In the Courts

The district court sentenced the appellant to 72 months: 48 months for count one and a mandatory 24 months for count two. Calculating that sentence, the court agreed with the presentence report's recommendation of a six-level enhancement in offense level because the crimes involved more than 250 victims. The court dismissed the appellant's argument that these individuals were not victims because they had been reimbursed by their banks.

The First Circuit upheld the lower court's ruling. The Panel's decision examined U.S. Sentencing Guidelines ' 2B1.1, which provides a six-level increase for certain economic crimes should the offense involve 250 or more victims. The Guidelines definition for “victim” (in the application notes) includes “any person who sustained any part of the actual loss determined under subsection (b)(1) ' .” The court found that the language “sustain any part of” meant that the losses in question need not be permanent. Because the card holders were unable to access money at least at some point, they suffered the initial loss.

The First Circuit expressly declined to follow the holding of the Sixth Circuit Court of Appeals that such reimbursed individuals were not “victims” for the purposes of section 2B1.1 because they had not suffered actual pecuniary harm. Rather, the First Circuit looked to the victim statements describing their losses, even if temporary, in clear terms. In addition, the panel found that other areas of the application notes supported its reading of the definition of “victim,” an approach that had been adopted by the Eleventh Circuit.

In a related decision, the same First Circuit panel dismissed a co-conspirator's appeal (which asserted the same sentencing enhancement claim) because it found that he had validly waived his right to appeal. See United States v. Tar-Esayan, No. 07-2419, 2009 WL 1815414, *1 (1st Cir. Jun. 26, 2009).

Supreme Court Says Hung Jury on Some Counts Does Not Affect Analysis of Meaning of Acquittal Counts

In Yeager v. United States, the U.S. Supreme Court reversed a U.S. Court of Appeals for the Fifth Circuit decision denying the defendant's motion to dismiss on the basis of the Double Jeopardy Clause of the Fifth Amendment. Yeager v. United States, 129 S. Ct. 2360, 2370-71 (Jun. 18, 2009). Specifically, the Court found that potential inconsistency between a jury's acquittal on certain counts and its failure to reach a verdict on others could not affect the determination of whether the acquittal precluded retrial on the hung counts.

The defendant was the Senior Vice President of Strategic Development at Enron Broadband Services (“EBS”). As a part of that role, he was responsible for developing the Enron Intelligent Network (“EIN”), a fiber optic network allegedly publicly touted by defendant and others. Ultimtately, the project had significant technical problems and was never completed. Prior to that, Yeager had sold significant amounts of stock at a considerable gain.

The government indicted and prosecuted Yeager on counts of conspiracy to commit securities and wire fraud, securities fraud, wire fraud, insider trading, and money laundering. After trial, the jury acquitted Yeager on the fraud counts but hung on the insider trading allegations. When the government indicted the defendant again on the insider trading counts, Yeager moved to dismiss the case, claiming that the fraud acquittals had determined that he did not possess material, non-public information about the performance of the EIN project. The district court denied Yeager's motion, finding that the jury did not necessarily reach that conclusion as part of their acquittal. The Fifth Circuit agreed with the district court's conclusion but reasoned that the jury had determined as part of its acquittals that Yeager did not have insider information. But, because the jury failed to acquit the defendant on the insider trading counts, the Fifth Circuit panel found it impossible to determine exactly what the jury had concluded. Thus, the issue was not precluded from retrial.

The Supreme Court reversed. The Court found that the Fifth Circuit's estoppel analysis was erroneous. Specifically, the Court of Appeals erred in considering the hung count in determining what the jury found as part of its acquittal. It examined its prior jurisprudence which found that courts had to look at the record to determine what the jury necessarily decided as part of its verdict. Because the hung count was not a part of the record, it had no meaning for purposes of this analysis. Reviewing the precedent cited by the government, the Court found further support for this notion.

Ultimately, the Court declined to conduct the “fact-intensive analysis of the voluminous record” required to apply this standard to determine whether the jury verdict actually precluded retrial on the insider trading counts. Rather, it remanded the case to the Court of Appeals, inviting the Fifth Circuit to revisit its factual analysis if necessary.

