U.S. v. Ramsey
| Decision Date | 09 April 1986 |
| Docket Number | 85-1675,85-1676 and 85-1677,Nos. 85-1650,s. 85-1650 |
| Citation | 785 F.2d 184 |
| Parties | 20 Fed. R. Evid. Serv. 58 UNITED STATES of America, Plaintiff-Appellee, v. Beverly J. RAMSEY, Michael J. Marshall, Stuart A. McCreary, and James Joseph O'Donnell, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
David A. Caulk, William R. Beu, P.C., Rockford, Ill., Paul E. Schaafsma, Sheila M. Murphy, Geary W. Kull, Chicago, Ill., for defendants-appellants.
Michael T. Mullen, Asst. U.S. Atty., Anton R. Valukas, U.S. Atty., Chicago, Ill., for plaintiff-appellee.
Before CUMMINGS, Chief Judge, and CUDAHY and EASTERBROOK, Circuit Judges.
The defendants in this case portray themselves as more gullible than the victims. The victims were taken in by promises of long-term million-dollar loans at 6% to 8% interest, loans they were told they would never have to pay back. Pie in the sky does not come cheap; victims paid as much as $7,500 for each $1 million of loan. The fees were to be "fully refundable" in the event the loans could not be made. No loan was made, no money refunded. After the scam had been in operation for more than a year, victims as a group had plunked down about $900,000 in cash in exchange for commitments to make some $500 million in loans.
The victims dealt with S.U.R.E., Inc. Michael Marshall was the President of SURE, Beverly Ramsey and Stuart McCreary were billed as executive assistants and negotiated the "deals," and James O'Donnell reassured clients that all was going well. The defendants say that they were "sure" that the loans would be made eventually and so are not criminally liable. The jury disagreed, and it convicted them of numerous counts of mail and wire fraud. See 18 U.S.C. Secs. 1341, 1343, and 2314. Michael Marshall was given six years' imprisonment, plus five years' probation on condition that he make $285,000 in restitution. McCreary was sentenced to three years' imprisonment, five years' probation, and $40,000 in restitution. Ramsey received two years' imprisonment to be followed by five years' probation. O'Donnell was sentenced to six months' work release, four and a half years' probation, and $5,000 of restitution.
Marshall, who issued the instructions the other three defendants executed, does not challenge the sufficiency of the evidence. The other three do. SURE operated the same way throughout its brief life, and a single episode demonstrates that the evidence was sufficient when taken, as we must take it, in the light most favorable to the prosecution.
Robert Harvey of Bixby, Oklahoma, sold steel castings. He and his father decided to acquire a foundry to make their own product. Harvey concluded that he needed $7.5 million to buy the foundry, revamp its equipment, and have enough for working capital. He was unable to raise this money through ordinary channels, but a loan broker put him in touch with SURE, which was promising results in difficult cases. Harvey traveled from Oklahoma to Illinois on September 20, 1983, and spent two hours at SURE's office talking to McCreary, who said that SURE had two to three billion dollars of funds that could be made available at 8%. The money, according to McCreary, came from European sources, whose only alternative was to deposit cash in European banks that paid no or low interest; 8% was better than nothing.
McCreary told Harvey that SURE would wait until it had applications for about $50 million in loans, and then a lender would furnish that sum against a "world class prime note" to be issued by the borrowers and secured by their businesses. An offshore bank would assure the collateral to the lenders. McCreary stated that SURE was careful about assembling packages of borrowers and never had a package rejected by lenders. McCreary showed Harvey books of loan packages SURE had put together in the past.
The money SURE offered--$8.6 million at 8% per year--was attractive not only because it was larger than the value of the business but also because, according to McCreary, Harvey would never need to repay the principal. SURE would put $532,000 of the proceeds in a fund at a bank, and by the end of 20 years this fund would be large enough to pay the whole $8.6 million principal. Harvey would pay only the interest of $688,000 per year. This would be a boon for Harvey, because it would take $875,929 per year to amortize a $8.6 million loan at 8% interest over 20 years with a level-payment plan. SURE's proposal could work, however, only if the after-tax yield on the $532,000 would be 14.93%, compounded annually. Any lower rate of return would not produce enough to retire the $8.6 million principal in 20 years. McCreary did not explain why anyone would lend money to Harvey at 8% before tax when he could get 15% after tax from a bank.
