U.S. v. Sneed

• Citation: 34 F.3d 1570
• Decision Date: 13 September 1994
• Docket Number: No. 93-1058,93-1058
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Steven SNEED, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 1570

34 F.3d 1570

63 USLW 2199

UNITED STATES of America, Plaintiff-Appellee, v. Steven SNEED, Defendant-Appellant.

No. 93-1058.

United States Court of Appeals Tenth Circuit.

Sept. 13, 1994.

Marcella T. Clark (Philip E. Lowery with her on the briefs), Lowery and Lowery, P.C., Denver, CO, for defendant-appellant.

Kenneth R. Fimberg (Henry L. Solano, U.S. Atty., Gerald J. Rafferty, Asst. U.S. Atty., with him on the brief), Asst. U.S. Atty., Denver, CO, for plaintiff-appellee.

Before BALDOCK, BARRETT and BRORBY, Circuit Judges.

BARRETT, Senior Circuit Judge.

Steven Sneed (Sneed) appeals from the district court's judgment and sentence imposed following a jury trial. Sneed was found guilty of one count of aiding and abetting securities fraud (18 U.S.C. Sec. 2 and 15 U.S.C. Secs. 78j(b) and 78ff), two counts of aiding and abetting mail fraud (18 U.S.C. Secs. 2 and 1341), and one count of aiding and abetting wire fraud (18 U.S.C. Secs. 2 and 1343). He was sentenced to 33 months imprisonment, 3 years supervised release, and fined $15,000 with a special assessment of $200.00.

FACTS

In late 1988 and early 1989, the Federal Bureau of Investigation (FBI), in conjunction with the Securities and Exchange Commission (SEC), commenced a "sting" operation to investigate fraud in the Rocky Mountain area penny stock market industry. The FBI established a Colorado corporation known as Monarch Investment Services (Monarch) and opened an office in Denver, Colorado. FBI Special Agent John Coffey (Coffey) posed as the company's president, "John O'Kelly" (O'Kelly), and let it be known in Denver's penny stock community that he was interested in finding an individual to assist him in doing a "box job" by obtaining a "boxed" public company and manipulating the price of its worthless stock. ¹

From mid-January to early March, 1989, Anthony Cavanaugh (Cavanaugh), an FBI informant and convicted felon, introduced O'Kelly to various people in the securities industry. Cavanaugh introduced O'Kelly by telephone to Sneed, a licensed securities professional and promoter. Sneed flew to Denver from Virginia for a January 16, 1989, meeting. During this meeting, which was taped by the FBI, Cavanaugh, O'Kelly, and Sneed discussed the plans to purchase a shell company, ² including all of the corporate stock, create false nominee owners of the stock, and trade the stock back and forth between the nominees and O'Kelly in order to manipulate the market. (Appellee's Addendum, Exh. 1-2A). The inflated stock was then to be used as collateral to partially secure a large offshore bank loan. ³ Sneed agreed to locate a shell company. He was to receive at least $2,500 when a letter of intent for the purchase of the shell was signed and ten percent of the net loan proceeds (approximately $147,000) when the bank loan was obtained. ⁴

From January to April, 1989, Sneed introduced O'Kelly to a number of people who had "boxed" companies or other corporate vehicles for sale. For various reasons, these companies were not suitable. In April, 1989, by telephone, Sneed introduced O'Kelly to Brent Gundersen (Gundersen) from Salt Lake City, Utah, whom Sneed learned about through Herman Graulich (Graulich), ⁵ a marketmaker with Morgan Gladstone & Co., Inc., Boca Raton, Florida. ⁶ Gundersen agreed to provide O'Kelly with a shell company for $40,000, with a $20,000 down payment and a final $20,000 payment when the company's stock was listed in Standard & Poors and ready to trade. Gundersen also offered to supply O'Kelly with a few more shareholders if needed.

On April 26, 1989, O'Kelly and Sneed flew to Salt Lake City to meet with Gundersen. Gundersen told O'Kelly and Sneed that he could deliver one hundred percent of the stock of a defunct company, Androids, which he could get in the Pink Sheets. ⁷ Gundersen also related that he could provide documents to provide credibility to the company, such as certified financial statements, a listing in Standard & Poors, and an attorney's opinion, or tradeability letter.

Gundersen worked with Eldon Weber (Weber) ⁸ and others to "revive" the company and prepare the necessary corporate history and documentation in the names of nominee shareholders, officers, and directors. Androids' back taxes and reinstatement fees were paid by Gundersen and he bought "shareholders's" signatures. Gundersen created and backdated various false documents such as stock certificates and minutes of directors's and shareholders's meetings. Through the false documentation, Gundersen was able to obtain an attorney's opinion letter which indicated that the stock could be freely and publicly traded because the shareholders had owned the restricted insider stock for the required holding period. Androids' name was changed to Monarch Acquisitions, Inc.

