U.S. v. Redcorn

• Decision Date: 09 June 2008
• Docket Number: No. 06-5207.,No. 06-5206.,06-5206.,06-5207.
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Wakon Iron REDCORN, Jr., and Bradley N. Frost, Defendants-Appellants, State of Oklahoma ex rel. Kim Holland, Insurance Commissioner, in her capacity as Oklahoma Insurance Commissioner and as receiver for Heritage National Insurance Company, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

528 F.3d 727

UNITED STATES of America, Plaintiff-Appellee, v. Wakon Iron REDCORN, Jr., and Bradley N. Frost, Defendants-Appellants, State of Oklahoma ex rel. Kim Holland, Insurance Commissioner, in her capacity as Oklahoma Insurance Commissioner and as receiver for Heritage National Insurance Company, Amicus Curiae.

No. 06-5206.

No. 06-5207.

United States Court of Appeals, Tenth Circuit.

June 9, 2008.

Kenneth P. Snoke, Assistant United States Attorney (David E. O'Meilia, United States Attorney, with him on the brief), Tulsa, OK, for Plaintiff-Appellee.

Robert R. Nigh, Jr., (Clark O. Brewster with him on the brief), Brewster & De Angelis, Tulsa, OK, for Defendant-Appellant Bradley N. Frost.

Stanley D. Monroe, Attorney at Law, Tulsa, OK, for Defendant-Appellant Wakon Iron Redcorn, Jr.

Daniel D. Draper, III, Draper Law Firm, Owasso, OK, and Michael W. Ridgeway, General Counsel, Oklahoma Insurance Department, Oklahoma City, OK, for Amicus Curiae the State of Oklahoma ex rel. Kim Holland, Insurance Commissioner, in support of Plaintiff-Appellee.

Before O'BRIEN, BALDOCK and McCONNELL, Circuit Judges.

McCONNELL, Circuit Judge.

Appellants Bradley N. Frost and Wakon Iron Redcorn, Jr., were the president and the chief financial officer of Heritage National Insurance Company (HNIC), an Oklahoma health insurer. Using their positions, they managed between them to bleed the company of some $1.7 million. On January 6, 2006, they were indicted in federal district court on charges of embezzlement from a health care benefit program, wire fraud, and money laundering. A jury found them guilty, and each was sentenced to concurrent terms of 72 months' imprisonment on every count. In this direct appeal, we affirm in part, reverse the wire fraud convictions, and remand for resentencing.

I. BACKGROUND

HNIC sold life, accident, and group health insurance. First licensed to sell insurance in Oklahoma in 1974,¹ by the late 1990s HNIC's fortunes had fallen and it was forced into receivership by the Oklahoma Insurance Department (OID). Mr. Frost and another investor acquired the company, and they, along with Mr. Redcorn, rehabilitated it out of receivership and into the black. As of mid-1999, HNIC was owned by a holding company of which Mr. Frost owned half; a different investor, Steven Silverstein, along with his wife, owned the other half; and Mr. Redcorn had an option to acquire part of their interests. Mr. Frost served as HNIC's president, and Mr. Redcorn as the secretary/treasurer and CFO; Mr. Silverstein was HNIC's chairman and the CEO of the holding company. By 2000, HNIC's revenues had climbed to over twelve million dollars a year. In that year HNIC also purchased the business book of a failing Texas insurer, giving it interstate reach.

From early 2000, however, Mr. Frost and Mr. Redcorn started removing money bit by bit from HNIC. They began by "investing" HNIC moneys in other companies they controlled. They would also write checks to themselves on HNIC accounts and designate the payments on the books as "loans" or "consulting fees." Although they would pay back most of the alleged loans and investments, the evidence showed that they retained over $400,000 for themselves. Then in August of that year Mr. Frost opened a new bank account in HNIC's name at Bank of America. The account sat, unused, until March 2001, when Mr. Redcorn instructed Kendra Blevins, an employee in HNIC's financial department, to start diverting incoming premium payments away from the company's ordinary accounts and into the separate account. He told her that he and Mr. Frost were planning to save up a war chest of one million dollars to sue their partner Mr. Silverstein, whom they suspected of stealing from the company. Well over a million dollars was funneled into the account over a period of only weeks. Then, in mid- and late-April 2001, Mr. Redcorn and Mr. Frost withdrew $500,000.00 apiece in checks payable to themselves, recording the payments on HNIC's books as short-term investments. They deposited the funds briefly in their private bank accounts, then shifted them to personal investment accounts with a broker in Florida. They never sued Mr. Silverstein and never returned the money to HNIC.

