U.S. v. Kuna

• Decision Date: 25 April 1985
• Docket Number: No. 84-2328,84-2328
• Citation: 760 F.2d 813
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Steven A. KUNA, Jr., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 813

760 F.2d 813

UNITED STATES of America, Plaintiff-Appellee, v. Steven A. KUNA, Jr., Defendant-Appellant.

No. 84-2328.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 25, 1985.

Decided April 25, 1985.

Lawrence Rosenthal, Asst. U.S. Atty., Dan K. Webb, U.S. Atty., Chicago, Ill., for plaintiff-appellee.

Jeffrey R. Liebman, Arvey, Hodes, Costello & Burman, Chicago, Ill., for defendant-appellant.

Before BAUER and WOOD, Circuit Judges, and DOYLE, Senior District Judge. ^*

BAUER, Circuit Judge.

In June 1984, after a bench trial in the Northern District of Illinois, the district court convicted Steven A. Kuna of five counts of mail fraud in violation of 18 U.S.C. Sec. 1341 and one count of making a false statement to the Securities & Exchange Commission (SEC) in violation of 18 U.S.C. Sec. 1001. Kuna appeals, arguing that during trial the district court constructively amended the mail fraud counts in violation of the fifth and sixth amendments, that the evidence was insufficient to support either the mail fraud counts or the false statement count, and that the district court improperly imposed restitution as a condition of probation on the false statement count. We affirm Kuna's conviction, but vacate the condition of probation requiring restitution and remand to the district court for resentencing.

I.

The facts, as shown by the government at trial, reveal that from July 1979 through December 1979, Kuna and John DeLeeuw solicited Michigan residents to invest in Steve Kuna & Associates (Associates), a limited partnership which was to be formed to engage in business as a "market-maker/specialist" on the Chicago Board Options Exchange (CBOE). Kuna & DeLeeuw were the general partners of Associates; Kuna was the managing general partner. Eventually over thirty investors invested approximately $1.3 million in Associates. The $1.3 million was placed in an escrow account at the Michigan National Bank (MNB), with which Kuna had executed an escrow agreement before soliciting investors. The terms of the escrow agreement provided that the offering proceeds were to be held in escrow until the conditions listed on the offering memorandum were satisfied. The offering memorandum had provided that the offering proceeds would be held in escrow until at least $600,000 had been deposited, until Associates was registered as a broker-dealer with the SEC and the Michigan Securities Bureau (MSB), and until Associates was approved for CBOE membership. The offering memorandum did describe the investment as involving a "high degree of risk," but it also stated an intention to use trading strategies that would minimize the risk of loss. In his oral representations to potential investors, Kuna described the investment as a conservative one.

In December 1979, MNB transferred the offering proceeds to Continental Bank in Chicago, following receipt of a letter from MSB granting permission to release the funds. At the time, however, Associates had not applied for registration with the SEC nor had it applied for membership with the CBOE. On December 19, 1979, Kuna applied to the CBOE stating that he was a sole proprietor and would be trading with his own funds. He entered into an agreement to clear his trades with First Options of Chicago, Inc. in his own name on January 25, 1980. On January 30, 1980, he began trading on the CBOE in his own name but with Associates's funds. On February 19, 1980, Kuna applied for registration with the SEC as a broker-dealer stating that he would be trading as a sole proprietor with his own funds.

During the time that Kuna was trading on the CBOE with Associates's funds, he provided his limited partners with monthly reports which included a figure representing the monthly net liquidating balances in Associates' account. These monthly reports were mailed out on the letterhead of Doherty Zable & Co., a Chicago accounting firm. The figures supplied to Doherty Zable by Kuna were false. Kuna stipulated at trial to the actual net liquidating balances in the First Options account. ¹

In July 1980, the CBOE became aware that Kuna was trading with partnership funds and that he had failed to disclose on his CBOE application the fact that he had previously been sanctioned by the National Association of Securities Dealers. Kuna then applied for CBOE membership on behalf of Associates on July 31, 1980. The CBOE permitted Kuna to resume trading only if he advised his investors of his previous failure to properly obtain CBOE membership. Kuna sent a letter telling investors that Associates had failed to comply with certain technical registration problems, but that the problem had been rectified.

