U.S. v. Feldman

• Decision Date: 04 August 1983
• Docket Number: No. 82-1611,82-1611
• Citation: 711 F.2d 758
• Parties: 13 Fed. R. Evid. Serv. 1223 UNITED STATES of America, Plaintiff-Appellee, v. David A. FELDMAN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 758

711 F.2d 758

13 Fed. R. Evid. Serv. 1223

UNITED STATES of America, Plaintiff-Appellee, v. David A. FELDMAN, Defendant-Appellant.

No. 82-1611.

United States Court of Appeals Seventh Circuit.

Argued Jan. 7, 1983.

Decided June 29, 1983.

As Amended Aug. 4, 1983.

John R. Wing, Weil, Gotshal & Manges, New York City, for defendant-appellant.

Robert W. Tarun, Asst. U.S. Atty., Dan K. Webb, U.S. Atty., Chicago, Ill., for plaintiff-appellee.

Before PELL and ESCHBACH, Circuit Judges, and NEAHER, Senior District Judge. ^*

ESCHBACH, Circuit Judge.

David A. Feldman appeals his conviction on nineteen counts of mail fraud and nine counts of wire fraud, all stemming from an alleged scheme to defraud Merrill Lynch, Pierce, Fenner and Smith, Inc. ("Merrill Lynch") by using false bank guarantee letters to fulfill the collateral requirements for trading in stock options. For the reasons below, we affirm.

I

According to the evidence taken in the light most favorable to the government, David A. Feldman and George Edgar Joyner executed false bank guarantees which enabled them to trade in stock options through Merrill Lynch without providing the collateral Merrill Lynch required to ensure that any options that were exercised would be covered.

Feldman and Joyner were neighbors in early 1977 when Feldman was employed with Merrill Lynch in Chicago and Joyner, a certified public accountant, was a controller for Brinks Incorporated. After discussing the options market on several occasions, they entered into an investment partnership in which each had a fifty percent interest. The written partnership agreement was later changed, omitting references to Feldman's interest and showing the two partners as Joyner and his wife, because Merrill Lynch's policy prohibited account executives from having a financial interest in a customer's account. Nevertheless, throughout the duration of the partnership, Feldman and Joyner split evenly all profits and expenses.

In March 1977, Feldman was transferred to Hollywood, California, where he became Branch Manager. Feldman continued his contacts with Joyner regarding options trading, and in July 1977, came to Chicago where Joyner introduced him to Harold Dillenbach, Joyner's banker at Harris Trust and Savings Bank. Feldman explained their plan to trade in "put" options, i.e., options to sell, and requested that the bank provide them with guarantee letters to satisfy Merrill Lynch's collateral requirement. When Feldman left Chicago after the meeting, the prospects for bank guarantees did not seem promising.

After Harris Trust and Savings informed Joyner that it would not provide guarantee letters, Feldman sent Joyner a blank guarantee form, which Joyner overlaid with a Harris letterhead. Joyner photocopied the composite, filled it out to make it appear that Harris had issued the guarantee in the amount of $1 million, and sent it to Feldman. Feldman then opened two accounts for the partnership and began selling puts. The accounts, in the name of Western Investment Company, did not reflect Feldman's financial interest.

In August 1977, Joyner opened a checking account for Western Investment at a bank in Chicago. Joyner, his wife and Feldman's wife were authorized to write checks on the account. Proceeds from the partnership's options trading were deposited in this account and expenses of the partnership were paid from the account.

In September 1977, Merrill Lynch required separate guarantees for each transaction rather than simply a blanket guarantee. Joyner used the same method he employed for the blanket guarantee to produce the first few separate guarantees, but Feldman suggested Joyner produce more professional looking letters. Joyner therefore had a professional print guarantee letters purporting to come from an Albert Cooke, vice president of "HTS Options." The address and phone number printed on the letters were actually those of an answering service, which Joyner had employed to answer calls and receive mail. These actions were prompted by Feldman's concern that internal auditors from Merrill Lynch might check into Western Investment's accounts.

Feldman took special care to see that correspondence from Merrill Lynch was addressed to "HTS Options" rather than to "Harris Trust and Savings." Nevertheless, in late February 1978, when he was out of town, a letter was addressed to Harris Trust and Savings and was delivered to that institution rather than to the HTS Options maildrop. Officers at Harris immediately recognized that the enclosed expired guarantee letter did not originate from Harris and began an investigation. Harris officials notified the Merrill Lynch office in New York of the irregularities and arranged to meet with Joyner on February 24, 1978.