Around this time, federal authorities and state regulators were starting to take an interest in HNIC's finances. The FBI interviewed Mr. Redcorn in January 2001 as part of an investigation of Mr. Silverstein, who was, apparently, independently engaged in a multi-million-dollar bank fraud scheme involving check kiting with HNIC moneys.² The focus turned to Mr. Redcorn and Mr. Frost, however, after the Oklahoma Insurance Department began its investigation. At the beginning of May 2001, the OID sent a financial examiner, Hallie Burnett, to HNIC to conduct a review of its records. In late summer, the OID ordered HNIC to be placed under supervision, and appointed Ms. Burnett as conservator with authority to prevent the removal of any more money from the company. On November 11, 2001, a court ordered HNIC into receivership. All its assets were auctioned off, and the insurance guaranty associations of Oklahoma and Texas had to shoulder thousands of outstanding obligations to persons HNIC had insured—$19 million dollars' worth.

On January 26, 2006, Mr. Frost and Mr. Redcorn were indicted on one count of health care fraud in violation of 18 U.S.C. § 669 (for taking money from a health insurance company), four counts of wire fraud in violation of 18 U.S.C. § 1343 (for transferring the money using interstate wires), and a total of twenty-six counts of money laundering in violation of 18 U.S.C. § 1957(a) (for a variety of financial transactions using the stolen money). At their eight-day trial in December 2005, the defendants claimed that the "investments" they had made for themselves with company money were authorized by the minutes of a 1991 board meeting of HNIC's predecessor and that the funds they had taken in April 2001 were a legitimate buyout or severance because they were planning to leave the company. They also attacked the OID's special investigator Hallie Burnett as incompetent, possibly corrupt, and the dupe or cat's-paw of Steve Silverstein.

But the jury returned a verdict of guilty on all counts on December 16, 2005. Mr. Redcorn and Mr. Frost now appeal, and raise four chief areas of argument: that the indictment was legally insufficient, that the evidence adduced at trial was insufficient to establish their guilt, that they were entitled to a new trial because of evidence they received afterward, and that their sentences violated the Constitution. We reject all these arguments except as to the sufficiency of the evidence to establish the elements of wire fraud.

II. SUFFICIENCY OF THE INDICTMENT

"`An indictment is sufficient if it sets forth the elements of the offense charged, puts the defendant on fair notice of the charges against which he must defend, and enables the defendant to assert a double jeopardy defense.'" United States v. Chisum, 502 F.3d 1237, 1244 (10th Cir. 2007) (quoting United States v. Dashney, 117 F.3d 1197, 1205 (10th Cir.1997)). "`[I]t is generally sufficient that an indictment set forth an offense in the words of the statute itself, as long as those words themselves fully, directly, and expressly, without any uncertainty or ambiguity, set forth all the elements necessary to constitute the offence intended to be punished.'" United States v. Hathaway, 318 F.3d 1001, 1009 (10th Cir.2003) (quoting Hamling v. United States, 418 U.S. 87, 117, 94 S.Ct. 2887, 41 L.Ed.2d 590 (1974)). Therefore, where the indictment quotes the language of a statute and includes the date, place, and nature of illegal activity, it "need not go further and allege `in detail the factual proof that will be relied upon to support the charges.'" United States v. Dunn, 841 F.2d 1026, 1029 (10th Cir.1988) (quoting United States v. Crippen, 579 F.2d 340, 342 (5th Cir.1978)). We review the sufficiency of an indictment de novo, United States v. Todd, 446 F.3d 1062, 1067 (10th Cir.2006), but a challenge to the indictment is not a vehicle for testing the government's evidence. "Rather, `[a]n indictment should be tested solely on the basis of the allegations made on its face, and such allegations are to be taken as true.'" Id. (quoting United States v. Hall, 20 F.3d 1084, 1087 (10th Cir.1994)).

A. Count 1: Health Care Fraud

Count 1 of the indictment charged Appellants with violation of 18 U.S.C. § 669, which outlaws embezzlement of "any of the moneys ... or other assets of a health care benefit program." "Health care benefit program" is defined in another section:

[T]he term "health care benefit program" means any public or private plan or contract, affecting commerce, under which any medical benefit, item, or service is provided to any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract.

18 U.S.C. § 24(b). Appellants contend that a health insurance company cannot be a health care benefit program as so defined, and thus that because the indictment alleged that HNIC was both a health insurance company and a health care benefit program it did not properly state a violation of § 669. They assert also that federal prosecution of insurance-related crimes under § 669 is precluded by the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), which leaves insurance regulation generally in the hands of the states.

1. Inconsistency of Allegations

Count 1 of the indictment alleges, in its entirety:

From on or about April 3, 2000 and continuing through June 7, 2001, in the Northern District of Oklahoma and elsewhere, REDCORN and FROST, defendants herein, aiding and abetting each other, did knowingly and willfully embezzle, steal or otherwise convert to the use of a person other than the rightful owner and did intentionally misapply, approximately $1,264,000.00 of the...