U.S. v. Herron, 86-1413

• Decision Date: 04 May 1987
• Docket Number: No. 86-1413,86-1413
• Citation: 816 F.2d 1036
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Claudy Ray HERRON and Johannes Faul, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1036

816 F.2d 1036

UNITED STATES of America, Plaintiff-Appellee, v. Claudy Ray HERRON and Johannes Faul, Defendants-Appellants.

No. 86-1413.

United States Court of Appeals, Fifth Circuit.

May 4, 1987.

Bruce Anton, Frank Jackson, Dallas, Tex., for Herron, Faul.

Terry K. Ray, Asst. U.S. Atty., Marvin Collins, U.S. Atty., Dallas, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before GARZA, WILLIAMS and GARWOOD, Circuit Judges.

GARZA, Circuit Judge:

Johannes Faul and Claudy Ray Herron, defendants-appellants, challenge the sufficiency of the evidence to support their wire fraud convictions for fabricating and participating in a scheme designed to facilitate a large cash deposit in an American bank without triggering a Currency Transaction Report (CTR). We also consider an issue raised sua sponte: whether the facts alleged in the indictment constitute a cognizable

violation of the wire fraud statute, 18 U.S.C. Sec. 1343. We find that the indictment did set forth acognizable wire fraud offense and the convictions entered below were supported by sufficient evidence.

BACKGROUND

Internal Revenue Service (IRS) informant Nathan Shay first approached a banker, David J. Fisher, in August of 1985 to inquire about depositing large sums of cash in Fisher's bank. Shay claimed he and a partner had invested in a high technology bean-sprout farm which was generating a substantial amount of cash. Shay told Fisher that he had just "endured" an audit by the IRS and now wanted to deposit the proceeds from the farming venture in a manner that would prevent the bank from filing a CTR with the U.S. Treasury Department. ¹ Fisher consulted with other bank officers and then declined to become involved. Fisher did inform Johannes Faul, known to Fisher as a financial consultant, about Shay's desire to make large deposits and avoid detection by the Treasury Department. Faul met with Shay and his partner "Thomas Kent" ² and proposed a number of plans wherein Faul would obtain a percentage of the total cash involved by arranging to have the currency deposited in a bank without a CTR being filed. This was what Shay and Kent wanted because, they said, they had not paid taxes on the approximately one million dollars they wanted to deposit in a bank account without "raising any red flags" to the IRS.

Faul first attempted to exchange $100,000 in cash for a cashier's check that could be deposited in Fisher's bank without a CTR being filed, but this arrangement fell through. Faul also suggested that Shay and Kent set up an offshore bank to "wash the money clean" without middlemen, but this plan was deemed unattractive. Faul then told Claudy Ray Herron about Shay's situation during a conversation held in late August, 1985. Later, on October 21, 1985, Herron placed a phone call from Faul's office in Dallas to Edward Steph in London, England. Steph was a boyhood friend of Herron's and a London financial consultant. Herron told Steph that there were some people in the United States who wanted to move millions of dollars overseas and establish a banking relationship there. Faul then discussed this matter over the telephone with Steph and John-Seager Green, who was Steph's partner and banker. Green indicated that the minimum amount had to be $500,000, not the $100,000 amount Faul had suggested, and he asked Faul if the funds were legitimate.

On October 23, 1985, Faul met with Kent to discuss the plan to launder the money through England. The money would go to London and then to Switzerland to be deposited in a Swiss bank; this bank would then wire the money back disguised as a loan or issue certified checks to be brought back and deposited in the United States. This plan met with general approval and was given the go-ahead. Herron was to be used to transport the money to London. Faul told Kent that he had previously discussed this with Herron, and Faul later testified that he probably informed Herron that Shay and Kent had paid no taxes on the money.

Steph and Green arrived in Dallas on November 3, 1985, travelling on tickets prepaid by "expense account" money Faul had

obtained from Kent. Since Fisher had decided not to open an account for Shay and Kent, Faul introduced Kent to Gary Tipton, another Texas banker, in an effort to provide Kent and Shay with a place to deposit their overseas cashier's checks. Faul advised Kent not to tell Tipton about the laundering plan; instead, Kent should make Tipton think the money had originated from overseas instead of being transferred there from the United States. If Tipton knew that the wire transfer or certified checks were generated from money originally within the United States, he, like Fisher, would have recognized the scheme as one attempting to avoid detection by the IRS. Kent did as instructed by Faul and made ambiguous representations about the origin of the funds he wanted to deposit. Tipton agreed to accept Kent as a client, and Kent deposited $1,000 in Tipton's bank on November 6, 1985, to open up the account into which the overseas checks ultimately would be deposited. On the same day, Faul asked Kent to sign a letter drafted by Faul which set forth an "agreement" between the two. Faul told Kent it was "no big deal"--he indicated that he needed the letter to satisfy Steph and Green, who had voiced concern over the propriety of the proposed transaction. ³

