U.S. v. Knox, 96-50340
| Decision Date | 01 May 1997 |
| Docket Number | No. 96-50340,96-50340 |
| Citation | 112 F.3d 802 |
| Parties | , 47 Fed. R. Evid. Serv. 59 UNITED STATES of America, Plaintiff-Appellee, v. Shannon KNOX; David Brace, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Richard L. Durbin, Jr., Asst. U.S. Attorney, San Antonio, TX, for U.S.
M. Carolyn Fuentes, Federal Public Defender's Office, San Antonio, TX, for defendant-appellant Shannon Knox.
Roy R. Barrera, Sr., Nicholas & Barrera, San Antonio, TX, for defendant-appellant David Brace.
Appeals from the United States District Court for the Western District of Texas.
Before POLITZ, Chief Judge, DeMOSS, Circuit Judge, and JUSTICE, 1 District Judge.
A preacher and his financial advisor were caught in a government sting designed to snare money launderers. Both raised entrapment at trial, but the jury rejected the defense and they were convicted of laundering drug proceeds. Because the government failed to prove that the preacher was likely to engage in money laundering absent the government's conduct, we hold that he was entrapped as a matter of law.
Defendant/Appellant Reverend David Brace was pastor of the Faith Metro Church in Wichita, Kansas. Faith Metro had financial difficulties and, by late 1993, was heavily in debt. The church had to pay over $60,000 per month in debt service and needed to raise $10 million to pay its bondholders and other creditors. In an effort to raise the money, Brace hired a Houston financial consulting firm, First Diversified Financial Services, in early 1994. Brace met with Mike Clark, the president of First Diversified, and Clark's assistant, 24-year-old Defendant/Appellant Shannon Knox. Brace paid First Diversified $75,000 to prepare a prospectus for a $10.8 million limited private offering by Faith Metro.
Under the terms of the prospectus, Faith Metro offered 432 units of senior secured notes bearing 12.5% interest. The units were $25,000 each, with a minimum subscription of two units ($50,000). If all units were sold, $10.8 million would be raised, of which $9.375 million went to the church. Payment on the notes would begin in September 1995 with quarterly payments of $337,500. Thus, interest of $112,500 accrued monthly on the notes. The church could begin repaying the principal any time after December 31, 1996, and the notes matured on December 31, 1999. Thus, under the terms of the prospectus, Faith Metro would have use of $9.375 million for up to five years, accruing $112,500 per month in interest (paid quarterly), with the principal of $10.8 million due for repayment on December 31, 1999.
The first printing of the prospectus was on September 1, 1994. 2 Knox sent the prospectus to approximately 40 broker dealers, and received responses from two. The second printing of the prospectus was on December 1, 1994. Copies were sent to 32 or 33 broker dealers, and Knox received responses from three. None of these responses proved fruitful and, ultimately, no money was raised through the private offering.
In October or November 1994, Knox met Roy Clarkston, who worked for the Brazos Valley Small Business Development Center. Clarkston had several clients in the Bryan-College Station area interested in private placements, so Clark, who was also at the meeting, gave Clarkston a copy of the Faith Metro prospectus. In mid to late February 1995, Clarkston told Knox that he had several potential investors in San Antonio. Clarkston told Knox that he knew them through his business dealings in South and Central America. Brace was not present at any of these meetings and did not meet Clarkston until March 24, 1995.
At the same time Clark and Knox were seeking financing for Faith Metro, undercover federal agents were running an elaborate sting operation in San Antonio designed to catch money launderers. Beginning in October 1994, undercover agents from the United States Drug Enforcement Agency, the Internal In early March 1995, Clarkston told the undercover agents that he had a "major big time guy," a church group, anxious to do business. At this time the undercover agents had no knowledge of Brace or Knox. On March 17, 1995, Clarkston met with the undercover agents in San Antonio and explained that he knew a minister who was interested in laundering cocaine funds, and that the preacher's representative, his financial advisor, was in town and anxious to meet with them. The undercover agents explained to Clarkston that they did not want innocent people involved in the business, and asked him if the minister knew they were cocaine traffickers and that the money would be cocaine proceeds. Clarkston replied that the preacher and the other person knew and did not care. 3
Revenue Service, and United States Customs were involved in the operation. As part of the sting operation, undercover agents investigated Clarkston, who they suspected was a money launderer. The undercover agents told Clarkston that they were seeking to launder cocaine proceeds and requested his assistance. Clarkston suggested several long-term laundering schemes, including investing in a cattle business and a sports bar, but the undercover agents rejected the ideas, saying they were interested in short-term investments.
