U.S. v. Parker, 86-3383

Decision Date15 March 1988
Docket NumberNo. 86-3383,86-3383
Citation839 F.2d 1473
PartiesUNITED STATES of America, Plaintiff-Appellee, v. David PARKER, Brenda Brown, Ingrid Anderson, Charles Gruber and Lonnie O'Shea Kilpatrick, Defendants-Appellants.
CourtU.S. Court of Appeals — Eleventh Circuit

Bennie Lazzara, Jr., Tampa, Fla., for Parker and Gruber.

Dillinger & Swisher, Robert H. Dillinger, St. Petersburg, Fla., for Brown.

Winkles, Trombley & Kynes, Stuart C. Markman, Tampa, Fla., for Anderson.

Barry A. Cohen, Rochelle A. Reback, Tampa, Fla., for Kilpatrick.

Judy Hoyer, State Atty.'s Office, Tampa, Fla., Maury S. Epner, U.S. Dept. of Justice, Washington, D.C., for U.S.

Appeal from the United States District Court for the Middle District of Florida.

Before JOHNSON and EDMONDSON, Circuit Judges, and HOFFMAN *, Senior District Judge.

WALTER E. HOFFMAN, Senior District Judge:

Appellants were convicted of conspiracy and mail fraud under 18 U.S.C. section 1341. Appellant Lonnie O'Shea Kilpatrick is president and sole owner of Government Securities, Inc. (GIC), a licensed securities broker in Florida primarily dealing in government insured investments. In an effort to generate cash needed to meet the company's financial obligations, Kilpatrick devised a plan to sell short-term investments backed by long-term bonds. At a company sales meeting, Kilpatrick explained the investment to his brokers as a ninety-day instrument yielding 10 1/4%, collateralized by $10 to $12 million in government bonds. The brokers successfully sold the instruments, representing to their clients that the investments were backed by the federal government. After each sale the broker mailed to the customer a sales confirmation along with a brochure explaining the investment.

Kilpatrick's plan turned out to be fraudulent. Instead of $10 to $12 million, as represented by Kilpatrick, GIC had less than $500,000 in bonds to back over $6 million worth of ninety-day instruments. Consequently, the government closed GIC and indicted Kilpatrick along with his four top salespersons on conspiracy and mail fraud counts. After a week-long trial, a jury returned guilty verdicts against each appellant on both the conspiracy and mail fraud charges. This appeal challenges 1) the sufficiency of the evidence adduced at trial to sustain the convictions, 2) the district court's refusal to instruct the jury that the appellants' good faith reliance on the advice of counsel could negate the intent to defraud, and 3) the district court's failure to instruct the jury, sua sponte, that certain extrinsic act evidence should be considered for a limited purpose. After careful review of the record below, we find the evidence insufficient to uphold the convictions of appellants on the conspiracy count, insufficient to uphold the convictions of appellant salespersons on the fraud counts, but sufficient to uphold appellant Kilpatrick's convictions on the fraud counts. Accordingly, we affirm in part and reverse in part.

FACTS

Appellants Brenda Brown, Charles Gruber, Ingrid Anderson and David Parker worked as securities brokers for GIC, a licensed securities dealer in Florida, wholly owned by its president, the appellant Lonnie Kilpatrick. GIC primarily sold government backed securities such as Ginnie Maes (securities backed by Government National Mortgage Association) and Freddie Macs (securities backed by Federal Home Loan Mortgage Corporation). In addition, GIC sold zero coupon bonds, also known as CATs, Tigers and TBRs, depending upon the brokerage house offering the bonds. Zero coupon bonds are treasury bonds that have had the interest coupons clipped by the purchaser of the bonds. This purchaser sells the remaining bond for about 10% of its face value. The deep discount reflects the many years, usually fifteen to thirty, that remain until the bond may be redeemed at face value. The obvious disadvantage of investing in zero coupon bonds as well as Ginnie Maes and Freddie Macs is the long period between initial investment and maturity. 1 The advantage of these long-term investments is the security afforded by United States Government backing.

Recognizing a market for short-term investments, GIC set up the "Southern Bond" and "Delmar" trusts. Investments in these trusts provided a return in six months. The trusts were backed by Ginnie Maes, Freddie Macs, zero coupon bonds and income producing property. In early 1985, Florida's Division of Securities determined that GIC's offering of the Southern Bond and Delmar trusts was in reality the sale of unregistered securities. Since GIC was not licensed to sell such investments, the Division of Securities entered an administrative order against the firm threatening to revoke its registration. After negotiations with Florida's Comptroller of the Currency, GIC, through Kilpatrick, entered into a stipulation and consent order in which the state agreed to drop the charges and GIC agreed to liquidate the dubious trusts and repay its customers. The schedule of payments in the consent order required GIC to pay $10.3 million to its customers between July 1 and November 1, 1985. Unfortunately, the money invested in the trusts was more than the trusts were worth. 2 Consequently, GIC found itself with a cash flow problem when it began liquidating the trusts and trying to repay customers.

