U.S. v. Van Waeyenberghe

• Decision Date: 27 March 2007
• Docket Number: No. 05-3370.,05-3370.
• Citation: 481 F.3d 951
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Gary VAN WAEYENBERGHE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

481 F.3d 951

UNITED STATES of America, Plaintiff-Appellee, v. Gary VAN WAEYENBERGHE, Defendant-Appellant.

No. 05-3370.

United States Court of Appeals, Seventh Circuit.

Argued September 6, 2006.

Decided March 27, 2007.

Rehearing Denied April 24, 2007.

Barbara Z. Brook (argued), Office of the United States Attorney, South Bend, IN, for Plaintiff-Appellee.

Daniel W. Hildebrand (argued), Dewitt, Ross & Stevens, Madison, WI, for Defendant-Appellant.

Before ROVNER, EVANS, and SYKES, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

Despite the promising name—First Choice Investment Capital—First Choice should not have been the first choice for any investor. This is because it was a fraud. Set up to market earned automobile receivables (EARs) as an investment opportunity that would return 11% interest on a monthly basis, the program flourished at collecting investors' money. It did not, however, do so well at returning it. Consequently, Gary Van Waeyenberghe, the mastermind behind First Choice and at least one other investment "opportunity," was charged in a 54-count indictment with conspiracy to defraud, 18 U.S.C. § 371, mail fraud, 18 U.S.C. § 1341, wire fraud, 18 U.S.C. § 1343, and money laundering, 18 U.S.C. § 1957. The jury returned a verdict of guilty on all counts, and Van Waeyenberghe appeals, raising a number of issues related to his trial and sentencing.

I.

The details of the programs Van Waeyenberghe ran are dizzying, and not particularly pertinent to the issues he raises on appeal. We thus provide only a brief overview of First Choice and another related program that formed the basis for the charges against Van Waeyenberghe. In 1999 Van Waeyenberghe incorporated First Choice Management Services in Carson City, Nevada, as an investment program purchasing automobile receivables. The premise of the program was that First Choice would own car lots, and investors would put up the capital to purchase receivables on the car loans. In theory, a car buyer would be charged between 18 and 24% interest, and 11% of that would go to the investor. First Choice would keep the remainder as profit.

Van Waeyenberghe started First Choice with the help of several other business acquaintances, most of whom later pleaded guilty and testified against Van Waeyenberghe at trial. Patrick Ballinger had previously worked with Van Waeyenberghe at a company called Yucatan Investments that sold time shares in a Cancun hotel. Dennis Weaver also worked with Van Waeyenberghe at Yucatan. Together the three of them formed First Choice. Van Waeyenberghe named himself as the President and Weaver as the Secretary. At trial Ballinger described himself as Van Waeyenberghe's "right-hand man." Because the three of them had little experience with automobile receivables, they signed a joint venture agreement with a company called Tamarack Funding that had an established automobile receivables program. Despite Tamarack's initial involvement, it left the venture in less than two months. First Choice, however, continued to use Tamarack's materials, altering the name and other pertinent information so that it applied to First Choice.

First Choice's EAR program was remarkably successful. It was marketed by Benny Morris, who was Weaver's nephew. Morris, an experienced insurance recruiter, started a company called Integras Capital Group to market the EAR program. In return for his marketing, he received 16% of First Choice product sales.

Marketers promised investors in the program two security features. First, the investors' money would be kept in segregated Merrill Lynch accounts. By keeping the accounts segregated (or at least claiming to), First Choice avoided the licensing requirements triggered by pooled investments, which are subject to securities laws. Second, the investments would be backed by insurance policies through Lloyd's of London. Many of the former First Choice investors who testified at trial reported that they believed the EAR program would be a secure investment because of the Merrill Lynch accounts and Lloyd's of London insurance.

The EAR investments, however, were never insured by Lloyd's of London, nor did Van Waeyenberghe and his business affiliates use segregated Merrill Lynch accounts except in a handful of the numerous investments in the EAR program. Instead, the vast majority of the investors' funds were simply pooled. The money was kept primarily in an account in a bank in Michigan called Shoreline Bank. First Choice did have a Merrill Lynch general account, but it was not tied to the automobile receivables. Moreover, that account was later closed when Merrill Lynch discovered that First Choice was using its name in marketing materials without authorization. A similar account was then opened at Prudential, but it never contained segregated investor accounts.

