off Interstate 30 near Dallas. He built condominiums in several phases on the property, which he called Faulkner Point. In the early 1980's Faulkner, Toler, Blain, Formann and others became involved in the purchase and sale of numerous other properties in this area, known as the I-30 corridor. Faulkner and Toler, another real estate developer, became partners on deals in the I-30 corridor. They would buy large pieces of land outright or on option, which were ultimately sold to "investors," "builder-investors" or "builder-developers" at inflated prices in a series of land flips in which the property changed hands several times, often on the same day.

Faulkner and Toler would subdivide the tracts they purchased and sell them at a large profit. The properties were sometimes sold to intermediate buyers, who would in turn sell the properties to the investors at even higher prices. Toler and Faulkner would sometimes locate buyers for their properties and arrange financing for the buyers with lenders.

Clifton Sinclair, who was indicted in another proceeding and pleaded guilty to certain counts related to the I-30 debacle, was a key witness for the government. He served a number of roles. He served as a "syndicator" of sorts, by locating investors and offering a package deal to them. He would find a group of investors, prepare loan packages for them which he would submit to lenders, and otherwise offer them an essentially passive investment, by offering to arrange or oversee the financing, construction and marketing of condominiums to be built on the various properties. He or one of his companies was sometimes an intermediate seller in the land flips. Other intermediate purchasers included appraiser Paul Tannehill, Blain, and the principal condominium builder in the area, Wailen York. Sinclair earned millions of dollars from commissions he received at closings and profits as an intermediate seller of properties. Sinclair testified that Faulkner and Toler arranged for financing of the sale of the properties they owned, and had control over the price that they would receive and the commissions and other payments that would be distributed at closing. Commissions regularly went to Brenda Kennedy, a close friend of Faulkner, despite a lack of any apparent effort on her part. Faulkner similarly directed commissions to Kenneth Cansler. Faulkner and Toler would dictate the price they were to receive, and appraisals, loan amounts, and closing costs such as commissions were adjusted or "worked in reverse" to support this price. Sinclair did business through a number of companies he controlled, including Kitco Management Company (Kitco). Ernie Hughes played a syndicator role in the scheme similar to that of Sinclair's. He would locate investors for properties owned by Faulkner or Toler earlier in the chain of title. He too pleaded guilty to certain offenses in an earlier proceeding and testified for the government.

The money for all of these promotions and investments was always forthcoming from appellant Blain or some other lender designated by Faulkner. Sinclair testified that he tried to do deals without Faulkner and Toler, but was unable to obtain financing. Blain and other savings and loan officers financed both the land and construction loans required for these land flips. Blain became chairman and chief executive officer of Empire Savings and Loan (Empire) in early 1982. He individually approved all of Empire's loans for these transactions. He purchased a majority of Empire's stock with the help of a loan from Faulkner and Toler. Blain had a 25 percent profits interest in Statewide Service Corporation, a subsidiary of Empire. On several occasions Statewide was an intermediate seller in a land flip. Blain paid off his loan to Faulkner and Toler with the proceeds of a loan that was also used to purchase property from Toler known as Chalet Ridge. ¹ Toler assisted Blain in obtaining the loan to purchase Chalet Ridge. Blain purchased Chalet Ridge in August and September of 1982 for $686,000. In February of 1983,

Blain sold Chalet Ridge to Sinclair for $14.9 million. ² Blain also received a house in Colorado as additional consideration for Chalet Ridge. Blain had made no improvements on the Chalet Ridge property and had attempted unsuccessfully to rezone the property. According to Sinclair, Toler and Faulkner were involved in deciding how much to pay Blain for the property. The government contends that Chalet Ridge was Blain's big payday for providing some of the loans that fueled the land flips. The money to pay Blain came in part from an Empire loan to Sinclair to purchase another property from Faulkner and Toler known as Kirby Mills. Sinclair testified that the "whole purpose of Kirby Mills" was "a vehicle to generate funds for Mr. Blain." On another land transaction Blain received from Sinclair, at Faulkner's direction, a $1.4 million "consulting fee" for no apparent effort. Blain received other questionable payments as well. Empire funded over $100 million in I-30 corridor land and construction loans

Paul Jensen gained control or influence over two other savings and loans, Lancaster Federal Savings and Loan Association (Lancaster) and Bell Federal Savings and Loan Association (Bell). He personally received millions of dollars in commissions and other payments for arranging loans on the I-30 properties. Sinclair purchased a $4 million mansion for Jensen. Lancaster and Bell funded over $100 million in I-30 corridor loans.

The lending institutions were able to provide funding for the I-30 loans with the help of "brokered deposits." By offering a competitive rate on certificates of deposit, brokers would wire large deposits to the institutions from depositors nationwide. From the depositors' point of view, the deposits were safe regardless of the health of the institution, since they were insured by the government.

The loans which fueled the land flips did not require investors to put any money down, but instead financed 100% of the purchase price, future interest payments for some period, a "development reserve" to the lender, and "up-front" money or "kickbacks" for the investors at closing. On many occasions Sinclair and Hughes would assist the investors in preparing fraudulent financial statements, tax returns and employment verifications that were submitted to the lenders. The promise of up-front money, usually in the thousands or tens of thousands of dollars, was a key incentive to the investors. On the various loans Empire made it performed no analysis of the appraisals, financial statements, or other documents which lenders typically review. Appraisals and other...