905 F.2d 1532
UNITED STATES of America, Plaintiff-Appellee,
Frank E. BUTLER, III, Defendant-Appellant.
UNITED STATES of America, Plaintiff-Appellant,
Owen R. THORNTON, Defendant-Appellant.
Nos. 89-5515, 89-5516.
United States Court of Appeals, Fourth Circuit.
Argued Feb. 7, 1990.
Decided May 21, 1990.
NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit.
Appeals from the United States District Court for the Eastern District of Virginia, at Norfolk. J. Calvitt Clarke, Jr., District Judge. (CR-88-53-N)
Stanley E. Sacks, Andrew Michael Sacks, Sacks & Sacks, Benjamin Thomas Reed, Norfolk, Va., for appellants.
Sara Bradkin Criscitelli, United States Department of Justice, Washington, D.C., (Argued) for appellee; Henry E. Hudson, United States Attorney, Joseph A. Fischer, III, Assistant United States Attorney, Justin W. Williams, Assistant United States Attorney, Alexandria, Virginia; James A. Metcalfe, Assistant United States Attorney, Norfolk, Virginia; Mark A. Adler, Rachel Ballow, Third-year Law Student, United States Department of Justice, Washington, D.C., on brief.
E.D.Va., 704 F.Supp. 1338.
Before CHAPMAN and WILKINSON, Circuit Judges, and BUTZNER, Senior Circuit Judge.
Frank E. Butler, III and Owen R. Thornton appeal their convictions by a jury in connection with their involvement in the business activities of the now bankrupt Landbank Equity Corporation, an issuer and seller of mortgage-backed loans. Butler, an attorney, and Thornton, an accountant, challenge their respective convictions on charges of wire fraud, bankruptcy fraud, bank fraud, and participating in Landbank's affairs through racketeering (RICO), on various grounds, including sufficiency of the evidence. They also appeal the district court's denial of their motion for mistrial in connection with a co-defendant's suicide after the jury was impaneled. We find that defendants' assignments of error are without merit and that there is substantial evidence to sustain their convictions. The judgments of conviction are therefore affirmed.
Landbank Equity Corporation was incorporated in September 1980 by William J. Runnells and Frank E. Butler, III for the purpose of making loans to consumers, generally secured by second mortgages, and then selling them on the secondary mortgage market to various financial institutions. Butler was a stockholder and Landbank's first president until he sold his stock and resigned as an officer in 1982. Thereafter, he continued to perform legal work for Landbank including effectuating loan and real property closings, sending delinquency notices, handling foreclosures, and incorporating Landbank subsidiaries. Landbank was initially approved in July 1982 by Federal National Mortgage AssociationMA as a seller/servicer of equity loans and it subsequently sold approximately $20 million in such loans to FNMA. After FNMA terminated its agreement with Landbank following unsatisfactory random audits of Landbank loans, the company obtained a bank "warehousing" line of credit which allowed it to originate loans, and enabled investors to purchase loans by means of wire transfers to the bank account. In September 1985 when Landbank filed for bankruptcy it had sold over $200 million worth of loans to commercial investors.
In April 1988 the grand jury returned a 73-count indictment against appellants and three Landbank officers, William R. Runnells, Jr., Marika Lody Runnells and Ross E. Schumann, Jr. William and Marika Runnells, who were the sole stockholders of Landbank and the alleged "masterminds" of the Landbank scheme, fled the jurisdiction. See United States v. Butler, 704 F.Supp. 1338, 1341 (E.D.Va.1989). Schumann committed suicide after the jury was impaneled but before opening arguments were heard in the case.
The indictment charged that these individuals had used Landbank and its related companies in a scheme to defraud investors who purchased the loans originated by Landbank. The fraudulent activity took three forms, as summarized by the district court. See id. at 1342. First, Landbank "misrepresented the quality of its loans by falsifying credit applications, overstating the credit-worthiness of borrowers and the value of the mortgaged properties, ... misrepresenting the insured status of the loans, ... conceal[ing] delinquencies in loan payments," and "misrepresent[ing] to potential investors its historical delinquency rates." Id. Landbank also submitted to its investors allegedly false financial statements prepared by appellant Thornton.
Second, Landbank originated approximately 100 "insider" first mortgages, mostly on condominium units developed by Landbank-related companies, which recited the names of Landbank employees and family members of Landbank principals as sham borrowers. The loan documents, most of which named Butler as the closing attorney, were falsified to show downpayments that were never made and to overstate borrower income levels and credit information. These loans were sold to investors as loans made to the named individuals. Landbank, however, made the downpayments and subsequently received a deed-back of the properties from the straw borrowers. The loan closings were conducted at Butler's law firm by his secretaries and paralegals, allegedly with his authorization.
