United States v. Johnson, Criminal Action No. 5: 16-045-DCR

CourtUnited States District Courts. 6th Circuit. United States District Court of Eastern District of Kentucky
Writing for the CourtDanny C. Reeves United States District Judge
PartiesUNITED STATES OF AMERICA, Plaintiff, v. CHARLES E. JOHNSON, JR., Defendant.
Docket NumberCriminal Action No. 5: 16-045-DCR
Decision Date05 August 2019


Criminal Action No. 5: 16-045-DCR


August 5, 2019


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Defendant Charles Johnson, Jr. is accused of having committed four violations of the conditions of his supervised release. The evidence presented during the June 27, 2019, hearing demonstrates that the defendant committed all four violations as alleged.


Johnson pleaded guilty in the Eastern District of Virginia to charges of conspiracy in violation of 18 U.S.C. § 371; securities fraud in violation of 15 U.S.C. §§ 78k(b) and 78 ff, 18 CFR § 240, 10b-5, and 18 U.S.C. § 2; tampering with a witness in violation of 18 U.S.C. § 1512(b)(3); and obstruction of an official proceeding in violation of 18 U.S.C. § 1512(c)(2). [Record No. 3-3] He was sentenced to a term of imprisonment of 108 months, followed by a 3-year term of supervised release. [Record No. 3-3, p. 2]

Johnson was ordered to pay restitution jointly and severally with Geoffrey Layne in the amount of $9,700,000.00. As of this date, however, only $10,729.38 has been paid. The United States contends that Johnson has never accepted his guilt and does not believe he should be required to pay restitution. Johnson was directed to use money from tax refunds, lottery

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winnings, inheritances, judgments, and any unexpected financial gains to pay his court-ordered financial obligation. [Record No. 3-3, p. 4] United States District Judge Liam O'Grady entered a restitution judgment setting the monthly payments at a modest $300.00, based upon financial information provided by Johnson. Johnson's case was transferred to the Eastern District of Kentucky for supervision in April 2016. His term of supervision was originally set to expire on April 7, 2019.

Standard terms of Johnson's supervision included that he may not commit federal, state, or local crimes. [Record No. 3-3, p. 3] Additional conditions require that he report to his supervising probation officer as directed, submit truthful and complete written reports within the first five days of each month, and truthfully answer all inquiries from his supervising probation officer. [Record No. 3-3, p. 3] Johnson was also required to provide his probation officer with access to any requested financial information. [Record No. 3-3, p. 4]

Johnson was working as a member-manager of a handful of LLCs following his release from prison. He told his probation officer that he managed Curare and later Privato. He also managed other entities including JW2, Beaumont Noah, Luminary Diffusion Systems, Diffusion Investments, and JJSquared. Johnson, however, did not disclose these businesses to his supervising probation officer or through his monthly reports. [Record No. 39, pp. 17-18] In 2018 and 2019, the defendant facilitated deals on behalf of these companies and also sought money from investors. For example, he received $200,000.00 from Dr. Harry Lockstadt to be used for operating capital. [Tr. 259-60] Additionally, he helped facilitate a deal between DC Solar and Luminary Diffusion Systems. It is alleged that he used the money he received from investors and from business dealings to gamble in Las Vegas.

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Johnson traveled to Las Vegas on multiple occasions and gambled at the Red Rock Casino and the Wynn Casino from the summer of 2018 to the spring of 2019. Johnson's winnings totaled $52,200.00 at the Red Rock Casino. However, he lost $442,190.00 in 2018 at the Wynn Casino, and an additional $34,675.00 in 2019 at that location. [Tr. 87-89; Gov. Ex. 4] Johnson contends that he was gambling in Las Vegas to capitalize his businesses.

The government claims that Johnson has committed four violations of the conditions of his supervised release. First, it claims that Johnson omitted his accounts at the two casinos (Red Rock and Wynn) from Probation Form 48 (that is, his net worth and cash flow statement form). Johnson signed the form declaring under penalty of perjury that the information was true and correct. The United States alleges that Johnson violated 18 U.S.C. § 1001 by not disclosing these accounts. If true, this would be a Grade B violation under the United States Sentencing Guidelines Manual.

On March 13, 2019, Johnson was interviewed by his supervising probation officer and stated that none of the money gambled in Las Vegas was part of a $200,000.00 payment from Dr. Harry Lockstadt. However, the government asserts that a financial analysis demonstrates that up to $25,000.00 of that amount was transferred into his Wynn Casino account. Johnson was asked again on March 14, 2019, if any of the $200,000.00 was used to gamble in Las Vegas and he again stated that it was not. The United States argues that this statement is false in violation of 18 U.S.C. § 1001(a Grade B violation).

