U.S. v. Harvey, 07-4310.

CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)
Citation532 F.3d 326
Docket NumberNo. 07-4311.,No. 07-4310.,07-4310.,07-4311.
PartiesUNITED STATES of America, Plaintiff-Appellee, v. Kenneth N. HARVEY, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. Michael G. Kronstein, Defendant-Appellant.
Decision Date14 July 2008
532 F.3d 326
UNITED STATES of America, Plaintiff-Appellee,
Kenneth N. HARVEY, Defendant-Appellant.

[532 F.3d 327]

United States of America, Plaintiff-Appellee,
Michael G. Kronstein, Defendant-Appellant.
No. 07-4310.
No. 07-4311.
United States Court of Appeals, Fourth Circuit.
Argued: March 19, 2008.
Decided: July 14, 2008.

[532 F.3d 330]

ARGUED: Christopher M. Choate, McNabb Associates, P.C., Houston, Texas; Franklin B. Reynolds, Jr., Washington, Virginia, for Appellants. M. Kendall Day, Public Integrity Section, United States Department of Justice, Washington, D.C., for Appellee. ON BRIEF: William M. Welch, II, Chief, Public Integrity Section, United States Department of Justice, Washington, D.C., for Appellee.

[532 F.3d 331]

Before WILLIAMS, Chief Judge, WILKINSON, Circuit Judge, and IRENE M. KEELEY, United States District Judge for the Northern District of West Virginia, sitting by designation.

Affirmed in part, vacated in part, and remanded by published opinion. Judge KEELEY wrote the opinion, in which Chief Judge WILLIAMS and Judge WILKINSON joined.


KEELEY, District Judge:

Following their convictions of two counts of honest services wire fraud and one count each of bribery, Appellants Kenneth Harvey ("Harvey") and Michael Kronstein ("Kronstein") (from time to time "Appellants"), appeal their convictions and sentences, including the trial court's orders of restitution. We affirm their convictions and sentences of incarceration. Because the district court's restitution orders were not based on findings of actual loss, however, we vacate those orders and remand for further proceedings as discussed below.


Harvey, a civilian employee with U.S. Army Intelligence and Security Command ("INSCOM"), engineered the award of a noncompetitive, "sole-source" contract to Program Contract Services, Inc. ("PCS"), a closely-held corporation wholly owned and controlled by Kronstein, who had been a close friend of Harvey's for over twenty years. At trial, the government established that, in justifying the sole-source award, Harvey made numerous false statements to contracting officials at INSCOM regarding PCS's ability to handle the job. Specifically, Harvey represented to INSCOM that PCS had highly specialized personnel available to commence work immediately when, in fact, PCS lacked the minimum number of employees the contract required. He further led INSCOM to believe that no other firm was qualified to perform the contract. At trial, however, the government established that there were approximately one hundred other qualified companies in the immediate area. Based on Harvey's misleading representations, INSCOM awarded the contract to PCS in January 1999.

As the Contracting Officer Representative on the PCS contract, Harvey oversaw performance of the contract through July 1999, after which he recused himself, citing a possible conflict of interest due to a business relationship with a PCS employee named Peckham. According to the evidence at trial, however, even after recusing himself, Harvey continued to be involved in the contract by recommending modifications and "add-ons," and by approving payments to PCS.

During the first year of services, INSCOM paid PCS over $1,250,000.00. It then renewed the contract in 2000 and 2001, pursuant to a contractual renewal option. The evidence at trial was inconclusive as to what role, if any, Harvey may have played in obtaining those renewals. Ultimately, PCS received approximately $4,795,265.79 in payments from INSCOM, which were electronically wired to a PCS bank account in Front Royal, Virginia. The contract designated an eight percent profit margin for PCS.

Beginning in the fall of 1999, a series of monetary transactions occurred between businesses owned by Kronstein, including PCS and a convenience store called Foodway Supermarket, and businesses owned by Harvey, including several tobacco outlets and a franchise of the Johnny Appleseed restaurant chain. Kronstein and Harvey never exchanged money directly. Instead, they utilized employees and family

532 F.3d 332

members as intermediaries, most frequently their wives, Karla Kronstein and Samra Harvey. At trial, the government provided specific examples of at least seven transactions in which money was funneled from PCS to Harvey's businesses, each of which was designed to obscure the money trail. This evidence supported the government's theory at trial that the payments from Kronstein to Harvey were bribes made in remuneration for the award of the PCS contract.

