U.S. v. Freeman

• Citation: 434 F.3d 369
• Decision Date: 23 December 2005
• Docket Number: No. 04-30037.,04-30037.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Jerry W. FREEMAN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

434 F.3d 369

UNITED STATES of America, Plaintiff-Appellee, v. Jerry W. FREEMAN, Defendant-Appellant.

No. 04-30037.

United States Court of Appeals, Fifth Circuit.

December 23, 2005.

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Ellen R. Meltzer (argued), U.S. Dept. of Justice, Crim. Div. — App. Section, Washington, DC, for U.S.

Richard William Westling (argued), Law Offices of Richard W. Westling, New Orleans, LA, for Freeman.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before JOLLY, SMITH and DeMOSS, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Jerry Freeman challenges his conviction of and sentencing for conspiracy, wire fraud, travel fraud, and money laundering. Although the district court correctly decided most of the issues on appeal, it did commit reversible error under United States v. Booker, 543 U.S. 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005). For this reason, we affirm the conviction but vacate and remand for resentencing.

I.

Freeman was indicted alongside co-defendant Motillal Sudeen on 1 count of conspiracy in violation of 18 U.S.C. § 371, 14 counts of wire fraud in violation of 18 U.S.C. § 1343, 1 count of travel fraud in violation of 18 U.S.C. § 2314, and 22 counts of money laundering in violation of 18 U.S.C. § 1957. Freeman worked at Sudeen's pharmacy and assisted Sudeen in various business ventures unrelated to pharmaceuticals.

The government presented evidence that Sudeen had created a large Ponzi scheme that involved telling investors that he would invest their funds in high yield programs or "private placement secured trading programs" involving overseas trades of financial instruments. He told investors they would receive a higher-than-market rate of return and that their principal would remain safe, exposed to little or no risk, and would be returned on the expiration of the investment returns. He represented that the trading programs involved highly rated banks, were monitored by the federal government, and would fund humanitarian projects in developing countries. He assured investors that he had earned profits for himself and others by making similar investments. The funds, however, were never invested as promised, but instead were used for personal enrichment and to make "lulling payments" to prior investors to make them believe that their initial investments were profitable.¹

Sudeen and Freeman increased the appearance of legitimacy and safety of the investments by giving investors bogus "Private Placement Agreements" or "Joint Venture Agreements," guarantees and promissory notes. They also told investors that their funds were guaranteed by Sudeen's personal wealth. They instructed investors to purchase Certificates of Deposit from banks to allow Sudeen to use the credit as collateral for loans, the proceeds of which would also be invested, and they represented that a fictitious minimum investment was required to participate.

Continued participation was ensured by lulling payments, encouraging investors to roll over their investments rather than seeking immediate returns, and by reassuring investors that the funds were safely invested and soon would result in returns. When investors demanded proceeds, the defendants would claim that the profits could not be paid because the investors had failed to comply with false requirements, that the profits were tied up by the federal government, or that they could not be liquidated from overseas investments.

The government presented evidence that the defendants were involved in another fraudulent Ponzi scheme involving the trade of insulin contracts, although they were not indicted for that scheme. Freeman was involved in the insulin contracts by giving the investors checks as initial, false profit returns; meeting with investors to encourage and sign contracts related to their continued participation in the scheme; and assuring investors that "everything is legal." When one investor told Freeman she wanted to withdraw money, Freeman gave her three checks totaling $10,000 and informed her that the remainder of her money had "two more banks to clear" before being returned. The money invested for insulin trade was co-mingled with other investment funds gained by the defendants' various fraudulent schemes, and the funds received from insulin investors were used to make lulling payments.

Although the defendants were indicted together, the court severed the trials. Freeman was convicted on all counts and was sentenced to 108 months' imprisonment.

II.

Freeman argues that the district court erred in admitting evidence regarding the insulin investment scheme; he claims the evidence was not intrinsic to the offenses enumerated in the indictment and also did not satisfy Federal Rules of Evidence 403 and 404(b). Freeman properly objected on this ground; we review the admission of the evidence for abuse of discretion. See United States v. Hicks, 389 F.3d 514, 522 (5th Cir.2004).

