U.S. v. Reeder, 97-1831

• Decision Date: 08 December 1998
• Docket Number: No. 97-1831,97-1831
• Citation: 170 F.3d 93
• Parties: UNITED STATES, Appellee, v. George Wayneti REEDER, a/k/a Wayne Reeder, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 93

170 F.3d 93

UNITED STATES, Appellee, v. George Wayneti REEDER, a/k/a Wayne Reeder, Defendant, Appellant.

No. 97-1831.

United States Court of Appeals, First Circuit.

Heard Dec. 8, 1998.

Decided March 10, 1999.

Order May 19, 1999.

Dennis P. Riordan, with whom Dylan L. Schaffer, Riordan & Rosenthal, Law Offices of e.robert (bob) wallach, P.C. and e. robert (bob) wallach, P.C. were on brief, for appellant.

Sangita K. Rao, Attorney, Department of Justice, with whom Margaret E. Curran, United States Attorney, and Craig N. Moore, Assistant United States Attorney, were on brief, for appellee.

Before TORRUELLA, Chief Judge, ALDRICH and CYR, Senior Circuit Judges.

TORRUELLA, Chief Judge.

Appellant, George Wayne Reeder, was charged with five counts of wire fraud, in violation of 18 U.S.C. § 1343, and five counts of interstate transportation of stolen property, in violation of 18 U.S.C. § 2314. The charges are based on five wire transfers made in June 1988. The transfers were to pay liens and costs on properties owned by Reeder which had been posted as collateral for the purchase of two insurance companies. Reeder's first trial in May 1996 resulted in a hung jury. Following a retrial in October 1996, Reeder was convicted of all ten counts. The district court sentenced Reeder to forty-six months in prison and ordered him to pay restitution in the amount of $16.5 million. In all respects, we affirm.

BACKGROUND

We review the facts of a criminal case on appeal from a conviction in the light most favorable to the verdict. See United States v. Gonzalez-Maldonado, 115 F.3d 9, 12 (1st In mid-1987, Charles Christopher and other investors formed a holding company called Resolute Holdings, Inc. ("Resolute") for the purpose of acquiring insurance companies. Resolute sought to acquire American Universal Insurance Company ("American"), an insurer headquartered in Providence, Rhode Island, and Diamond Benefits Life Insurance Company ("Diamond"), an insurer that was licensed in Arizona and had its principal offices in California. Resolute, however, was a shell company, with no assets except $250,000 in working capital. In late 1987, Christopher and Resolute enlisted the participation of Reeder, a California developer who had real estate holdings and controlled several companies, including Hill Top Developers ("Hill Top"). Reeder agreed to contribute capital to the insurance companies in exchange for a share in Resolute.

Cir.1997). Our presentation of the facts draws considerably on our recent opinion in United States v. Christopher, 142 F.3d 46 (1st Cir.1998).

In early February 1988, Reeder negotiated a deal with Resolute. Under the terms of Reeder's deal with Resolute, in exchange for Reeder's capital contribution to the insurance companies, Reeder received a 60% share of Resolute and about $2 million in yearly profit participation. Reeder thus acquired a controlling interest in Resolute, although the formal transfer of Resolute shares to Reeder did not become official until June 1988.

In addition to reaching an agreement with the respective sellers of American and Diamond, Resolute had to obtain the approval of state insurance regulatory authorities. By statute, the Rhode Island Department of Business Regulation ("RIDBR") had to approve the sale of American, and the Departments of Insurance in both Arizona and California had to approve the sale of Diamond. Resolute submitted an application, known as a Form A statement, to each of those three states. Each Form A required the disclosure of extensive background and financial information about the individuals involved in the acquisition, their business plan for the company, and the financial means by which the company would be acquired, so that the regulators could assess whether the acquisition would jeopardize the interests of policyholders.

As part of its acquisition plan submitted to the insurance regulators, Resolute agreed to capitalize the insurance companies by contributing Reeder's $50 million promissory note, secured by Heritage Ranch and Indian Palms, to American. To capitalize Diamond, Resolute agreed to contribute Reeder's $12 million promissory note, secured by Indian Springs.

The acquisition of Diamond had an additional component. Resolute had negotiated for Diamond to assume a block of annuity policies from the Life Assurance Company of Pennsylvania ("LACOP"). As consideration for its assumption of about $31 million in LACOP's annuity obligations, Diamond was to receive about $29.4 million in cash from LACOP. Of that sum, $18 million was to be delivered to Diamond at closing, with the remainder to follow several months later.

