U.S. v. Pepper, 94-10321

• Decision Date: 20 April 1995
• Docket Number: No. 94-10321,94-10321
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Donald R. PEPPER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 469

51 F.3d 469

UNITED STATES of America, Plaintiff-Appellee, v. Donald R. PEPPER, Defendant-Appellant.

No. 94-10321.

United States Court of Appeals, Fifth Circuit.

April 20, 1995.

Mark D. White, Sprouse, Mozola, Smith & Rowley (Court-appointed), Amarillo, TX, for appellant.

Delonia A. Watson, Asst. U.S. Atty., Dallas, TX, Vicki H. Lamberson, Asst. U.S. Atty., Amarillo, TX, Paul E. Coggins, U.S. Atty., Fort Worth, TX, for appellee.

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

Before HIGGINBOTHAM, SMITH and STEWART, Circuit Judges.

STEWART, Circuit Judge:

Donald R. Pepper appeals both his convictions and sentence on fifteen counts of aiding and abetting in the commission of mail fraud in violation of 18 U.S.C. Secs. 2, 1341, three counts of aiding and abetting in the commission of wire fraud in violation of 18 U.S.C. Secs. 2, 1343, and two counts of aiding and abetting in the commission of money laundering in violation of 18 U.S.C. Secs. 2, 1956(a)(1)(A)(i). For the following reasons, one conviction for mail fraud is reversed, and the remaining convictions and sentence are affirmed.

BACKGROUND

In 1989, Pepper started a scheme to defraud people of their money by holding himself out as a wealthy businessman who was interested in attracting investors into a business venture to buy and sell water purifiers. Pepper flashed large amounts of cash in front of potential investors and made grandiose representations about his personal wealth and the capacity of the business venture to reward investors with equal largess.

Investors were told that they would receive a sixty percent return on their money. Commitments to Pepper by the investors were made in $5,000 units and paid to him in person, by mail, or by wiring it to him. Pepper would use the money to buy water purifiers from a company called National Safety Administration ("NSA") and then sell the water purifiers through telemarketing. According to the evidence submitted at trial, only a few water purifiers were ever bought from NSA. Pepper was not a millionaire: in fact, his personal checking account balance at a credit union for the entire year of 1990 totalled $10.17. Pepper simply kept most of the money he solicited from investors, using it to finance an extravagant lifestyle in which he rented Lear jets, bought lavish dinners, and generally maintained his profile as a wealthy businessman. As a result of his scheme, Pepper swindled investors out of approximately $171,000.

In January of 1991, Pepper filed a petition for bankruptcy. On November 6, 1991, he was granted a discharge. Among the dischargeable debts were at least thirteen of the loans that investors had made to him.

Pepper was indicted on fifteen counts of aiding and abetting mail fraud, three counts of aiding and abetting wire fraud, two counts of aiding and abetting money laundering and one count of conspiracy to commit money laundering. The conspiracy to commit money laundering count was dropped before trial. After a jury trial, he was convicted on all of the remaining counts. On the mail fraud and wire fraud indictments, Pepper was sentenced

to sixty months of imprisonment per count. On each of the money laundering counts, he was sentenced to seventy-eight months of imprisonment. All sentences were to run concurrently. He was also sentenced to three years of supervised release after he had served his jail term and ordered to pay a $50 special assessment per count. He was also ordered to pay $155,560 in restitution to the victims of his crimes. Pepper appeals his sentence and convictions.

DISCUSSION

ADMISSION OF HEARSAY

Pepper contends that the district court erred in allowing the government to ask a question that incorporated hearsay. ¹ He argues that the hearsay question violated his Sixth Amendment right to confront witnesses, because the hearsay statements were made by people who never testified. The disputed testimony is as follows:

Q. Would you be surprised if William Chenail [an NSA employee] told us the receipt that you purportedly have from him for $10,000 is phony?

MR. WHITE [Pepper's attorney]: Objection, Your Honor, if there is no independent evidence of that, then that is improper cross-examination because it is based upon hearsay.

MS. HOWARD [Government's Attorney]: Your Honor I have a good faith basis.

THE COURT: You may proceed.

A. Madam Prosecutor, I will tell you that I wrote Bill Chenail's name on the bottom of this and gave it to my accountant, or bookkeeper, so that she would know who to credit it to, in addition, Mr. Steven Worth and Joe James [Investors in the scheme].

