United States v. Braeger
| Decision Date | 21 February 2023 |
| Docket Number | 21-CR-233 |
| Parties | UNITED STATES OF AMERICA Plaintiff, v. DAVID OSCAR BRAEGER Defendant. |
| Court | U.S. District Court — Eastern District of Wisconsin |
DECISION AND ORDER
The government obtained a ten-count indictment charging defendant David Braeger with bank, wire and mail fraud, and money laundering, arising out of his alleged execution of two separate investment fraud schemes. Defendant filed a number of pre-trial motions, including motions to dismiss several of the fraud counts and to sever for trial the counts pertaining to the two schemes. The magistrate judge handling pre-trial proceedings denied the motion for severance and recommended denial of the motions to dismiss.
Defendant objects. I consider de novo the recommendation on the motions to dismiss, Fed. R. Crim. P. 59(b), but may set aside the order on the severance motion only if it is contrary to law or clearly erroneous, Fed. R. Crim. P. 59(a). I first set forth the allegations in the indictment, which for present purposes must be accepted as true, see United States v Moore, 563 F.3d 583, 586 (7th Cir. 2009), before addressing defendant's motions.
According to the indictment, the “IEF scheme” began in September 2016 when defendant opened a business checking account in the name of the International Energy Fund, LLC (“IEF”) at BMO Harris Bank. (R. 1 at 1 ¶ 2.) In opening this account, defendant represented to the bank that funds deposited into the account would not be used for personal, consumer, or household use. (Id. at 2 ¶ 3.) Defendant purportedly formed IEF to invest in the construction of a geothermal energy plant in Uganda. (Id. at 2 ¶ 4.) To solicit funds for the IEF scheme, defendant distributed private placement memoranda (“PPM”) to potential investors, including J.P. (Id. at 2 ¶ 5.) The PPM defendant distributed to J.P. contained material misrepresentations about IEF's plan to use investors' funds for the Ugandan energy plant. (Id. at 2 ¶ 6.) J.P. relied on those representations, providing defendant with a $100,000 check payable to IEF for investment in the Ugandan energy plant, which defendant deposited into the IEF business account on September 6, 2016. (Id. at 2 ¶¶ 7-8.)
Count one of the indictment charges defendant with bank fraud under 18 U.S.C. § 1344(2), alleging that on September 6, 2016, in furtherance of the IEF scheme and to obtain money in the care, custody and control of BMO Harris Bank, defendant knowingly transferred $10,000 of J.P.'s investment funds from the IEF business account to a Wells Fargo account in the name of another entity, which he used as a pass-through personal account. After transferring the $10,000, he fraudulently spent the money on personal expenses. (R. 1 at 3 ¶¶ 11-14.) Counts two and three also charge bank fraud under § 1344(2), alleging that on September 21, 2016, defendant fraudulently withdrew $21,538.99 from the IEF business account to buy a personal vehicle (R. 1 at 4 ¶¶ 15-16), and on October 27, 2016, defendant fraudulently issued a check for $3000 for the payment of personal legal fees (R. 1 at 5 ¶¶ 1718). Count four of the indictment charges defendant with wire fraud, 18 U.S.C. § 1343, incorporating the background allegations regarding the IEF scheme and alleging that on August 24, 2018, for the purpose of executing the IEF scheme, defendant knowingly sent an e-mail to J.P. intended to continue the deception of J.P. regarding the status of his investment and reduce the likelihood of jeopardizing the IEF scheme. (R. 1 at 6 ¶¶ 19-20.)
The indictment further alleges that in August 2017 defendant formed Blue Star Automotive Fund, L.P. (“Blue Star”), through which he offered and sold shares in an entity ostensibly formed as an investment vehicle to make loans to an Arizona-based auto dealer doing business as Onyx Motorsports. (R. 1 at 7 ¶¶ 21-22.) To solicit investments in Blue Star, defendant made false and misleading material statements and omissions in PPMs and e-mail communications, which investors relied upon in providing funds to defendant. (R. 1 at 7 ¶ 23.) Instead of using the funds for the purposes represented in the PPMs and emails, defendant defrauded investors by making payments to other investors under the guise of legitimate investment returns (i.e., “Ponzi-scheme payments”), paying for personal expenses, and investing in other business ventures unrelated to Blue Star. (R. 1 at 7-8 ¶ 24.)