Next, the government contends that Johnson did not submit truthful and complete written reports within the first five days of each month. These monthly reports require that Johnson list all expenditures over $500.00. The requirement would include that he report gambling losses. But Johnson did not identify any losses on his 2018 or 2019 monthly reports.

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However, Johnson allegedly lost $442,190.00 during 2018 at Wynn Casino and $34,675.00 in 2019. If true, this would constitute a Grade C violation.

Finally, the government claims that Johnson violated 18 U.S.C. § 1001 by failing to report any gambling losses on his monthly reports. This would constitute a Grade B violation if proven.

An evidentiary hearing was conducted on June 27, 2019. And following briefing, additional arguments were held on August 2, 2019. During this later hearing, the defendant contended that the government did not carry its burden to demonstrate that Johnson had violated any of the conditions of his supervised release.


"Under 18 U.S.C. § 3583(e)(3), a district court may revoke a term of supervised release if it 'finds by a preponderance of the evidence that the defendant violated a condition of supervised release.'" United States v. Jackson, 477 F. App'x 377, 379 (6th Cir. 2012). Thus, the government must show that it is "more likely than not" that Johnson committed the alleged supervised release violations. See United States v. Moses, 289 F.3d 847, 852 (6th Cir. 2002).

i. Alleged Violations of Supervised Release

a. Violation 1

The United States claims that Johnson violated 18 U.S.C. § 1001 by omitting material facts from his net worth statement (Probation Form 48). To show a violation of § 1001, "the government must prove that: (1) the defendant made a statement; (2) the statement is false or fraudulent; (3) the statement is material; (4) the defendant made the statement knowingly and willfully; and (5) the statement pertained to an activity within the jurisdiction of a federal

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agency." United States v. Steele, 933 F.2d 1313, 1318-19 (6th Cir. 1991) (citing United States v. Chandler, 752 F.2d 1148, 1150 (6th Cir. 1985)).

Section 1001 criminalizes (1) falsifying, concealing, or covering up a material fact by any trick, scheme, or device; (2) making any materially false, fictitious, or fraudulent statement, or representation; or (3) making or using any false writing or document knowing it to contain any materially false, fictitious, or fraudulent statement or entry. 18 U.S.C. § 1001(a). A false statement made by a defendant to a supervising probation officer and while on supervised release may be the subject of prosecution under § 1001. See United States v. Vreeland, 684 F.3d 653, 664-65 (6th Cir. 2012) (holding that the judicial function exception to § 1001 does not apply to conversations between probation officers and defendants while on supervised release).

A statement is material if it has "a natural tendency to influence, or be capable of influencing, the decision of the decision-making body to which it was addressed." United States v. Gaudin, 515 U.S. 506, 509 (1995). A statement does not have to actually influence the agency to be material. United States v. Rogers, 118 F.3d 466, 472 (6th Cir. 1997). However, it must have the capacity to influence the agency. Id.

Johnson signed Probation Form 48 on October 5, 2018, captioned "declaration of defendant or offender net worth and cash flow statements." The document provides that the defendant declares "under penalty of perjury that the foregoing is true and correct. False statements may result in revocation of supervision, in addition to possible prosecution under the provisions of 18 U.S.C. § 1001, which carries a term of imprisonment of up to 5 years and a fine of up to $250,000.00, or both." [Gov. Ex. 1]

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The government asserts that Johnson's Probation Form 48 contains material misstatements and omissions including:

In Section A of the Assets portion, "Bank Accounts," at a minimum, Johnson failed to include the accounts at the Red Rock Casino, the Wynn Casino, and the JW2 account which he used to pay personal expenses.

In Section K of the Assets portion, "Business Holdings," Johnson omitted that he was the managing member of, inter alia, JW2, Diffusion Investments, Luminary Diffusion Systems, and Privato.

In Section M of the Assets portion, "Transfer of Assets," Johnson omitted any mention of the moneys he transferred from JW2 to Las Vegas casino accounts, which typically passed through his personal account. This section requires inclusion of "any assets that someone else is holding on your behalf."

In Section B of the Liabilities portion, "Other Debts," Johnson omitted the promissory notes reflecting his alleged borrowing from JW2.
Record No. 41, p. 11

Courts have recognized that a defendant's failure to provide accurate information regarding his resources can be material because it can affect restitution orders. For example, the Eastern District of New York found that a defendant filed monthly reports containing false statements and...

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