BY MS. HOWARD:

Q. My question is: would you be surprised if Bill Chenail told [a federal agent] that the receipt you got is phony?

A. Yes, I would be surprised.

The government argues that the prosecutor's question was not hearsay because it did not seek to assert a fact as true, only that an assertion was made. Assuming that the government's question incorporates hearsay, its admission at trial was harmless. In determining whether the admission of hearsay evidence was harmless, we must consider the other evidence in the case, and then decide if the inadmissible evidence actually contributed to the jury's verdict. United States v. El-Zoubi, 993 F.2d 442, 446 (5th Cir.1993). We will find such testimony harmful and reverse a conviction only if it had a "substantial impact" on the jury's verdict. Id. The question posed by the prosecutor was addressed to whether Pepper was running a legitimate business. With this question, the government sought to show that Pepper had lied about his involvement in the scheme. The government introduced other evidence at trial showing the falsity of Pepper's claims about the scheme. This evidence included, but was not limited to, an NSA independent distributor application, which showed that Chenail did not become involved with NSA until long after the date of the receipt. Other evidence included inconsistencies in a purported ledger of the investments, Pepper's inability to name any of his employees, and bankruptcy documents in which Pepper alleged that he had no business records. Viewing the evidence as a whole, we conclude that the statement was cumulative and had little, if any, impact on the jury. See El-Zoubi, 993 F.2d at 446.

DIRECT ARGUMENT

Pepper contends that his convictions on four counts of the mail fraud were improper because the victims testified that Pepper made no direct misrepresentations to them. We find this contention to be without merit. In order to convict under the mail fraud statute, 18 U.S.C. Sec. 1341, the government has to prove the existence of a scheme or artifice:

[T]o defraud, or for obtaining money or property by means of false or fraudulent There is no statutory requirement that direct misrepresentations must be made to the victims of the scheme. The defendant has cited no authority to this effect and we have found none. See Kreuter v. United States, 218 F.2d 532, 535 (5th Cir.1955) (stating that it is not necessary to prove communication of the alleged false representations to the victims). This contention has no merit.

pretenses, representations, or promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of executing such scheme or artifice or attempting so to do,....

UNNAMED VICTIMS

Pepper contends that the district court allowed evidence concerning victims who were not named in the indictment. He argues that he was prejudiced because the district court submitted a jury question with respect to these investors. He states that the variance between the indictment and the jury instruction prevented him from adequately preparing for trial. Our review of the record reveals that although victims not charged in the indictment testified at trial to show the overall scheme, no instruction concerning these witnesses was submitted to the jury. Thus, Pepper's claim of prejudice caused by a jury charge is meritless.

Pepper also argues that the district court erred in ordering restitution for victims of the scheme not named in the indictment. A district court can order restitution under the Victim and Witness Protection Act, 18 U.S.C. Sec. 3663 (VWPA). In Hughey v. United States, 495 U.S. 411, 110 S.Ct. 1979, 109 L.Ed.2d 408 (1990), the Supreme Court held that, under the VWPA, restitution for victims can only be awarded for the loss caused by the specific offense that is the basis of the offense of conviction. Id. at 413, 110 S.Ct. at 1981. To convict Pepper of mail and wire fraud, the government had to prove a scheme to defraud, rather than specific incidents of fraud limited to individual investors. See 18 U.S.C. Secs. 341, 343. Because a fraudulent scheme is an element of his offenses of mail and wire fraud, actions pursuant to that scheme are conduct underlying the offense of conviction. United States v. Stouffer, 986 F.2d 916, 928 (5th Cir.), cert. denied, --- U.S. ----, 114 S.Ct. 115, 126 L.Ed.2d 80 (1993).

In United States v. Stouffer, 986 F.2d 916 (5th Cir.1993), two codefendants had been convicted of wire fraud and mail fraud and the court had ordered restitution of the amount allegedly lost because of the scheme. The defendant contended that under Hughey, they could not be ordered to pay back all of the losses. We disagreed. We found that "because the scheme to defraud was specifically defined in the indictment--i.e., the indictment described in detail the duration of [the defendants'] scheme and the methods used" the district court's inclusion of all losses caused by the scheme to defraud satisfied Hughey's requirement that sentencing courts focus only on the specific conduct underlying the offense of conviction. Id. at 929-30.

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