Kuna resumed trading in October 1980, and proceeded to lose all of Associates' money in high risk trading. On November 17, 1980, First Options froze Associates's account and proceeded to liquidate it; Kuna informed DeLeeuw that he had lost all the partnership money and admitted to DeLeeuw and to Associates' attorney and accountant that he had supplied the partners with false financial information.

During November 1983, the grand jury returned a fifteen count indictment against Kuna. After a bench trial, the district court acquitted Kuna on counts one through five, which charged mail fraud involving the mailings of the monthly reports for March, May, June and July 1980. The court convicted Kuna on counts six through ten, which charged mail fraud involving the mailings of the monthly reports for August, September and October, 1980. The court also convicted Kuna on count fifteen, involving the false statement to the SEC. The court sentenced Kuna to two years imprisonment on counts six through ten, the sentences to run concurrently. On count fifteen the court suspended imposition of sentence and placed Kuna on five years' probation with the condition that Kuna make restitution to the partners of $1.2 million, less any accounts paid to them. The court also ordered that Kuna not practice as a broker-dealer.

II.

The defendant's primary argument is that at trial the district court constructively amended the indictment to charge the defendant with a scheme he had not been charged with in the indictment, thereby depriving the defendant of his fifth and sixth amendment rights to know the charge against him. The defendant relies on the fact that at trial the court stated "I think that if the government had their choice right now, they would reindict this crime and charge a George -type fraud, a deprivation of the fiduciary obligations owed to the limited partners .... But they didn't charge it." Tr. 563. The defendant also highlights the fact that when the court ruled on the case, the court stated: "I have narrowed the scheme charged by the government in a significant way." Tr. of Ruling 5.

The ten mail fraud counts of defendant's indictment charge that the defendant, in a scheme to "defraud and to obtain money and property by false and fraudulent pretenses and representations, and attempting so to do, did knowingly cause to be placed into the United States mail" envelopes to the various partners of Associates containing total equity reports for various months. Count one details the history of the scheme. The district court found that the government had proved a scheme beginning in August 1980, rather than in February 1980, and rejected the government's theory that Kuna had intended at the outset to defraud his investors.

The defendant argues that the district court's actions constitute a constructive amendment of the indictment. Defendant asserts that the indictment charged a scheme to obtain the investors' money by false pretenses but that the government proved a scheme to prevent the discovery of the false pretenses. The government argues that at most there existed a variance between the scheme alleged in the indictment, which was broad, and the scheme proven at trial, which was narrower. The government argues further that the variance was not fatal because it did not actually prejudice the defendant: Kuna was able to prepare a defense and was able to ensure that he will not again be prosecuted for the same offense because of the variance in this case. The indictment charged Kuna with a scheme embracing the mailings of the false reports which was the scheme the district court found to have been proven. Count one of the indictment alleged that Kuna "would and did convert assets of Associates to his own use and benefit ... and would and did conceal the financial condition of Associates by submitting and causing the submission of false information to the partners of associates." Indictment, p 4. The indictment also charged that Kuna "would and did cause financial reports to be sent to the partners of Associates from the office of Doherty Zable in Chicago. The false reports misrepresented the dollar value of Associates' assets at First Options." Indictment, p 14. Finally, the indictment charged that as of "September, 1980, defendant ... did not disclose to the partners of Associates that monthly total equity reports which he had caused to be sent them did not accurately state the financial condition of Associates." p 18.

It does not surprise us that in construing the same set of facts the defendant cries "amendment," while the government murmurs "variance." While there exists only a "rather shadowy distinction" between amendments and variances, C. WRIGHT, FED.PRAC. & PROX. CRIMINAL Sec. 516 (1982), a finding of one rather than the other achieves a crystal clear difference in result: "[a]mendments have been held to be prejudicial per se, while variances may be subject to the harmless error rule." United States v. Beeler, 587 F.2d 340, 342 (6th Cir.1978). Despite the defendant's strenuous efforts to depict this as an amendment case, we think there was only a variance of the indictment at trial, and that this variance was harmless to the defendant.

In United States v. Miller, --- U.S. ----, 105 S.Ct. 1811, 85 L.Ed.2d...