USA v. Midkiff
| Decision Date | 16 July 2010 |
| Docket Number | No. 08-3493.,08-3493. |
| Citation | 614 F.3d 431 |
| Parties | UNITED STATES of America, Appellee, v. Neulan Dae MIDKIFF, Appellant. |
| Court | U.S. Court of Appeals — Eighth Circuit |
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Douglas Olson, argued, Minneapolis, MN, for appellant.
Tracy Lynne Perzel, argued, Minneapolis, MN, for appellee.
Before WOLLMAN, BYE, and MELLOY, Circuit Judges.
Following a nineteen-day trial, Neulan Dae Midkiff was convicted of conspiracy, mail and wire fraud, and failure to file tax returns. He appeals, contending that the district court 1 improperly joined the failure-to-file charges with the other charges and abused its discretion in denying his motion for relief from prejudicial joinder. Midkiff also challenges the admission of certain evidence and contends that his 180-month sentence is unreasonable. We affirm.
In 2001, Travis Correll founded Horizon Establishment (Horizon), a purported investment company. He collected approximately $175,000 from his friends and family to invest with a New Zealand businessman who offered an opportunity to invest in a high-yield international banking program. The program allowed investors to pool funds, which were supposedly leveraged to make multiple loans and generate significant income. Correll invested $100,000, and the businessman absconded with the money. Correll did not report the theft to law enforcement officials and did not inform his investors that their money had been stolen. Instead, he began a Ponzi scheme, using the remaining investment funds to pay dividends and enticing new investors with the promise of substantial returns.
Midkiff was selling insurance products and operating the Shiloh Church in Forest Lake, Minnesota, in 2001. He had heard about Correll and the Horizon investment program through an acquaintance. Midkiff contacted Correll in August 2001, and they met to discuss the high-yield international investment opportunity that Correll was offering. Shortly thereafter, Midkiff met with Correll for a second time and invested $20,000. Midkiff anticipated monthly returns of $1,800. Matt Goers, a pastor at Shiloh Church, accompanied Midkiff to the second meeting and decided to invest $100,000 with Correll. For bringing Goers into the Horizon program, Correll paid Midkiff a $1,000 monthly finder's fee, which Midkiff could expect to receive for the life of Goers's investment.
Midkiff began referring investors to Horizon in April 2002. He received a finder's fee for every investor he brought into the program and also for investors who came to the program through investors linked to Midkiff. The finder's fee was typically one percent of the investment placed with Horizon, paid monthly. Members of the Shiloh Church, Midkiff's relatives and neighbors, people within the Forest Lake community, and others heard about the investment program. Some early investors had seen Goers's monthly interest checks. When potential investors approached Midkiff, he explained the investment program and encouraged them to ask current investors about Horizon's monthly interest payments.
In the spring of 2002, Midkiff established Via Comp Financial (Via Comp) and billed himself as a financial consultant. With Correll's financial assistance, Midkiff secured office space in Blaine, Minnesota, where he met with potential investors. Midkiff generally described the Horizon investment as an international banking program in which an individual's investment would be pooled with funds from other investors until the pool reached $1 million. The pooled money would then be sent overseas to the World Bank. World Bank, in turn, would leverage the investment to lend that amount several times over, thereby generating a high monthly rate of return. Investors were promised monthly interest payments from Horizon at a rate of six to eight percent of their investment.
Investors placed funds with Horizon based on the regular interest payments, Midkiff's explanation of the investment, his purported background as a financial consultant, and his status within Shiloh Church. They entered into one-year contracts with Horizon. At the end of the year, most investors chose to renew their contracts and continue receiving interest payments from Horizon. Although they were allowed to withdraw their principal investment at the end of the contract's term, Midkiff cautioned some investors that they would be barred from further investments with Horizon if they withdrew the funds.