Finally, Butler allegedly transferred various pieces of real property owned by Landbank and its related companies, both prior to bankruptcy and after bankruptcy was declared by Landbank on September 17, 1985. Thornton allegedly withheld from the trustee in bankruptcy certain financial records relating to Landbank and its affiliate companies.
After an eight-week trial in which one hundred and twenty-eight witnesses testified, and after nearly seven days of deliberation, the jury returned a verdict against both appellants. Butler was convicted on thirty-five counts of wire fraud in violation of 18 U.S.C. Sec. 1343, nine counts of bankruptcy fraud in violation of 18 U.S.C. Sec. 152, three counts of making false statements to a bank in violation of 18 U.S.C. Sec. 1014, one count charging RICO conspiracy in violation of 18 U.S.C. Sec. 1962(d), and one count charging racketeering activity in violation of 18 U.S.C. Sec. 1962(c). The jury convicted Thornton on twenty-one counts of wire fraud in violation of 18 U.S.C. Sec. 1343, one count charging a RICO conspiracy in violation of 18 U.S.C. Sec. 1962(d), one count charging racketeering activities in violation of 18 U.S.C. Sec. 1962(c), and one charge of making false statements to a bank in violation of 18 U.S.C. Sec. 1014. The district court denied appellants' numerous post-trial motions.
This appeal followed.
Appellants contend that the district court erred in denying their motion for mistrial after co-defendant Schumann's suicide. On the Monday on which opening arguments were to have been heard in the case, Schumann failed to appear in court. The district judge continued the case until the following Thursday, informing the jury that it was necessary to investigate Schumann's absence. It was determined that he had committed suicide during the intervening weekend. Butler filed a motion for mistrial. The district court denied the motion after hearing arguments from the parties. On appeal, Butler and Thornton argue that the court's failure to grant a mistrial was reversible error. They contend that Schumann's suicide could suggest to the jury that he was guilty and that, because Schumann was named with them in many of the same counts, an inference that Schumann was guilty on a particular count would unfairly prejudice them.
We disagree. First, it is not at all clear that the fact of the suicide was inherently prejudicial to appellants. Butler and Thornton did not dispute that Landbank "insiders" such as Runnells and Schumann had committed fraud. Instead, both appellants sought to defend, at least in part, by placing the blame on the "insiders" who they claim masterminded the scheme. Butler and Thornton sought to argue that in their roles as attorney and outside accountant, respectively, they did not know of or participate in the fraudulent activities. On that theory, an inference of guilt on the part of Schumann based on his suicide was consistent with appellants' trial defense.
In any event, however, the district court carefully considered the possible effect of Schumann's suicide on the jurors and we decline to overturn its conclusions. As the court noted, these jurors had been extensively instructed to avoid discussing the case with anyone and to refrain from reading any newspaper or other accounts relating to it. Thus this jury was less likely to have been tainted by any out of court discussion of the suicide than a new jury might have been. Indeed, there is no evidence in the record that any of the jurors had actually heard of the suicide prior to learning of it from the district judge.
The trial judge conducted individual voir dire of each of the jurors. He informed each of them of the suicide and then asked whether knowledge of that fact would raise any inference in his or her mind as to the guilt of co-defendants Butler and Thornton. The court concluded each interview by reminding the juror that he or she was to decide the case as to Butler and Thornton only on the basis of evidence presented in the courtroom. The court excused one alternate juror but stated that it had "absolutely no reservation" about going forward with the rest of the jurors who "answered unequivocally ... that they found no inference of guilt against [appellants] and that they could divorce themselves from any consideration of the suicide." Jury Selection Proceedings, Sept. 22, 1988, at 620.
The "trial judge will always be in a better position than the appellate judges to assess the probable reactions of jurors in a case over which he has presided" and "we ought to accept his judgment unless we have a very strong conviction of error." United States v. Key, 859 F.2d 1257, 1264 (7th Cir.1988) (quoting United States v. Bruscino, 687 F.2d 938, 941 (7th Cir.1982) (en banc )). We decline to second-guess the determination made here by the district judge who "assess[ed] the partiality of [each] juror ... in a face to face appraisal." United States v. Gaggi, 811 F.2d 47, 53 (2d Cir.1987) (considering possible prejudice to jurors of murder of co-defendant during trial). See United States v. Goodman, 605 F.2d 870 (5th Cir.1979) (upholding district court's refusal to grant a mistrial after suicide of co-defendant).
Appellant Butler also contends that there is insufficient evidence to sustain his convictions. Butler's main argument, made in his post-trial motions and renewed on appeal, is that there is insufficient evidence that he "knew or willfully participated in any fraudulent scheme." Butler, 704 F.Supp. at 1346. We find, however, that taking the evidence in the light most favorable to the government, there is ample evidence to sustain the jury verdict. See Jackson v. Virginia, 443 U.S. 307, 319 (1979).