Spectacular deals always seem to have a few catches. This deal had two. First, Harvey had to sign a "nondisclosure and noncircumvention agreement" promising not to tell anyone about the loan or to investigate where the money was coming from. Lenders wanted confidentiality, McCreary said. Second, Harvey had to put some cash up front. SURE wanted $12,900 for "loan packaging costs" and another $51,600 to "purchase collateral" that was necessary for the closing. The $12,900 was to go to SURE, the remainder to Old Reserve Collateral Services, an institution in the Bahamas. In the event the loan did not close--something that McCreary said had never happened before--SURE would refund the money.
McCreary introduced Harvey to Marshall and Ramsey (who was described as the executive assistant for agricultural loans). Marshall said that Harvey could expect his money in six to eight weeks. Harvey returned to Oklahoma and sent checks for $12,900 and $51,600. A letter from Ramsey confirmed the approval of the application for a loan. After the eight weeks had passed, Harvey started checking the status of things. He called SURE three or four times a week, talking variously with McCreary, Ramsey, and O'Donnell.
In early March 1984 Harvey was told the loan would close in 10 days. Later that month O'Donnell said that SURE had a "new trust agent" and now was making progress, and McCreary said that SURE had obtained the second mortgage money needed to close. Ramsey said that several companies were competing for the package and that an Italian group was in the lead. Harvey was told that five other packages had just been approved by the European lenders. In April, O'Donnell told Harvey that Marshall had been in Zurich to close the loan, but that a London banker had had another commitment and had to leave the closing before the lender could arrive; things needed to be rescheduled. Plans changed. O'Donnell later said that the closing had been moved to Luxembourg, and still later O'Donnell said it had been shifted to the Bahamas. Then, O'Donnell said during a later call, the lenders backed out.
The peripatetic closing and the "lenders" never got to the same place at the same time. There were more calls, but there was no closing--not on Harvey's loan, not on any other loan. There were no lenders, no meetings with London bankers in Zurich, no prospects. There was also no refund. Harvey never got his money back. Neither did any of the other 40 victims who testified at trial. A banker testified that there is no such thing as a "world class prime note," that money was unavailable to make risky loans (for more than 100% of the value of the collateral) in 1983 and 1984 at rates anything like 8% per year, that "nondisclosure and noncircumvention agreements" were unheard of, and that borrowers in legitimate transactions do not pay cash to offshore banks to help them "obtain collateral for the closing."
The transactions SURE proposed were fantasies. SURE proposed these unbelievable deals to desparate people who had been unable to obtain money from usual sources. Some desperate people are willing to believe things that cannot be true. The principal defense was that the defendants, too, believed. Marshall told Ramsey, McCreary, and O'Donnell that money would be forthcoming, and they believed him. Marshall's attorney said at oral argument that Marshall, too, relied on what other people told him. But none of the defendants offered a factual basis for these beliefs, which the jury was not required to credit.
O'Donnell's further conclusion that he was a "mere employee," paid by the hour rather than by a percentage of SURE's take, does not help him. O'Donnell took money from Marshall for calming the victims, the better to prolong the operation. Nothing in the statutes requires that a defrauder get rich (or even accept money) as an element of liability. O'Donnell's terms of compensation apparently were satisfactory to him, and hourly employees are liable just as surely as defrauders who work on the piece-rate system.
The statutes under which the defendants were charged prohibit knowing misrepresentations in interstate transactions. Because the defendants contended that they had been bilked along with their clients, the district court gave an "ostrich" instruction based on instruction 4.05 from the Seventh Circuit's Manual on Jury Instructions in Federal Criminal Cases (1965). The instruction the court gave provides:
The word "knowingly" ... means that the act (or omission) was done voluntarily and purposely, and not because of mistake or accident. Knowledge may be proven by the defendant's conduct, and by all the facts and circumstances surrounding the case. No person can intentionally avoid knowledge by closing his or her eyes to facts which should prompt him or her to investigate.
The revision of the instruction on knowledge in the 1980 version (Federal Criminal Jury Instructions of the Seventh Circuit Sec. 6.04) omits the point that the jury may infer knowledge from deliberate ignorance when the...
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