In the fall of 2003, the Minnesota Department of Commerce received a complaint regarding Midkiff and Via Comp. Jerry Watkins, Midkiff's business associate, had used Via Comp letterhead to send information about the Horizon investment to potential investors. In October 2003, investigator Deborah Knooihuizen requested information about the investment, the offering, and the investors. The investigator included a copy of a consumer alert detailing signs of fraud schemes. Warning signs included excessive guaranteed returns and references to fake financial instruments and the World Bank. After some initial correspondence, Midkiff responded through his attorney, stating that the investment was his personal investment and that he was not selling any investment products. Midkiff's attorney declined Knooihuizen's request for further information. The Department of Commerce closed its investigation.
In April 2004, Watkins formed Central Financial Services (CFS). Although Midkiff's name was not on the corporate formation documents or the CFS bank account, Midkiff told investors that CFS was his company, and investors believed that Watkins was Midkiff's assistant.
Watkins had learned that Wade West of West Wing Financial (West Wing) was offering an investment program similar to Horizon's. The West Wing offering involved overseas banking and an eight percent monthly rate of return on a $1 million investment. Midkiff and Watkins began soliciting investors for the West Wing investment in May 2004, planning to split two percent of the monthly return and pay investors the remaining six percent. They told the investors that the West Wing investment was separate from the Horizon investment and offered a better rate of return. Midkiff explained that the $1 million investment principal would be “leveraged against,” meaning that investors could not lose their principal because it would remain in the bank. After Midkiff and Watkins had secured $1 million from CFS investors, Watkins wire transferred the funds from the CFS bank account to West Wing.
Shortly after completing the wire transfer, Midkiff learned that the Federal Bureau of Investigation (FBI) had visited the Wyoming State Bank and inquired about the CFS wire transfer. According to Midkiff, the FBI was concerned about certain expenditures being made by the wire recipient. Watkins asked West Wing to confirm that the $1 million remained intact, and he received a letter stating that the funds were secure. Midkiff and Watkins began collecting funds for a second investment program with West Wing.
CFS did not receive an interest payment from West Wing when it was due in June 2004. Rather than informing investors, Midkiff and Watkins made supposed interest payments from the funds they had collected for the second program. West Wing made its first interest payment at the end of June and its second payment in August. The August payment was a second-party check payable to Wade West and signed over to CFS. Midkiff and Watkins paid themselves $27,500 each from the second payment. By the end of August, Midkiff and Watkins knew that the $1 million investment had been stolen.
Instead of reporting the theft, Midkiff contacted Correll for advice. Correll agreed to enter $1 million in a standard Horizon contract on behalf of the Joshua Tree Group (JTG), Midkiff's new business entity. Under this scheme, JTG received monthly interest payments from Horizon and Horizon deducted a portion of JTG's monthly return for payment on the $1 million it owed to Horizon. JTG received approximately $134,000 in interest each month, from which it paid interest to the West Wing investors. Midkiff and Watkins replaced the West Wing investor contracts with JTG contracts and placed the funds they had collected for the second West Wing program with Horizon.
Adding to CFS's problems, the Minnesota Department of Commerce issued an order for written statement, production of documents and report of sales to Watkins in August 2004. The department had received a written complaint that Midkiff and Watkins were selling securities through CFS. Accordingly, the department sought information related to the investors participating in the CFS investment and the details of the investment. Watkins provided a copy of the order to Midkiff, and they discussed their response. Watkins responded to the order through an attorney, who advised the department that CFS was no longer operating. CFS agreed to enter into a consent order to cease and desist their operations in Minnesota.
Two weeks after the Department of Commerce sent its order to Watkins, Midkiff began forming JTG in the state of Nevada.
In mid-2004, Correll decided that Horizon would no longer accept individual investments, but rather would require intermediaries to pool funds for investment in amounts no less than $1 million. Interest payments would be made from Horizon to the intermediary, who would then disburse the funds to the individual investors. Midkiff utilized an entity called the Padanaram Trust as the intermediary for the first two pooled investment contracts with...
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