Justice Kennedy concurred, noting that the Court should have expressly instructed the lower court to undertake the fact-specific analysis under this new standard.

Justice Scalia penned a dissent in which he examined the history of the Double Jeopardy clause and objected to extending precedent that departed from the original meaning of the clause.

Justice Alito, in a separate dissent, urged the strict application of the standard set out in Ashe v. Swenson, 397 U.S. 436 (1970), and suggesting that that standard may not have been met in this case.

Eighth Circuit Holds That 'Honest Services' Need Not Be Specifically Pleaded

The U.S. Court of Appeals for the Eighth Circuit upheld the conviction of Mustafa Redzic for mail and wire fraud and conspiracy based on a theory of deprivation of honest services theory, even though the government did not expressly identify “honest services” fraud in its indictment. United States v. Redzic, Nos. 08-2418, 08-3662, 2009 WL 1751873, *6 (8th Cir. Jun. 22, 2009).

Redzic operated a truck driving school in St. Louis, where he worked with a commercial drivers license (“CDL”) tester ' Troy Parr ' to get his students tested and certified for their CDLs. Parr ultimately agreed to shorten the CDL test or not give it at all to Redzick's students, but still submit paperwork to the State of Missouri indicating that they had completed the full test. On many occasions, Redzick gave Parr additional cash payments on top of his normal fees.

After a trial, Redzic was convicted of mail and wire fraud under 18 U.S.C. ” 1341 & 1343, bribery under ' 666(a)(2), and conspiracy.

The court examined the mail and wire fraud statutes and the subsequent expansion of the definitions therein to include “honest services fraud.” Specifically, 18 U.S.C. ' 1346 provided that the mail and wire fraud statutes would “includes a scheme or artifice to deprive another of the intangible right to honest services.” As such, the provision did not actually create a new offense, but rather expanded the definition of an existing offense.

The court rejected Redzic's argument that the government's failure to use the phrase “honest services” or assert an honest services theory in the indictment, at trial, or in the jury instructions precluded his conviction on an honest services theory in that such a conviction would be an improper constructive amendment of his indictment violating the Fifth Amendment.

Specifically, the court found that the factual allegations outlined in the indictment detailed the essential elements of the crime in question. Further, the court found that, even though there was not a specific reference to ' 1346, because this was not a separate substantive offense a specific cite to the definition was unnecessary.

The court also dismissed Redzic's argument that the indictment failed to fairly inform him of the conduct he was on trial for. The court found that the indictment detailed the conduct at issue, including the steps taken to submit false paperwork to the State of Missouri. The indictment also included the substantive statutes.

The court also disagreed with Redzic's claim that the government only relied on a “loss of property” theory at trial. The court found that the government referred to the basic theory in its closing argument and made it clear that the State of Missouri had lost value due to the Defendant's scheme.

Finally, the court found that the jury instructions properly explained the elements of mail and wire fraud. Id. at *5. The instructions even suggested the involvement of a state agent. Further, they only claimed that the crime “includes” the deprivation of property, and were not necessarily limited to a particular target of the fraud. The court also dismissed the defendant's other claims. It found that the evidence presented at trial was sufficient to support his conviction of bribery under 18 U.S.C. ' 666(a)(2). Having found the substantive convictions sufficient, the dourt also declined to reverse the related conspiracy counts.

In the Courts and Business Crimes Hotline were written by Associate Editor Kenneth S. Clark and Peter A. Farrell, both Associates at Kirkland & Ellis LLP, Washington, DC.

First Circuit Determines Reimbursed Fraud 'Victims' Count for Sentencing Enhancement

In United States v. Stepanian, No. 08-1053, 2009 WL 1815420, *1 (1st Cir. Jun. 26, 2009), the First Circuit Court of Appeals upheld the Defendant's sentence, finding that the multiple-victim enhancement applied by the lower court was appropriate even though the “victims” at issue had been reimbursed for financial losses by their financial institutions.

