United States v. Greenlaw

• Docket Number: 22-10511
• Decision Date: 11 October 2023
• Citation: United States v. Greenlaw, 84 F.4th 325 (5th Cir. 2023)
• Parties: UNITED STATES of America, Plaintiff—Appellee, v. Hollis Morrison GREENLAW; Benjamin Lee Wissink; Cara Delin Obert; Jeffrey Brandon Jester, Defendants—Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

84 F.4th 325

UNITED STATES of America, Plaintiff—Appellee, v.Hollis Morrison GREENLAW; Benjamin Lee Wissink; Cara Delin Obert; Jeffrey Brandon Jester, Defendants—Appellants.

No. 22-10511

United States Court of Appeals, Fifth Circuit

Filed October 11, 2023

Appeal from the United States District Court for the Northern District of Texas, USDCNo. 4:21-CR-289-1, Reed Charles O'Connor, U.S. District Judge

Amy Jeannine Mitchell, U.S. Attorney's Office, Brian W. McKay, Esq., Assistant U.S. Attorney, Northern District of Texas, Dallas, TX, Amanda R. Burch, Assistant U.S. Attorney, U.S. Attorney's Office, Northern District of Texas, Lubbock, TX, for Plaintiff—Appellee.

Kannon K. Shanmugam, Brian M. Lipshutz, Paul, Weiss, Rifkind, Wharton & Garrison, L.L.P., Washington, DC, Hillary Black, Paul, Weiss, Rifkind, Wharton & Garrison, L.L.P., New York, NY, Paul E. Pelletier, U.S. Department of Justice, Criminal Division, Washington, DC, Rose Linda Romero, Esq., Law Offices of Romero Kozub, Hurst, TX, for Defendant—AppellantHollis Morrison Greenlaw.

Guy Lewis, Law Offices of Guy A. Lewis, P.L.L.C., Pincrest, FL, Matthew Nielsen, Bracewell, L.L.P., Dallas, TX, for Defendant—AppellantBenjamin Lee Wissink.

James Burnham, King Street Legal, P.L.L.C., Washington, DC, Brian M. Jorgensen, Jones Day, Dallas, TX, Margaret Adema Maloy, Jones Day, San Diego, CA, Neal James Stephens, Esq., Jones Day, Palo Alto, CA, for Defendant—AppellantCara Delin Obert.

Arthur Lee Bentley, III, Michael Boyce Holleman, II, Esq., Elisha Kobre, Bradley Arant Boult Cummings, L.L.P., Tampa, FL, Jeffrey J. Ansley, Attorney, Arianna G. Goodman, Vedder Price, P.C., Dallas, TX, for Defendant—AppellantJeffrey Brandon Jester,

Before Stewart, Dennis, and Southwick, Circuit Judges.

Carl E. Stewart, Circuit Judge:

Treating the petition for rehearing en banc as a petition for panel rehearing(5th Cir. R. 35 I.O.P.), the petition is DENIED.Our prior panel opinion, United States v. Greenlaw,76 F.4th 304(5th Cir.2023), is WITHDRAWN, and the following opinion is SUBSTITUTED therefor.

In January 2022, a jury convicted United Development Funding ("UDF") executives Hollis Greenlaw, Benjamin Wissink, Cara Obert, and Jeffrey Jester(collectively "Appellants") of conspiracy to commit wire fraud affecting a financial institution, conspiracy to commit securities fraud, and eight counts of aiding and abetting securities fraud.18 U.S.C. §§ 1343,1348,1349 & 2.Jurors heard evidence that Appellants were involved in what the Government deemed "a classic Ponzi-like scheme," in which Appellants transferred money out of one fund to pay distributions to another fund's investors, without disclosing this information to their investors or the Securities Exchange Commission("SEC").Appellants did not refute that they conducted these transactions.They instead pointed to evidence that their conduct did not constitute fraud because it amounted to routine business transactions that benefited all involved without causing harm to their investors.On appeal, they urge this court to view this evidence as proof that they did not intend to deprive their investors of money or property as a conviction under the fraud statutes requires.

Appellants each filed separate appeals, challenging their convictions on several grounds.Considered together, they argue that (1) the jury verdict should be vacated because the evidence at trial was insufficient to support their convictions or alternatively, (2)they are entitled to a new trial because the jury instructions were improper.As explained below, Appellants have demonstrated at least one error in the jury instructions—the intent to defraud instruction.Because this error was harmless, and thus, does not warrant a new trial, we also address Appellants' remaining challenges on the merits.

