U.S. v. Seago

• Citation: 930 F.2d 482
• Decision Date: 12 April 1991
• Docket Number: No. 90-6022,90-6022
• Parties: 32 Fed. R. Evid. Serv. 957 UNITED STATES of America, Plaintiff-Appellee, v. D.G. SEAGO, Jr., Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 482

930 F.2d 482

32 Fed. R. Evid. Serv. 957

UNITED STATES of America, Plaintiff-Appellee, v. D.G. SEAGO, Jr., Defendant-Appellant.

No. 90-6022.

United States Court of Appeals Sixth Circuit.

Argued Jan. 22, 1991.

Decided April 12, 1991.

Sidney P. Alexander (argued), Asst. U.S. Atty., W. Hickman Ewing, Jr., U.S. Atty., Office of the U.S. Atty., Memphis, Tenn., for plaintiff-appellee.

Sam Bradley (argued), Memphis, Tenn., for defendant-appellant.

Before KEITH and MILBURN, Circuit Judges, and CONTIE, Senior Circuit Judge.

KEITH, Circuit Judge.

Defendant D.G. Seago ("Seago") appeals from the district court's July 6, 1990, judgment and sentencing order entered pursuant to a guilty verdict for wire fraud and bank fraud. Seago raises three issues on appeal: (1) whether the district court erred in denying his motion for new trial based on newly discovered evidence; (2) whether the district judge's comments on the evidence warrant reversal of Seago's conviction; and (3) whether the district court committed reversible error in excluding certain business records. Finding no errors which warrant reversal, we AFFIRM.

I.

A.

Seago was the chairperson and president of Mid Continent Systems, Inc. ("Mid Con"). In these roles, he controlled the company's financial dealings. Mid Con was the parent company of several subsidiaries, two of which were Bessemer Oil Company ("Bessemer") and Convenience Marketers, Inc. ("CMI"). The daily operations of Mid Con required a cash flow of large amounts of money in order to meet its obligations. Mid Con's major source of revenue came from collecting on its accounts receivable. The accounts receivable were pledged as security to Signal Capital Corporation ("Signal") pursuant to a loan agreement between Mid Con and Signal. This loan agreement established an $8 million revolving promissory note. Under the terms of the revolving note, Signal was committed to making loans to Mid Con to the extent such loans did not exceed, in the aggregate, the lesser of $8 million or 85% of eligible accounts receivable. Mid Con maintained the loan balance at or near the maximum amount during the life of the revolving loan. Mid Con would send checks to Signal on a daily basis to reduce the loan balance which would then provide additional availability to borrow on the revolving note.

Some of Mid Con's checks were drawn on a checking account at the First American Bank of Memphis ("First American"). Seago established an account at First American on February 12, 1987. The First American account was generally used to deposit collections on Mid Con's account receivables.

Mid Con also maintained operating checking accounts at First National Bank of Vicksburg, Mississippi ("First National"). These accounts were known as zero-balance accounts, i.e., no funds were kept on balance in the accounts. Checks were written on the accounts; and when the checks were presented for payment at First National, officials at First National would notify Mid Con of the amount. Mid Con would then wire funds to First National before the end of the day to cover such checks. There were seven individual accounts at First National, including one for Bessemer and one for CMI. The primary source of funds to cover the checks presented for payment came from loan advances from Signal. The amount of funds available for an advance depended on the amount that Mid Con had paid the preceding work day toward the balance owed on the revolving note.

Since the availability of funds was established the day before it was needed, each day Mid Con had to account for the checks expected to be presented for payment at First National the next day. Herman Stiedle ("Stiedle"), the cash manager and treasury supervisor for Mid Con, performed this duty. Occasionally the amount Mid Con could obtain from Signal was insufficient to cover the predicted amount due at First National on the next day. This insufficiency occurred when Mid Con borrowed the maximum of the revolving loan.

There were two methods to create the availability for a larger loan advance: (1) pay more money on the revolving note; or (2) increase the value of the accounts receivable. When Stiedle predicted that Mid Con's cash needs for the next day would exceed their loan availability at Signal, Seago instructed Stiedle to draw a check on the Bessemer or CMI accounts (each of which had a zero balance), make it payable to Mid Con and deposit the check into the First American account. These checks were large, round dollar amounts. This practice had the effect of increasing the balance of the First American account and enabling Mid Con to borrow additional money, which was not secured by receivables, from Signal.