On February 22, 1978, Feldman learned from the Hollywood Operations Manager that there was a problem with the Western Investment accounts. Feldman arranged to meet with Joyner at O'Hare airport early on February 24, 1978. There they exchanged checks in order to arrange funds to repay Merrill Lynch the funds it had advanced to Western Investment Company. Feldman expressed his hope that the repayment would put an end to the matter, and assured Joyner that "[n]obody is going to jail." Feldman advised Joyner to say as little as possible to the officials of Harris Trust and Savings and to try to "cover it up."

Later that day, Joyner met with Dillenbach and other Harris officials. Joyner attempted to convince them that the fictitious Mr. Cooke did indeed exist, that the mailing to Harris was just a mistake and that Merrill Lynch in California was taking care of the whole matter. The Harris officials were unconvinced and told Joyner that they intended to notify certain agencies, including the United States government, of the recent events.

Joyner conferred with Feldman again, who advised him to get an attorney and destroy all papers. Joyner, however, did not destroy the partnership and financial documents.

On March 9, 1978, Joyner was interviewed by a Special Agent of the Federal Bureau of Investigation, at which time he admitted to the scheme to deceive Merrill Lynch. In 1980, Joyner entered into a plea agreement with the government whereby he would plead guilty to one count of mail fraud and one count of wire fraud and give truthful testimony at Feldman's trial in exchange for the government's making his cooperation known to the court at sentencing.

At the time the fraudulent scheme was discovered, the value of outstanding options in the Western Investment accounts was $290,000. Merrill Lynch was forced to liquidate the accounts because without sufficient collateral, they were in violation of federal securities laws. At the time of trial, there was still approximately $100,000 owing on the accounts.

Feldman was indicted in November 1981 on nineteen counts of mail fraud and nine counts of wire fraud in violation of 18 U.S.C. §§ 1341 and 1343. At a jury trial which spanned five days, the defendant presented no defense, but attempted to introduce the results of a polygraph examination. The theory of the defense, as expounded in the opening statement and in closing argument, was that the government's evidence showed only that Feldman had an improper financial interest in the Western Investment accounts, but that the government had failed to prove that Feldman knew that the guarantee letters were falsified. On February 22, 1982, the jury found Feldman guilty of all counts. Feldman appeals.

II

Feldman raises several issues on appeal. He first contends that the indictment, the government's argument and the jury instructions were faulty because they allowed the jury to convict Feldman of mail and wire fraud even if the jurors were convinced only that he had concealed his financial interest in the Western Investment accounts and were not convinced that Feldman knew that the guarantee letters were false. Feldman next contends that the jury was not properly instructed that it must find that Feldman had specific intent to defraud. His third claim is that the court erred in allowing into evidence Joyner's prior consistent statement to the FBI regarding the scheme. Feldman finally contends that the court erred in refusing to admit into evidence the results of the polygraph test he attempted to introduce.

III

A. The Necessity of Finding that Feldman Knew that the Guarantee Letters Were False

Feldman contends that the indictment was written so that it could be read as charging two schemes, one involving concealment of his financial interest in the Western Investment accounts and one involving the use of falsified guarantee letters. He claims that this, coupled with the government's closing argument characterizing the concealment as fraud on Merrill Lynch and jury instructions to the effect that the government need not prove all of the false representations in the indictment, allowed the jury to convict him of mail and wire fraud based on mere concealment of his financial interest. He contends that this, by itself, would not support a conviction of mail or wire fraud.

It is well established that a scheme which deprives an employer of the honest and faithful services of an employee or the right to have his business conducted in an honest manner can constitute a scheme to defraud under the mail fraud statute. See United States v. Bohonus, 628 F.2d 1167, 1172 (9th Cir.), cert. denied, 447 U.S. 928, 100 S.Ct. 3026, 65 L.Ed.2d 1122 (1980); United States v. Bryza, 522 F.2d 414, 422 (7th Cir.1975), cert. denied, 426 U.S. 912, 96 S.Ct. 2237, 48 L.Ed.2d 837 (1976); United States v. George, 477 F.2d 508, 513 (7th Cir.), cert. denied, 414 U.S. 827, 94 S.Ct. 158, 38 L.Ed.2d 61 (1973). Yet not every breach of duty by an employee works as a criminal fraud, see id. at 512, and receipt of secret profits, standing alone, cannot support a mail fraud conviction, see United States v. Bohonus, supra, 628 F.2d at 1172. Such activities must be accompanied by...