Appellants also argue that the district court erred in (3) limiting cross-examination regarding a non-testifying government informant; (4) allowing the Government to constructively amend the indictment and include certain improper statements in its closing argument; (5) imposing a time limit during trial; and (6) failing to apply the cumulative-error doctrine.Because these arguments also do not warrant a new trial, we AFFIRM the jury verdict in its entirety.

I.BACKGROUND

UDF finances residential real estate developments, which entails buying land, building the infrastructure, and selling lots or homes built on those lots.Each phase of this development cycle increases the value of the real estate and, in turn, the developer profits when the finished product is sold for more than the costs of development.Real estate developers typically need loans to finance these construction projects, and when they do, they can call UDF.Greenlaw co-founded the company,¹ which offers a group of investment funds—UDF III, UDF IV, and UDF V—to support the developments at each stage of the process.²In return for its loan to developers, the investment fund receives liens on the land, and developers are required to pay back the loans with interest.The money from the interest is then disbursed to the funds' investors as distributions.

A.The Trial

i. Evidence of Undisclosed Advances

Evidence presented at trial revealed that, between January 21, 2011 and December 29, 2015, the process in which Appellants paid UDF III investors their distributions changed.Developers were not paying back the loans quick enough, so UDF III was short on funds to pay its investors' its "general rate of return" of 9.75% per year.Even though this rate was not promised, it was advertised in marketing materials to "broker/dealers and financial advisors."To remedy this, Appellants transferred money, by way of an advance, from UDF IV and UDF V to UDF III to cover the distributions, maintain a high distribution rate, and ensure that UDF III continued to appear lucrative to the investing public.A Federal Bureau of Investigation ("FBI") forensic accountant testified that $66.8 million was transferred to UDF III from UDF IV and UDF V during the relevant period.

Jurors heard evidence about how UDF was able to conduct these transactions.UDF asset manager, Jeff Gilpatrick, testified that developers, like Centurion and Buffington, that had loans from UDF entities would generally submit a request when they needed an advance, and the approval for the advance would come from Jester or Wissink.But emails revealed that, as the date of each distribution drew near, Appellants diverted money from UDF IV and UDF V to UDF III unbeknownst to the developers.As a means to do this, Appellants relied on a clause in the loan agreement between UDF IV and UDF V and its developers that gave Appellants authorization to make advances without notice or input from the developer.Later, UDF relied on this clause to control the advance requests which were funneled into UDF III, even over the objection of the developers.

Obert, Greenlaw, and Jester testified in their own defense at the trial.They contended that these advances amounted to a process which they likened to refinancing a loan with common borrowers.Each time a fund loaned money to another fund it received a specified amount of collateral that was worth more than the loan.Appellants further contended that the advances were beneficial because they allowed UDF IV and UDF V to garner collateralized loans that would generate interest and allowed UDF III to have its loan repaid so it could make distributions to investors and pay its own debts.

Ultimately, as UDF's auditor explained at trial, these advances made it appear as though UDF IV and UDF V had more notes receivable because it was issuing new loans, and it also made it appear as though UDF III's loans were getting paid down successfully, when they were not.To further exacerbate these allegations, UDF's SEC filings stated that UDF V would not engage in affiliate transactions³ and that the source of funds in UDF III would be "cash ... from operations."The Government's theory was that the cash was not from operations, but from investors in UDF IV and UDF V that Appellants used to pay distributions to investors and to repay loans from banks.Moreover, according to the Government, affiliate transactions were exactly what Appellants conducted when they transferred money from one UDF fund to another, even though UDF V's SEC filings stated that it "would not participate in any investments with ... any of [its] affiliates."

ii.Evidence of Other Sources Funding the Scheme

Along with conducting undisclosed advances, jurors heard evidence that Jester and Wissink manipulated developers' cashflow statements before submitting them to auditors, which made the developers appear financially capable of paying off their loans earlier than projected.Appellants also used loan funds for unauthorized purposes and obtained loans from various banks that relied on UDF's SEC filings when deciding whether to issue loans.

Upon the conclusion of evidence, the district court delivered instructions to the jury.After which, they deliberated for "a day and a half" and found Appellants guilty of all charges.The trial lasted a total of seven days.

B.Post Trial

At the presentencing stage, the United States Probation Office collected various victim-impact statements and calculated that Appellants caused an "intended loss" of over one million dollars.The Government argued that this amount was properly calculated and sought restitution reflecting that loss.However, the district court rejected this request and determined that the Government failed to meet its burden to show that restitution should be imposed on Appellants as part of their sentence.Nevertheless, the district court still imposed an enhancement for intended loss and for substantial hardship caused to 25 or more victims.

As a result, Greenlaw was sentenced to 84 months' imprisonment, Wissink and Obert were sentenced to 60 months' imprisonment, and Jester was sentenced to 36 months'...