The same day these checks were deposited into the First American account, Seago signed and sent a check to Signal, via Federal Express, drawn on the First American account. Along with this check, Seago sent the third page of a Mid Con document, known as a Consolidated Cash Report, which reflected the collections for the day deposited into the Mid Con account. The subsidiary checks were not individually listed; instead, their amounts were lumped in with all other daily collections deposits. The amount of the First American check would be applied to pay down the revolving note and create additional availability for borrowing for the next day.

The First American check consistently would be in the amount of the total First American deposits, which would include regular receipts and the subsidiary checks. The subsidiary checks written and deposited into the account at First American were given next day credit. Within two or three days, the subsidiary checks were then presented for payment at First National. This would require Mid Con to cover these checks, as well as all other checks written by Mid Con in the ordinary course of business, by borrowing the money from Signal.

Stiedle was able to foresee when these checks would reach First National and would have to assess whether Mid Con would have the resources to cover the subsidiary checks based on the availability for a loan advance from Signal. On occasions when there was insufficient availability with Signal, Seago instructed Stiedle to deposit another subsidiary check into the First American account to increase the balance. The additional subsidiary check deposit allowed Seago to sign and send a larger check to Signal.

At first, this deposit scheme was used intermittently. It later became a daily practice. The deposit scheme continued until on or about August 12, 1987, when Signal discovered it and refused to advance funds which it felt had been created by this method. Occasionally, Stiedle would ask Seago if they could discontinue this deposit practice. Seago, however, would not consent to ending the practice.

Stiedle maintained a daily worksheet to account for the subsidiary checks that were outstanding. The worksheet detailed all checks due at First National, as well as other outstanding debts. Stiedle would make a notation on the worksheet to designate the amount and the account name of the subsidiary check that was presented for payment. Stiedle noted this information on page two of the cash report which was not sent to Signal. In the early stages of the scheme, a check on the Bessemer account would be deposited into the First American account in order to increase the collections. The next day, the check would be written on the CMI account. It would alternate in this manner until the amounts needed grew larger. At that point, two checks would be deposited daily, one drawn on the Bessemer account and one drawn on the CMI account. It was not uncommon to see two subsidiary checks totaling over $1 million included in the deposits to the First American account. All such checks were drawn on the zero-balance account at First National. This deposit scheme resulted in Signal funding the very checks used by Mid Con to pay down the loan.

Occasionally, more money would be needed at First National than Stiedle had predicted and there would be insufficient availability at Signal to cover the checks at First National. On these occasions, Seago instructed Stiedle to wire transfer funds from First American to First National to cover the checks. On at least sixteen occasions, Seago found that there was insufficient availability at Signal to enable a loan advance to cover the checks presented for payment at First National. If the wire transfers of funds were not made, then Mid Con had insufficient funds to pay checks, including previously written subsidiary checks, at First National. If this event occurred, the whole check scheme would collapse.

B.

The Signal representatives who directly supervised the account with Mid Con were David Anderson ("Anderson") and Arlin Cate ("Cate"). Anderson began his relationship with Mid Con as an auditor for Signal. In September 1986, Anderson was promoted to the position of account executive in charge of the Mid Con account. In this capacity, he handled the daily operations of the loan with Mid Con and approved advances on the revolving note. Anderson also reviewed the collateral reports that were sent in by Mid Con. In early May 1987, while verifying certain Mid Con accounts receivable, Anderson discovered some discrepancies in the reports of the collateral base. His investigation of the matter led him to discover that Mid Con had been overstating its account receivables, thereby inflating its collateral base. This inflation of the collateral base had the effect of allowing Mid Con to borrow more than the agreement allowed. Seago was confronted with this revelation and told to stop the inflation practice. Seago was also informed to seek alternate financing because he could no longer be trusted. Because Seago inflated the collateral base, Mid Con was allowed to borrow an excess of $3.2 million over its entitlement. Signal continued the revolving loan arrangement making adjustments in the loan to...