In one such example, on October 5, 1999, Kronstein wrote a check for $7,500 from a PCS account to Foodway Supermarket. An employee of Foodway then wrote a $7,500 check from Foodway to Samra Harvey, who deposited the check into a Johnny Appleseed account. Other examples abound. On January 5, 2000, Kronstein wrote a $15,000 check from PCS to Foodway. On the same day, a Foodway employee wrote a $5,000 check from Foodway to Samra Harvey. In still another example, on May 8, 2000, Kronstein hired a plumber to perform maintenance work at Harvey's Johnny Appleseed restaurant. Several days later, a Foodway employee wrote a check for $2,136 from Foodway to the plumber to pay for the work done at Johnny Appleseed. And, on February 17, 2001, Kronstein endorsed a check made payable to PCS in the amount of $47,005.50 over to Karla Kronstein's father. On the same day he deposited the check into his personal account, Mrs. Kronstein's father withdrew $8,578.91 from that account in the form of a cashier's check, and delivered it to Samra Harvey, who used it to pay an overdue electric bill for Johnny Appleseed.

Ultimately, the evidence at trial established that, from the fall of 1999 through the spring of 2001, a total of $43,000 was funneled from PCS to Harvey's businesses. The evidence further established that Harvey concealed these payments from INSCOM, despite requirements that he disclose them. Finally, in May 2001, Harvey resigned from INSCOM, telling his supervisors that he was taking a position with a company called AAR Cadillac. Although he worked with AAR Cadillac, in truth Harvey was actually employed by PCS. Had his supervisor at INSCOM known of Harvey's employment with PCS, he testified that he would have suspended Harvey immediately and referred the matter to INSCOM's legal department for investigation.

In April 2006, the government indicted Harvey and Kronstein on two counts of honest services wire fraud, alleging that, between November 1998 and March 2002, they aided and abetted each other in a scheme to defraud the United States and the Army in violation of 18 U.S.C. §§ 1343, 1346 and 2. The indictment further named Harvey in one count of bribery in violation of 18 U.S.C. § 201(b)(2)(A), which applies to public officials who accept bribes, and Kronstein in one count of bribery in violation of 18 U.S.C. § 201(b)(1)(A), which applies to those who bribe public officials.

At a jury trial in December 2006, the government presented evidence that Harvey and Kronstein defrauded the government by forming PCS for the sole objective of obtaining the INSCOM contract. In exchange for being awarded the contract, Kronstein funneled earnings from PCS to Harvey via various family members and employees, primarily in the form of financial assistance to Johnny Appleseed, Harvey's restaurant. While admitting that Kronstein and his wife had given Harvey money to keep the restaurant afloat, the defendants characterized those transactions as mere business loans between old friends.

Following their convictions on all counts, on March 6, 2007 the district court sentenced

532 F.3d 333

Harvey to 72 months of incarceration and Kronstein to 70 months. It also ordered each, jointly and severally, to pay $383,621.00 in restitution to INSCOM.

Harvey and Kronstein appeal their convictions, sentences and the orders of restitution.


Initially, Appellants contend that the government presented insufficient evidence for a jury to convict them of honest services wire fraud and bribery. In reviewing the sufficiency of the evidence in the context of these convictions, we ask "whether, viewing the evidence in the light most favorable to the government, any rational trier of facts could have found the defendant guilty beyond a reasonable doubt." U.S. v. Tresvant, 677 F.2d 1018, 1021 (4th Cir.1982) (citing U.S. v. Shaver, 651 F.2d 236, 238 (4th Cir.1981)). We consider both circumstantial and direct evidence, and allow the government all reasonable inferences that could be drawn in its favor. Id. "Where there are conflicts in the testimony, it is for the jury and not the appellate court to weigh the evidence and judge the credibility of the witnesses." Id. at 1021-22 (citing U.S. v. Fisher, 484 F.2d 868, 869-70 (4th Cir.1973), cert. denied, 415 U.S. 924, 94 S.Ct. 1428, 39 L.Ed.2d 480 (1974)).


Harvey and Kronstein were convicted under 18 U.S.C. §§ 1343 and 1346. Section 1343 provides, in relevant part:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire ... in interstate or foreign commerce, any writings ... for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years or both.

Section 1346 clarifies that "the term `scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services."

The "intangible right of honest services" refers to the public's right to a government official's "honest, faithful, and disinterested services." U.S. v. Mandel, 591 F.2d 1347, 1362 (4th Cir.1979), aff'd in relevant part, 602 F.2d 653 (1979) (en banc), cert. denied, 445 U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236 (1980). When a government official accepts a bribe, he undermines...

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