On or about June 14, 1985, at a manager's meeting in Tampa, Kilpatrick allegedly "dreamed up" a plan to increase cash flow for the company and thus meet the financial burden imposed by the consent decree. The plan involved selling short-term investments Kilpatrick labeled "zero coupon treasury instruments" (ZCTIs). Kilpatrick explained that GIC had $10 to $12 million worth of zero coupon bonds in the company vault in Olive Branch, Mississippi. He instructed his sales staff, including appellants Brown, Gruber, Anderson and Parker to sell the ZCTIs as ninety-day investments. Ninety days after sale, GIC would repurchase the instrument, giving the customer a 10 1/4% yield. Kilpatrick explained that the investment instruments were collateralized by the zero coupon bonds in Olive Branch. He specifically instructed the brokers to represent that the 10 1/4% was "earnings" and not "interest." He also made clear that the brokers were selling "instruments" and not the actual zero coupon bonds. During the meeting, Kilpatrick allegedly spoke to the company attorney by phone who informed Kilpatrick that the proposed instrument was not an unregistered security and, therefore, GIC could market the instrument legally. The record reveals nothing more discussed at the manager's meeting concerning ZCTIs. From the time of the manager's meeting until the state closed GIC in October of 1985, the appellant salespersons sold over $6 million worth of ZCTIs, mostly to repeat customers interested in low risk government investments. The brokers told the customers that ZCTIs were safe since they were "government backed."

In September of 1985, in an effort to assure compliance with the consent order, the state sent an agent to GIC's Tampa headquarters. While in Tampa, the agent first learned of GIC's offering of the ZCTIs. Kilpatrick explained to the agent that the instruments were backed by $10 to $12 million worth of zero coupon bonds which were kept in the company vault in Olive Branch. On September 23 and 24, the state conducted simultaneous investigations of GIC's Tampa and Olive Branch offices. Instead of finding $10 to $12 million in bonds, as represented by Kilpatrick, state agents discovered a mere $405,000 worth of bonds in Olive Branch to collateralize several million dollars worth of ZCTIs. The state immediately closed GIC, which subsequently filed bankruptcy.

Shortly after the state closed GIC, the federal government arrested appellants Kilpatrick, Brown, Gruber, Anderson and Parker, charging them with conspiracy to commit mail fraud and substantive mail fraud under 18 U.S.C. section 1341. 3 Count I of the indictment alleged that the appellants knowingly and willfully conspired to commit mail fraud. Counts II through IX charged that the appellants devised a scheme to defraud customers of GIC by inducing the customers, through false representations, to invest in the ZCTIs. The indictment charged that the appellants knowingly used the United States Mail to accomplish the scheme.

After a week-long trial, the jury returned guilty verdicts against each appellant on both the conspiracy and mail fraud charges. This appeal challenges the sufficiency of the evidence to support the convictions. In addition, appellants Kilpatrick and Anderson challenge as reversible error the district judge's refusal to instruct the jury that good faith reliance on the advice of counsel is a defense to mail fraud. Finally, Kilpatrick, challenges as reversible error the district court's failure to instruct the jury sua sponte, to consider evidence of the consent decree for a limited purpose.

I. CONSPIRACY

In reviewing the lower court ruling, we must consider the evidence in a light most favorable to the government, drawing all reasonable inferences from the evidence and resolving all credibility choices in favor of the verdict. Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1942); United States v. Plotke, 725 F.2d 1303, 1396 (11th Cir.), cert. denied, 469 U.S. 843, 105 S.Ct. 151, 83 L.Ed.2d 89 (1984). We will reverse convictions as unsupported by the evidence only if a reasonable mind must entertain reasonable doubt about the guilt of the defendants. United States v. McCrary, 699 F.2d 1308, 1311-12 (11th Cir.1983). Upon careful examination of the record below, we find that the evidence does not support the appellants' conspiracy convictions.

To support a conspiracy conviction, the government must prove 1) an agreement to commit an unlawful act and 2) an overt act by one of the conspirators in furtherance of the conspiracy. United States v. Sawyer, 799 F.2d 1494, 1401-02 (11th Cir.1986), cert....

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