At the time of Resolute's Form A applications, all of the Reeder properties securing Reeder's promissory notes--Heritage Ranch, Indian Palms, and Indian Springs--had extensive liens on them. On Heritage Ranch and Indian Palms alone, the total was about $17 million. Those preexisting liens were significant because they meant that American's and Diamond's security interests would be subordinated to other mortgages on the properties. In addition, pre-existing liens on the collateral decreased the value of the promissory notes, thereby decreasing the amount of capital with which the insurance companies could do business.

In February 1988, Reeder made a deal with Christopher that Resolute would purchase Reeder's liens from the banks so that the closings could go forward. Reeder and Resolute made repeated representations to the insurance regulators that the pre-existing liens on the Reeder properties would be cleared by closing. At the same time that these representations were being made, however, Reeder was repeatedly advised that Resolute had no means by which to pay the debt.

In the Form A filings submitted to Rhode Island, Arizona, and California, Resolute represented On March 10, 1988, Arizona approved Resolute's acquisition of Diamond. Resolute understood that, by Diamond's closing, it still had to provide documentation demonstrating that the pre-existing liens on the property securing the notes to Diamond had been cleared.

that all pre-existing liens on the collateral securing its promissory notes to the insurance companies would be discharged at or before closing on Resolute's acquisition.

The Rhode Island regulators were particularly concerned about the encumbrances on the property securing the promissory note to American. In late April, RIDBR chief legal counsel Nancy Mayer wrote to Resolute asking whether Reeder's corporations owned Heritage Ranch and Indian Palms "free and clear of all encumbrances."

Reeder later admitted that he knew that the liens would not be paid off by the closings on the insurance companies, despite the representations to the regulators. Nevertheless, Reeder was still actively involved in the acquisition of the insurance companies. On May 24, Reeder had a meeting with Christopher and several other Resolute principals to decide who was going to run the insurance companies. Reeder, soon to be the majority shareholder of Resolute, had the ultimate authority to make that decision. Against the strong opposition of the other Resolute principals, Reeder placed Christopher in charge of the insurance companies.

The RIDBR scheduled an approval hearing on the American acquisition for May 26. On May 24, just two days prior to that hearing--when Reeder knew that the American closing was imminent--Reeder signed a number of documents relating to the purchase of American, including a capitalization agreement that was submitted to the RIDBR as part of the Form A application. In the capitalization agreement, Reeder represented that, "[t]here are no actions, suits or proceedings, pending or threatened, to the current actual knowledge of the Makers, effecting [sic ] the $50 Million Note or any portion of the property, at law or in equity or before or by any federal, state, municipal or other governmental department, commission, [or] board." This statement was not true. Reeder knew that suits were threatened against both Heritage Ranch and Indian Palms, the two properties securing the $50 million promissory note to American.

At the time Reeder signed the capitalization agreement, Reeder had a $10 million note outstanding with Continental Bank, secured by Heritage Ranch. Reeder had missed a $2.3 million amortization payment due in October 1987. In a meeting with Continental in December 1987, Reeder told the bank that he did not have the cash to meet his obligations under the loan. On March 11, 1988, Continental notified Reeder that he was in default and that the bank might institute foreclosure proceedings. On April 29, Continental demanded full payment on the loan, and on June 3, 1988, Continental filed for foreclosure on Heritage Ranch.

Reeder was also delinquent on several loans he had outstanding with Home Federal Bank ("Home Fed"). Reeder owed Home Fed more than $7 million for loans that were secured by both Heritage Ranch and Indian Palms, and he had not made payments on certain loans since June 1987. On May 12, Home Fed demanded payment in full on one of the loans secured by Heritage Ranch.

On May 26, 1988, Rhode Island held the approval hearing on the proposed acquisition of American by Resolute. Resolute maintained its position that it would pay off the pre-existing liens on the Reeder properties securing the promissory note by closing. Indeed, at some point that day, although not at the formal hearing, RIDBR Chief Counsel Mayer was told that the pre-existing liens on the Reeder properties had been cleared.

On May 27, 1988, the RIDBR issued a conditional order approving Resolute's acquisition of American. Although the transaction closed that day, the order made clear that the transfer of ownership would not become final until Resolute submitted final title insurance policies for Heritage Ranch and Indian Palms "to be effective as of the closing date which indicat[e]" that "all mortgages, deeds of...