United States v. Coffman
| Decision Date | 22 July 2014 |
| Docket Number | Case No. 12-5611,Case No. 12-5574,Case No. 12-6090 |
| Court | U.S. Court of Appeals — Sixth Circuit |
| Parties | UNITED STATES OF AMERICA, Plaintiff-Appellee, v. BRYAN COFFMAN and GARY MILBY, Defendants-Appellants. |
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 14a0537n.06
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF KENTUCKY
BEFORE: BATCHELDER, Chief Judge; GUY and MOORE, Circuit Judges.
ALICE M. BATCHELDER, Chief Judge. After a fifteen-day trial in the Eastern District of Kentucky, a jury convicted Bryan Coffman, a Kentucky lawyer, and Gary Milby, a co-defendant who proudly describes himself as an oil man, of various counts of fraud and money laundering. In a scheme involving shell companies and securities in Kentucky oil wells, Coffman and Milby had defrauded almost 600 investors out of over 36 million dollars during a five-year period. The district court sentenced Coffman to 3 00 months in prison and Milby to 240 months in prison. Coffman appeals various aspects of his conviction and sentence. Milby appeals his conviction.1 For the reasons that follow, we AFFIRM.
Before we describe the facts of the case, a little background information about securities in the oil and gas industry is helpful. There are legitimate securities investment plans called oil or gas well-drilling programs. A general partner establishes and manages each program, identifies a suitable drilling location, obtains a lease to the mineral rights for that location, and estimates the cost of drilling and production. The general partner then describes the program in a "Private Placement Memorandum" (PPM), which informs investors of the potential risks and profits of the investment. Investors purchase shares in the program, and, if the program is successful, the oil or gas is sold to local distributors. Investors receive profits via royalty checks.
This tale of the oil man and his lawyer began in 2002. In that year, Coffman prepared documents to form a Kentucky oil-drilling company, Mid-America Oil & Gas, for his client, Milby. In 2003, Milby filed for bankruptcy, employing Coffman as his attorney. Later, in 2004, Coffman prepared for Milby documents to form Mid-America Energy, Inc., a Nevada corporation. Mid-America Energy, Inc., (Mid-America) was a management company that provided funds for the drilling operations of Mid-America Oil & Gas.
Over the next several years, Milby enticed potential Mid-America investors with false promises of large investment returns, often taking them to see oil wells he operated in Adair and Green Counties, Kentucky. Milby, however, knew that because a fractured oil reservoir with spotty oil deposits lies beneath Adair and Green Counties, wells in these counties would never produce the large amounts of oil he promised to Mid-America investors.
After Milby received checks from investors, his office wired the money to Coffman, who managed company funds. Coffman aided Milby in misleading investors to believe that wellsdrilled in Adair and Green Counties would produce extraordinary amounts of oil. Coffman had received a complaint from investors in Texas in 2004 alleging that Milby and Mid-America companies were misusing oil well investor funds and committing fraud. One investor had even said he trusted Coffman because he was a lawyer. But when potential investors contacted Coffman seeking information about Milby, Coffman-knowing that Milby was perpetrating a fraud-vouched for investments in Mid-America and the legitimacy of the operation.
Coffman also directly misled investors. He created Mid-America investor programs and filled out for prospective investors PPMs that included false and misleading information. Investors relied on those PPMs in making investment decisions.
Coffman and Milby utilized forty-two bank accounts in perpetrating the fraud. In 2005 and 2006, Mid-America received $19.3 million from investors but had only $893,000 in revenue from oil sales. Milby and Coffman distributed only a few hundred thousand dollars to Mid-America investors during that period, but used millions of dollars of the investors' money for personal expenses. Coffman knew that the Mid-America investors were receiving only small checks; he had prepared the investors' tax forms showing the amounts of their losses.
By 2006, investors realized that something was rotten in Mid-America, and one of them lodged a complaint with the Securities and Exchange Commission, which began investigating Milby and Mid-America. Several states launched investigations as well, issuing subpoenas and summonses and filing cease-and-desist orders and contempt orders against Milby and Mid-America based upon state securities fraud and other violations. Milby and Coffman received notices of these actions.