During May and June, 1989, Sneed and Gundersen recruited Sam Pandolfo ⁹ (Pandolfo) in Denver and Graulich in Florida to assist in the scheme. For a fee, Pandolfo was to get the company listed in the Pink Sheets and Graulich was to arrange the marketmakers and orchestrate the prearranged trades in the company's stock. During this time period, Sneed prepared Monarch's business plan.

During the summer, Sneed and Graulich recruited marketmakers and cooperating brokers to trade Monarch's stock. The marketmakers were to go into the Pink Sheets and make a market in the stock, and the retail brokers were to open nominee accounts to execute trades where both the buyers and sellers were controlled by the Monarch participants. Pandolfo's firm, General Bond & Share Co., was to be the first marketmaker to go in the "pinks." Sneed arranged for Harold Fisher (Fisher) of Roth Securities, Sarasota, Florida, to act as a marketmaker, and recruited Peter Schwartz (Schwartz) of J.W. Gant & Associates, Inc., Greenwood, Colorado, to open retail "buying" accounts. ¹⁰ Graulich opened a nominee account for "Michael Moss" at Morgan Gladstone & Co., Inc. ¹¹ and also arranged for Kashner Davidson Securities Corp., Sarasota, Florida, to act as a third marketmaker.

By the latter part of July, Sneed had prepared a detailed written schedule for the first week of controlled, prearranged trades in Monarch's stock. Sneed planned to take Monarch from three cents to twenty-five cents a share in only one week. In August, Graulich reviewed the schedule and recommended that several changes be made. Graulich also suggested the use of cashier's checks in the nominees' names to make the money tracing more difficult.

In September, 1989, final preparations were made. On September 14, Pandolfo submitted the false 15c 2-11 form ¹² to the NQB and his firm, General Bond & Share, entered the Pink Sheets as Monarch's lead marketmaker. Prior to the October 10, 1989, trading date, some modifications were made to the trading schedule.

On October 10, 1989, Sneed joined O'Kelly at Monarch's office in Denver and directed the day's activity. Graulich and Pandolfo had General Bond & Share make the first trade. On October 11, Sneed placed prearranged trades with Schwartz at J.W. Gant & Associates, Inc. That same day, Scott Fitzpatrick (Fitzpatrick) ¹³ opened a nominee account for "John Pergram" at Tri-Bradley Investments, Inc., Englewood, Colorado, and agreed with O'Kelly to trade the stock. The trading continued to October 12, when Fitzpatrick purchased 20,000 shares in the "John Pergram" account, for twelve cents a share.

In five trades over the three trading days, the scheme succeeded in moving the price of Monarch's stock, of which there were 7,500,000 shares issued and outstanding, from five cents to twelve cents a share for a total "value" of $900,000. On October 13, 1989, the SEC, by prior arrangement with the FBI, suspended trading to prevent any possible public trading. In telephone conversations after the suspension, Gundersen and Graulich encouraged O'Kelly not to worry, and said that they should just lay low and could resume trading in a few days. Gundersen told O'Kelly, "We're all covered [and] ... I can provide ... any documents ... [t]hat they have questions about." (Appellee's Addendum, Vol. 2, Tab 1-67A at 4).

ISSUES

Sneed frames the issues on appeal as: (1) Did the trial court err in denying Sneed's Motion to Dismiss the Indictment based on the outrageous conduct of the government; (2) Did the trial court err in allowing the peremptory challenge of a juror, Ms. Low; (3) Did the trial court err in denying Sneed's Motion for Discovery; (4) Did the trial court err in allowing certain prejudicial opinion testimony of FBI Special Agent Coffey; and (5) Was the sentence imposed by the court improper as a matter of law?

I.

Sneed contends that the trial court erred in denying his Motion to Dismiss the Indictment based on outrageous governmental conduct because the governmental agents created, engineered, and directed the undercover sting operation from start to finish. Sneed maintains that the governmental conduct in this instance is so grossly shocking and outrageous that it violates the Due Process Clause of the Fifth Amendment of the United States Constitution and should bar his conviction.

The issue of whether a law enforcement agent's conduct is outrageous is reviewed de novo. United States v. Diggs, 8 F.3d 1520, 1523 (10th Cir.1993).

When the government's conduct during a sting operation is sufficiently outrageous, the courts will not allow the government to prosecute the crimes which are the result of that conduct. United States v. Mosley, 965 F.2d 906, 908 (10th Cir.1992). Under those circumstances, a defendant may assert the outrageous governmental conduct defense, which is based on the Due Process Clause of the Fifth Amendment to the United States Constitution. Id. at 908-09. The outrageous governmental conduct defense is distinct from the entrapment defense because the entrapment defense considers the predisposition of the defendant to commit the crime. Id. at 909; see Jacobson v. United States, --- U.S. ----, ----, 112 S.Ct....