Later that day, Knox met with Clarkston and the undercover agents. Knox said that he was representing Brace and that he was there to negotiate a deal. Early in the conversation, the undercover agents told Knox that the money was from drug proceeds; Knox said that this was not a problem. 4 Knox showed the prospectus to the undercover agents, who indicated that they might be able to lend Brace $3 million.
On March 24, the undercover agents met Brace for the first time at a meeting also attended by Knox and Clarkston. The undercover agents told Brace that they would be able to loan him the entire $10 million, not just the $3 million previously discussed. To make sure that Brace and Knox could handle such a large sum, the undercover agents told them that they would have a practice transfer of $100,000, a condition to which Brace readily agreed. The undercover agents then informed Brace that the money came from the sale of cocaine, and that he was being asked to launder it. 5 Brace stated that he was not troubled by the money's source. 6 At the end of the meeting, Brace said he was ready to start the test money, but the undercover agents told him to have patience.
Brace and Clarkston met with the undercover agents on April 26. Before the meeting, Knox told the undercover agents that he and Brace had already "contrived a system" to quickly deposit and transfer the first $100,000. At the meeting, the undercover agents gave Brace an account number for an undercover account in a London bank where Brace was to wire the $100,000 in the first test. Brace was given $100,000 in cash On May 5, the undercover agents again met with Brace in San Antonio. The undercover agents suggested another $100,000 test, this time to a domestic account controlled by the undercover agents. Brace agreed to this, stating that to conceal the source of the money, he would carry it on his books as a loan. The undercover agents again gave Brace $100,000 in cash. As he counted it, he commented, "I have a feeling that neither one of you, have ever come across a pastor like me." Brace took the money and wired it to the account.
which he wired to the English bank the next week.
Knox called one of the undercover agents on May 10. During the conversation, Knox mentioned that he "kn[e]w a couple of people that deserve a bullet," and inquired, "can we work on that." Knox then stated that "I got a couple of problems, that I'm trying to alleviate but if, uh they don't alleviate I, uh I might need some services of some kind," referring to having someone killed. 7
On May 12, the undercover agents met with Brace, Clarkston and Knox, and delivered the cash for another test, this time $150,000. Four days later Brace and Knox wired the money to the English bank. The undercover agents told Brace and Knox that they would soon be ready to transfer the entire $10 million.
On June 21, the final meeting took place. The undercover agents met Brace and Knox in a San Antonio parking lot and gave them three canvas bags purportedly containing $10 million. The bags actually contained an amount of newspaper clippings approximating the weight of $10 million in cash. Brace and Knox were arrested as they left the parking lot.
Brace and Knox were charged with money laundering in a four count indictment. 8 In Count One, Brace and Knox were charged with conspiring to launder money in violation of 18 U.S.C. § 1956(h). In Count Two, Brace was charged with laundering $100,000, and aiding and abetting Clarkston, in violation of 18 U.S.C. §§ 2 and 1956(a)(2)(B)(i). In Count Three, Brace was charged with laundering $100,000 in violation of 18 U.S.C. § 1956(a)(3)(B). In Count Four, Brace and Knox were charged with laundering $150,000, and aiding and abetting each other, in violation of 18 U.S.C. §§ 2 and 1956(a)(2)(B)(i). After a jury trial, Brace and Knox were convicted on all counts and sentenced to 175 and 97 month imprisonment, respectively.
Brace argues that, as a matter of law, he was entrapped. 9 "Where the Government has induced an individual to break the law, and the defense of entrapment is at issue, ... the prosecution must prove beyond reasonable doubt that the defendant was disposed to commit the criminal act prior to first being approached by Government agents." Jacobson v. United States, 503 U.S. 540, 548-49, 112 S.Ct. 1535, 1540, 118 L.Ed.2d 174 (1992). The government concedes that Brace was induced; therefore, the evidence must prove beyond reasonable doubt that Brace was predisposed to launder money. Because this is a sufficiency review, we will reverse only if no rational juror could have found predisposition beyond a reasonable doubt. See United States...
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