After being arrested ' along with several cohorts ' for using fake automatic payment machines to steal credit card information from grocery store shoppers, the appellant had been charged with, and pleaded guilty to, conspiracy to violate 18 U.S.C. ' 1029(a)(2) (trafficking in and using one or more unauthorized access devices with intent to defraud), and aggravated identity theft in violation of 18 U.S.C. ' 1028A(a)(1).

The district court sentenced the appellant to 72 months: 48 months for count one and a mandatory 24 months for count two. Calculating that sentence, the court agreed with the presentence report's recommendation of a six-level enhancement in offense level because the crimes involved more than 250 victims. The court dismissed the appellant's argument that these individuals were not victims because they had been reimbursed by their banks.

The First Circuit upheld the lower court's ruling. The Panel's decision examined U.S. Sentencing Guidelines ' 2B1.1, which provides a six-level increase for certain economic crimes should the offense involve 250 or more victims. The Guidelines definition for “victim” (in the application notes) includes “any person who sustained any part of the actual loss determined under subsection (b)(1) ' .” The court found that the language “sustain any part of” meant that the losses in question need not be permanent. Because the card holders were unable to access money at least at some point, they suffered the initial loss.

The First Circuit expressly declined to follow the holding of the Sixth Circuit Court of Appeals that such reimbursed individuals were not “victims” for the purposes of section 2B1.1 because they had not suffered actual pecuniary harm. Rather, the First Circuit looked to the victim statements describing their losses, even if temporary, in clear terms. In addition, the panel found that other areas of the application notes supported its reading of the definition of “victim,” an approach that had been adopted by the Eleventh Circuit.

In a related decision, the same First Circuit panel dismissed a co-conspirator's appeal (which asserted the same sentencing enhancement claim) because it found that he had validly waived his right to appeal. See United States v. Tar-Esayan, No. 07-2419, 2009 WL 1815414, *1 (1st Cir. Jun. 26, 2009).

Supreme Court Says Hung Jury on Some Counts Does Not Affect Analysis of Meaning of Acquittal Counts

In Yeager v. United States, the U.S. Supreme Court reversed a U.S. Court of Appeals for the Fifth Circuit decision denying the defendant's motion to dismiss on the basis of the Double Jeopardy Clause of the Fifth Amendment. Yeager v. United States , 129 S. Ct. 2360, 2370-71 (Jun. 18, 2009). Specifically, the Court found that potential inconsistency between a jury's acquittal on certain counts and its failure to reach a verdict on others could not affect the determination of whether the acquittal precluded retrial on the hung counts.

The defendant was the Senior Vice President of Strategic Development at Enron Broadband Services (“EBS”). As a part of that role, he was responsible for developing the Enron Intelligent Network (“EIN”), a fiber optic network allegedly publicly touted by defendant and others. Ultimtately, the project had significant technical problems and was never completed. Prior to that, Yeager had sold significant amounts of stock at a considerable gain.

The government indicted and prosecuted Yeager on counts of conspiracy to commit securities and wire fraud, securities fraud, wire fraud, insider trading, and money laundering. After trial, the jury acquitted Yeager on the fraud counts but hung on the insider trading allegations. When the government indicted the defendant again on the insider trading counts, Yeager moved to dismiss the case, claiming that the fraud acquittals had determined that he did not possess material, non-public information about the performance of the EIN project. The district court denied Yeager's motion, finding that the jury did not necessarily reach that conclusion as part of their acquittal. The Fifth Circuit agreed with the district court's conclusion but reasoned that the jury had determined as part of its acquittals that Yeager did not have insider information. But, because the jury failed to acquit the defendant on the insider trading counts, the Fifth Circuit panel found it impossible to determine exactly what the jury had concluded. Thus, the issue was not precluded from retrial.