Count five charges defendant with mail fraud, 18 U.S.C. § 1341, alleging that from August 8, 2017, through August 10, 2017, for the purpose of executing the Blue Star scheme, defendant caused to be delivered by private commercial interstate carrier an investment check for $100,000 from R.G. to defendant. (R. 1 at 9 ¶¶ 31-33.) Counts six, seven, and eight charge wire fraud,18 U.S.C. § 1343, based on three withdrawals defendant made from the Blue Star account between August 15 and August 17, 2017. (R. 1 at 10-11.) Finally, counts nine and ten charge defendant with unlawful monetary transactions, 18 U.S.C. § 1957, based on the purchase of two sports cars with the proceeds of his fraud. (R. 1 at 12.)
Defendant moved to dismiss counts one through three for failure to state an offense and because they are multiplicitous, and to dismiss count four for failure to state a claim. For the reasons that follow, I find that counts one through three fail to state the offense of bank fraud; it is therefore unnecessary to address the multiplicity argument. Count four, however, properly states a wire fraud offense.
Pursuant to Fed. R. Crim. P. 12(b)(3)(B)(v), a defendant may move to dismiss an indictment for failure to state an offense. To survive a motion to dismiss, the indictment must (1) state all the elements of the crime charged; (2) adequately inform the defendant of the nature of the charges so that he may prepare a defense; and (3) allow the defendant to plead the judgment as a bar to any future prosecutions. United States v. White, 610 F.3d 956, 958 (7th Cir. 2010). In reviewing the sufficiency of an indictment, a court should consider each challenged count as a whole and refrain from reading it in a hyper-technical manner; the indictment must be read to include facts which are necessarily implied and construed according to common sense. United States v. Palumbo Bros., 145 F.3d 850, 860 (7th Cir. 1998); see also United States v. Yashar, 166 F.3d 873, 880 (7th Cir. 1999) (). Thus, failure to explicitly include all the elements of the offense in an indictment is not fatal so long as the absent elements can be deduced from the language that is actually included in the charging document. United States v. Ramsey, 406 F.3d 426, 430 (7th Cir. 2005). If, however, the court is unable to discern an essential requirement of the charged offense, the court must grant the motion to dismiss. E.g., United States v. Bruce, 531 F.Supp.2d 983, 989-90 (N.D. Ill. 2008).
Defendant moved to dismiss counts one through three, arguing that they fail to state the offense of bank fraud. He relied on Loughrin v. United States, 573 U.S. 351,365 (2014), which held that to establish an offense under 18 U.S.C. § 1344(2) the defendant's false statement must be “the mechanism naturally inducing a bank (or custodian) to part with its money.” (R. 32 at 1.) Defendant argued that, while the indictment alleges that he made representations to BMO Harris regarding how he would use the IEF business account, the indictment does not allege that this statement was false or material, or that it induced the bank to later part with funds in its control, as charged in counts one, two and three. (R. 32 at 7-8.) The indictment further alleges that defendant made material misrepresentations to potential investors to secure their funds, but it does not allege that these statements were passed on to the bank or that they otherwise induced the bank to later release funds. (R. 32 at 9.) Finally, the indictment does not allege that defendant made any specific false statements to BMO Harris in connection with the three charged withdrawals from the account. (R. 32 at 2-3.) The indictment thus fails to allege an essential element: that defendant made a material false statement that naturally induced BMO Harris to allow him to withdraw money from the account. (R. 32 at 7.)
The government responded that a scheme to defraud can have multiple victims, i.e., a bank and an individual, and the indictment here alleges false statements to both BMO Harris and J.P. (R. 37 at 4.) To the bank, defendant lied about how he would use the account; to the investors, he lied about how he would use their money. (R. 37 at 10.) The government further stated that it would at trial show that there are reasons why banks distinguish between personal and business accounts, and that there are limitations on the uses of the two types of accounts.
“It will, therefore, show that Defendant's representations to BMO, which were false, mattered, and were the mechanism by which he was able to obtain property in BMO's custody.” (R. 37 at 10.) Finally, the government argued that the bank's involvement here was not “wholly fortuitous,” Loughrin, 573 U.S. at 364, in that defendant specifically set up the BMO account for purposes of carrying out his scheme; he needed a business account to make the investment seem legitimate to the victim, and he used the legitimacy of the bank holding custody of J.P.'s money to steal it. (R. 37 at 11-12.)
Defendant replied that, while the government posits a theory as to how the IEF business account played a role in the fraud...
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