In 2006, Coffman suggested starting an off-shore oil investment company because of the legal trouble Mid-America was experiencing in the United States. He and Milby founded Global Energy Group with a Mid-America investor named Victor Tsatskin, a Canadian who had invested in Mid-America oil wells and realized that his investment was worthless. The three men agreed that Coffman would structure Global like Mid-America and that some of the investment sales would occur in Canada. Coffman planned to pocket a large portion of investors' funds and to mislead investors into believing that an independent escrow agent would be holding those funds. Coffman knew that Milby had no intention of drilling wells for Global investors.
All three men traveled to Toronto, Canada, in 2007 to train several Global salespersons. At those sessions, at which Coffman was present, Milby made false claims about oil production, intending that salespersons would repeat those claims to investors. Coffman later prepared the Global PPM for distribution to Global investors.
Throughout 2007 and 2008, Canadian investors provided funds to Global after Global salespersons promoted the investment. Global had little revenue from oil sales, but took in over $ 16 million of investors' money. Coffman took about half of it. Not surprisingly, when returns on their investments were meager, investors became suspicious. One group of investors initiated an investigation through a state agency in 2008. When Coffman was deposed in the course of the investigation, he was evasive and misleading.
Coffman engaged in multiple complicated financial transactions with Global investors' money that made tracing the flow of funds difficult. He moved investors' money through several bank accounts into an investment account that he held with his wife, Megan Coffman, and he later transferred his interest in the investment account to Megan. He funneled investors' funds throughvarious bank accounts, including the account of one of Megan's companies, and into an attorney account in order to purchase a South Carolina condominium where his sister-in-law lived and where he later moved Global's office. Coffman signed documents for the purchase of a $1.5 million yacht and, to make the down payment on it, transferred investors' money through a bank account of a company owned by Megan and through an attorney's escrow account. The yacht became the property of another of Megan's companies.
On October 8, 2008, federal agents executed search warrants at Coffman's Lexington law office and at the South Carolina condominium, seizing documents and computer hard drive data. On December 4, 2009, a grand jury returned an indictment charging Milby, Tsatskin, Coffman, and Coffman's wife Megan, with various fraud and money laundering counts.
After a fifteen-day trial in the spring of 2011, a jury convicted both Milby and Coffman of mail fraud, wire fraud, and securities fraud. The jury also convicted Coffman of conspiracy to commit money laundering and money laundering. Megan Coffman was acquitted of all charges. Upon the Government's motion, the court dismissed all charges against the fourth defendant, Victor Tsatskin, after he pleaded guilty in Canada to a securities fraud charge based upon the same fraud scheme, testified against Coffman and Milby, and later received in Canada an imprisonment sentence of three years. Neither Coffman nor Milby testified at trial.
Coffman's advisory sentencing guidelines range for imprisonment was 324 to 405 months, and Milby's was 262 to 327 months. The court sentenced each defendant below his guidelinesrange, sentencing Coffman to 300 months and Milby to 240 months in prison. Coffman timely appealed his conviction and sentence. Milby timely appealed his conviction.2
Coffman first argues that the evidence was not sufficient to convict him of mail, wire, and securities fraud, or conspiracy to money launder and money laundering. "For sufficiency of the evidence challenges, the relevant question is whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." United States v. Sease, 659 F.3d 519, 523 (6th Cir. 2011) (internal quotation marks omitted). We examine the evidence supporting the conviction for each crime in turn.
To sustain a conviction for mail fraud under 18U.S.C. § 1341, the Government must prove "(1) a scheme or artifice to defraud; (2) use of mails in furtherance of the scheme; and (3) intent to deprive a victim of money or property." United States v. Warshak, 631 F.3d 266, 310 (6th Cir. 2010) (quoting United States v. Turner, 465 F.3d 667, 680 (6th Cir. 2006)). The elements of wire fraud under 18 U.S.C. § 1343 are identical to the elements of mail fraud except that wire fraud's second element requires use of "an interstate wire communication in furtherance of the scheme." United States v. Cunningham, 679 F.3d 355, 370 (6th Cir. 2012) (quoting United States v.Faulkenberry, 614 F.3d 573, 581 (6th Cir. 2010)). The offense of securities fraud under 15 U.S.C. § 78j(b)...
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