The Supreme Court reversed. The Court found that the Fifth Circuit's estoppel analysis was erroneous. Specifically, the Court of Appeals erred in considering the hung count in determining what the jury found as part of its acquittal. It examined its prior jurisprudence which found that courts had to look at the record to determine what the jury necessarily decided as part of its verdict. Because the hung count was not a part of the record, it had no meaning for purposes of this analysis. Reviewing the precedent cited by the government, the Court found further support for this notion.

Ultimately, the Court declined to conduct the “fact-intensive analysis of the voluminous record” required to apply this standard to determine whether the jury verdict actually precluded retrial on the insider trading counts. Rather, it remanded the case to the Court of Appeals, inviting the Fifth Circuit to revisit its factual analysis if necessary.

Justice Kennedy concurred, noting that the Court should have expressly instructed the lower court to undertake the fact-specific analysis under this new standard.

Justice Scalia penned a dissent in which he examined the history of the Double Jeopardy clause and objected to extending precedent that departed from the original meaning of the clause.

Justice Alito, in a separate dissent, urged the strict application of the standard set out in Ashe v. Swenson , 397 U.S. 436 (1970), and suggesting that that standard may not have been met in this case.

Eighth Circuit Holds That 'Honest Services' Need Not Be Specifically Pleaded

The U.S. Court of Appeals for the Eighth Circuit upheld the conviction of Mustafa Redzic for mail and wire fraud and conspiracy based on a theory of deprivation of honest services theory, even though the government did not expressly identify “honest services” fraud in its indictment. United States v. Redzic, Nos. 08-2418, 08-3662, 2009 WL 1751873, *6 (8th Cir. Jun. 22, 2009).

Redzic operated a truck driving school in St. Louis, where he worked with a commercial drivers license (“CDL”) tester ' Troy Parr ' to get his students tested and certified for their CDLs. Parr ultimately agreed to shorten the CDL test or not give it at all to Redzick's students, but still submit paperwork to the State of Missouri indicating that they had completed the full test. On many occasions, Redzick gave Parr additional cash payments on top of his normal fees.

After a trial, Redzic was convicted of mail and wire fraud under 18 U.S.C. ” 1341 & 1343, bribery under ' 666(a)(2), and conspiracy.

The court examined the mail and wire fraud statutes and the subsequent expansion of the definitions therein to include “honest services fraud.” Specifically, 18 U.S.C. ' 1346 provided that the mail and wire fraud statutes would “includes a scheme or artifice to deprive another of the intangible right to honest services.” As such, the provision did not actually create a new offense, but rather expanded the definition of an existing offense.

The court rejected Redzic's argument that the government's failure to use the phrase “honest services” or assert an honest services theory in the indictment, at trial, or in the jury instructions precluded his conviction on an honest services theory in that such a conviction would be an improper constructive amendment of his indictment violating the Fifth Amendment.

Specifically, the court found that the factual allegations outlined in the indictment detailed the essential elements of the crime in question. Further, the court found that, even though there was not a specific reference to ' 1346, because this was not a separate substantive offense a specific cite to the definition was unnecessary.

The court also dismissed Redzic's argument that the indictment failed to fairly inform him of the conduct he was on trial for. The court found that the indictment detailed the conduct at issue, including the steps taken to submit false paperwork to the State of Missouri. The indictment also included the substantive statutes.

The court also disagreed with Redzic's claim that the government only relied on a “loss of property” theory at trial. The court found that the government referred to the basic theory in its closing argument and made it clear that the State of Missouri had lost value due to the Defendant's scheme.

Finally, the court found that the jury instructions properly explained the elements of mail and wire fraud. Id. at *5. The instructions even suggested the involvement of a state agent. Further, they only claimed that the crime “includes” the deprivation of property, and were not necessarily limited to a particular target of the fraud. The court also dismissed the defendant's other claims. It found that the evidence presented at trial was sufficient to support his conviction of bribery under 18 U.S.C. ' 666(a)(2). Having found the substantive convictions sufficient, the dourt also declined to reverse the related conspiracy counts.

In the Courts and Business Crimes Hotline were written by Associate Editor Kenneth S. Clark and Peter A. Farrell, both Associates at Kirkland & Ellis LLP, Washington, DC.