Thomas Kent

Plans were now being finalized; the one change was that Green would carry the money instead of Herron. Faul assured Green that the transaction was legal and showed him the letter endorsed by Kent. At a Dallas motel, Kent gave Green a suitcase containing $500,000 in cash. It is uncontroverted that Faul specifically told Green to be sure to declare the money at the U.S. Customs gate when departing the country. Kent accompanied Green to the airport and watched him check the suitcase in at an airlines counter. Green did not declare the money even though Faul had instructed him to do so. After Kent and Green waited in the passengers' lounge for some time, they went through an adjoining jetway to board the aircraft. At this point a customs agent approached the two men and arrested Green.

On November 21, 1985, Fisher, Faul, Herron, Steph and Green were indicted for various violations of federal law. Through a superseding indictment, charges were brought only against Fisher, Faul and Herron, and dropped as to Steph and Green, both of whom were called to testify as government witnesses. Count 1 charged Fisher, Faul and Herron with conspiring to defraud the government by impeding and defeating Treasury Department efforts to collect CTRs. Count 3 charged Herron and Counts 2-5 charged Faul with wire fraud. Count 6 charged Fisher with a misprision of a felony and Faul with aiding and abetting him.

Following a jury trial, Fisher was acquitted of all charges. Herron was acquitted of the conspiracy charge but was convicted of wire fraud. Faul was found guilty on Counts 1, 3, 4, 5 and 6, but was found not

guilty on Count 2. Faul's subsequent motion for a judgment of acquittal was granted as to Count 6 but denied as to the remaining counts. Faul and Herron filed a timely appeal.

DISCUSSION

We are concerned here with two legal issues, one raised by the appellants and one raised sua sponte by this Court: 1) whether the indictment alleges a cognizable violation of the wire fraud statute, 18 U.S.C. Sec. 1343; and, if so, 2) whether there is sufficient evidence to convict Johannes Faul and Claudy Ray Herron of wire fraud.

The Theory of the Indictment

The government's theory of wire fraud was that Faul and Herron schemed to defraud the Treasury Department and IRS out of information contained on the CTR forms. Only two previous cases, United States v. Richter, 610 F.Supp. 480 (N.D.Ill.1985), aff'd sub nom on other grounds, United States v. Mangovski, 785 F.2d 312 (7th Cir.), cert. denied, --- U.S. ----, 107 S.Ct. 191, 93 L.Ed.2d 124 (1986), and United States v. Gimbel, 632 F.Supp. 748 (E.D.Wis.1985), appeal pending, No. 86-1808 (7th Cir.1986), have considered whether a money laundering scheme designed to prevent the filing of CTRs defrauds the government in a manner prosecutable under the wire fraud statute. ⁴

Our analysis begins with the statute. Title 18, U.S.C. Sec. 1343 provides:

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, radio or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined not more than $1,000 or imprisoned not more than five (5) years, or both.

This statute contains two essential elements: (1) a scheme to defraud (2) using, or causing the use of, wire communications in furtherance of the scheme. Pereira v. United States, 347 U.S. 1, 8, 74 S.Ct. 358, 362, 98 L.Ed. 435 (1954); United States v. Bruno, 809 F.2d 1097, 1104 (5th Cir.1987); United States v. Gordon, 780 F.2d 1165, 1171 (5th Cir.1986). Cases construing 18 U.S.C. Sec. 1343 have recognized several types of fraud. One category includes schemes which intend the deprivation of tangible economic interests, i.e., money or property. United States v. Hammond, 598 F.2d 1008 (5th Cir.1979); United States v. Becker, 569 F.2d 951 (5th Cir.1978); United States v. Lindsey, 736 F.2d 433, 436 (7th Cir.1984). Another category concerns schemes to deprive an individual or entity of intangible rights or interests, otherwise known as "fiduciary fraud" or "intangible rights fraud." Bruno, supra, 809 F.2d at 1104-06 (public officials' fiduciary duty to citizens); United States v. Alexander, 741 F.2d 962, 964 (7th Cir.1984); U.S. v. Margiotta, 688 F.2d 108, 121 (2d Cir.1982), cert. denied, 461 U.S. 913...