Extrinsic evidence is not admissible to prove propensity to commit the charged crime, see rule 404(a), but may be admissible for other purposes enumerated under rule 404(b). Intrinsic evidence is generally admissible, and its admission is not subject to rule 404(b). See United States v. Coleman, 78 F.3d 154, 156 (5th Cir.1996). Evidence of acts other than conduct related to the offense is intrinsic "when the evidence of the other act and the evidence of the crime charged are `inextricably intertwined' or both acts are part of a `single criminal episode' or the other acts were `necessary preliminaries' to the crime charged." United States v. Williams, 900 F.2d 823, 825 (5th Cir.1990) (internal citations omitted).²

The district court did not abuse its discretion in admitting the evidence regarding the insulin investment scheme, because it was intrinsic to the charged offense, involving the high yield investment scheme. The evidence regarding the insulin investors was inexorably intertwined with the charged scheme as "part of a single criminal episode," id. The uncharged offense arose out of the same series of transactions, because the funds were co-mingled and used to make lulling payments to investors from both schemes.³

III.

Freeman contends the insulin scheme evidence constituted an impermissible constructive amendment of his indictment, or alternatively a fatal variance. Although Freeman broadly outlines the elements of each claim, he does not specifically delineate how the introduction of the evidence modified an essential element of the offense so as to constitute a constructive amendment. Therefore, the claim of constructive amendment is waived for inadequate briefing; we proceed to consider only Freeman's claim that there was a fatal variance.

A variance occurs when the charging terms of an indictment remain unaltered but the evidence at trial proves facts other than those alleged. See United States v. Puig-Infante, 19 F.3d 929, 935 (5th Cir.1994). A variance is reviewed for harmless error; "[a] defendant cannot prevail on such a claim unless he demonstrates that the variance was material and prejudiced his substantial rights." United States v. Guidry, 406 F.3d 314, 322 (5th Cir.), cert. denied, ___ U.S. ___, 126 S.Ct. 190, 163 L.Ed.2d 198 (2005). "As long as the defendant receives notice and is not subject to the risk of double jeopardy, his substantial rights are not affected." Id. (quoting United States v. Mikolajczyk, 137 F.3d 237, 243 (5th Cir.1998)).

As we have said, the insulin investment scheme evidence was intrinsic to the charged conspiracy offense, because the schemes were inextricably intertwined. Because the insulin investment scheme evidence proved facts that were alleged in the indictment, there was no variance.

IV.

Freeman claims the district court erred in denying his motion for a mistrial made after the government had elicited testimony barred by a ruling of the district court. Freeman testified on direct examination that he assisted Sudeen in business ventures relating to a failed attempt to import shrimp from Guyana. On cross-examination, he denied altering an invoice to help Sudeen receive more money from a lawsuit filed against the shrimp supplier.

The government called a witness who had worked with the defendants when they were involved in importing shrimp; he testified that Sudeen wanted to strengthen the lawsuit and asked him to increase the amount of the original invoice. Freeman objected to this testimony on the ground that it was impermissibly offered to show his involvement in other bad acts unrelated to the indictment. The district court sustained the objection.

Despite the court's admonition, the government proceeded to show the witness an altered invoice and asked whether he had a belief as to who had altered the document and sent it in connection with the lawsuit. Freeman objected again and moved for a mistrial. The court granted the objection but denied the motion, and instructed the jury to disregard any specific reference to the shrimp material.

Freeman argues that he was entitled to a mistrial because he contends the curative instruction was insufficient to cure any prejudice. We review this claim for abuse of discretion. See United States v. Honer, 225 F.3d 549, 555 (5th Cir.2000). "[A] new trial is required only if there is a significant possibility that the prejudicial evidence had a substantial impact upon the jury verdict, viewed in light of the entire record." United States v. Paul, 142 F.3d 836, 844 (5th Cir.1998). "In determining whether a prosecutor's remarks constitute reversible error, [the court] consider[s] the magnitude of the prejudicial effect of the statements, the efficacy of any cautionary instruction, and the strength of the evidence of guilt." United States v. Robles-Vertiz, 155 F.3d 725, 731 (5th Cir.1998).

We dismiss Freeman's argument because he has failed to explain how the error would have a substantial prejudicial impact on the...