The money was also not used to purchase automobile receivables. Van Waeyenberghe and his associates did purchase car lots—a total of 6—that were supposed to supply the automobile receivables. The lots, called Cars Across America, were run by a car salesman named Andrew Compton. But instead of buying automobile receivables, Van Waeyenberghe and Ballinger simply assigned VIN numbers to investors based on the amount of money invested in the program and the dollar amounts Compton reported from the Cars Across America car lots.

The money flowing in from the EAR program was instrumental in the second investment opportunity Van Waeyenberghe established. Called "Real Estate First Mortgages" (RFMs), it was a program based on property purchased by Van Waeyenberghe, Ballinger, and Weaver in Branson, Missouri. Using money from the EAR program, they incorporated "Forever Country Theatres" to purchase a large hotel called the Branson Inn Complex for $26 million. Van Waeyenberghe had a plan to sell fractional interests in the existing rooms at the Branson Inn or in new units that would be built as the complex was remodeled. For as little as $5,000, an investor could purchase an "interest" in the complex. In return the investor would receive a mortgage for a week at the Branson Inn, backed by an insurance policy and a recordable instrument. Investors were promised a 12% return and were also told their money would be placed in a segregated cash management account at a brokerage firm.

Like the EAR program, the RFM program was not actually insured. Moreover, the "mortgages" purchased by investors were not actually mortgages. Notably, the RFM program was taking investor money to purchase mortgages in March 2000, despite the fact that Forever Country Theaters did not close on the Branson Inn Complex until June of that year.

In July 2000, the FBI executed a search warrant at Van Waeyenberghe's home in Mishawaka, Indiana—the site where Van Waeyenberghe conducted most of First Choice's business operations. The government filed the 54-count indictment against Van Waeyenberghe in federal district court in September 2004. In the interim, Van Waeyenberghe signed a consent judgment to conclude a civil action against him by the Securities and Exchange Commission ("SEC").

At trial, a number of Van Waeyenberghe's former business partners in First Choice testified against him. Patrick Ballinger (who was on supervised release for an unrelated 2001 fraud) testified pursuant to a plea agreement entered in conjunction with charges against him and Dennis Weaver arising from the entertainment complex in Branson, Missouri. Ballinger explained his role in the EAR program and his failed attempts to acquire insurance coverage for the automobile receivables. He also described how he had taken Tamarack's materials and replaced the Tamarack name with First Choice. Andrew Compton testified under a letter of immunity about his role in receiving money from First Choice to buy automobiles for Cars Across America car lots. Benny Morris also testified about his role recruiting investors for First Choice. He testified pursuant to a plea agreement for mail fraud in connection with First Choice. Dennis Weaver also testified pursuant to a plea agreement entered on charges arising from the property in Branson. Weaver testified about the incorporation of Forever Country Theaters to buy the Branson property. Two other business associates—Ron Wanek and Perry Mullins—also testified about their respective roles. Wanek testified that he tracked the money from investors and recorded their names. Mullins testified under a grant of immunity and explained that the EAR program had too much investor money and not enough cars.

The jury found Van Waeyenberghe guilty on all counts, and the district court sentenced him to 168 months' imprisonment, two years of supervised release, and restitution of $20.9 million. Van Waeyenberghe appeals.

II.

On appeal, Van Waeyenberghe first argues that the district court erred by failing to contemporaneously instruct the jury that the guilty pleas of the three main government witnesses were not evidence of Van Waeyenberghe's guilt. He also maintains that the court did not properly instruct the jury regarding the weight to be given the testimony of those witnesses who received letters of immunity. Because Van Waeyenberghe never requested a curative instruction following the testimony of Ballinger, Morris, Weaver, Mullins, or Compton, he must show that the district court committed plain error by failing to issue the contemporaneous instruction. Thus, Van Waeyenberghe must show that (1) the district court erred, (2) the error was plain, and (3) it affected Van Waeyenberghe's "substantial rights." United States v. Tolliver, 454 F.3d 660, 664 (7th Cir.2006). If Van Waeyenberghe succeeds in demonstrating as much, we have discretion to correct the error if it "`seriously affects the fairness, integrity, or public reputation of judicial proceedings.'" Id. (quoting United States v. Trennell, 290 F.3d 881, 887 (7th Cir.2002)). The use of a cautionary instruction is "`committed to the...