As to the bank fraud and wire fraud counts, Butler contends that his only connection with the fraud is that he was allegedly the closing attorney on the "insider" loans. He argues, however, that secretaries and paralegals prepared the loan documents for the mortgage closings and signed his name to the documents and "attorney certification letters." He contends that he was not present at or personally involved in the closings, and that he did not know that the borrowers were strawmen. The district court rejected this argument in its denial of Butler's post-trial motions and we agree with its reasoning. See Butler, 704 F.Supp. at 1346-47, 1349.
The evidence at trial showed that Butler was named as the closing attorney on most of the insider "straw loans," id. at 1349, and the testimony of other witnesses undermined Butler's claim that he was unaware of the nature of these loans. The secretaries and paralegals who handled these loan closings testified that they were authorized to sign Butler's name to the documents. They understood that the insider loans were to be treated differently than other loans. For example, the borrowers did not come to the office to sign, but instead the law firm secretary would notarize the documents on Landbank's representation that the borrower had signed in its offices. The loans were also handled at mass closings in which there would be multiple loan packets for the same insider. Imelda Greene, the Landbank employee who originated the loan packets, testified that at least one of the law firm secretaries who was responsible for these loan closings knew that the recited downpayments on the loan documents were not to be collected. One secretary even kept a chart of the insider loans visibly displayed on the wall in her office. In addition, it would have been clear to the closing attorney from the face of the loan documents that the properties were financed 100%.
By his own admission, Butler did close a sale of a property on which his son, Frank E. Butler, IV, was the straw borrower. Id. at 1349. In addition, the testimony of several Landbank employees supports the conclusion that Butler knew the nature of other specific insider loans. Former Landbank employees Imelda Greene, William Duckworth and William Deal testified that, on several occasions, they had each discussed with Butler some issue in connection with the insider loan transactions. Id. Deal, who had unknowingly signed for six insider mortgage loans on which Butler was the closing attorney, testified that he complained about this to Butler and asked him to contact the lenders. According to Deal, Butler responded that "[I]t was a big mess, and a lot of his friends were involved in it" and "[t]here was nothing he could do." 23 Transcript of Trial Proceedings at 3749. Thurman Lea, an attorney on Landbank's staff, testified that Butler had reviewed indemnification letters which Lea had prepared to allay the fears of Landbank employees whose names appeared on the insider loans.
Evidence of Butler's frequent and significant contact with Landbank and its principals also tends to undermine Butler's contention that, at most, he closed the loans, but he knew nothing of the arrangements that Landbank had with its borrowers and investors. Butler was involved in the initial incorporation of Landbank, appeared at its offices several times a week, participated in Landbank's Board of Director's meetings and, along with his law firm, garnered substantial legal fees from Landbank loan closings.
Although Butler contradicted some of this evidence in his testimony at trial, it was within the province of the jury to weigh his credibility against that of the other witnesses and believe or disbelieve his version of the facts. See Butler 704 F.Supp. at 1350. We agree with the district court that the jury verdict on these counts was amply supported by the evidence.
We also find no merit in Butler's claim that there is insufficient evidence to support his convictions on the bankruptcy fraud counts. Butler contends, inter alia, that the properties he transferred after the date that Landbank declared bankruptcy were not within the estate of Landbank and that his purchase of properties from Landbank subsidiaries and subsequent sale of them to third parties was not unlawful. The district court rejected all of these arguments when they were raised in Butler's post-trial motions. See id. at 1347.
The court noted that there was "extensive evidence" that the properties transferred by Butler had been owned by companies belonging to William Runnells which were merely his "alter egos." Id. at 1347. See also In Re Runnells, 815 F.2d 969, 970 (4th Cir.1987) (holding that various subsidiaries owned by Runnells were "affiliates" within the meaning of an injunction prohibiting the transfer of property of the bankrupt, Landbank Equity Corp). The court concluded that "[t]he jury could fairly find that the property belonged to Landbank in fact if not in name and that Butler knew of this." Butler, 704 F.Supp. at 1347. As to the properties which Butler himself acquired and then transferred, he is culpable because his action "had the effect of concealing the asset[s] of a debtor in bankruptcy," United States v. Center, 853 F.2d 568, 571-72 (7th Cir.1988), or in contemplation of bankruptcy.
Finally, our review of the record satisfies us that there is sufficient evidence to support Butler's conviction on the RICO counts, see Butler, 704 F.Supp. at 1348, and we find no merit in his remaining assignments of error.
Appellant Thornton challenges the sufficiency of the evidence to support his convictions on the wire fraud and RICO counts. Thornton claims that the government failed to show that he had knowledge of Landbank's fraud or that his acts were intended to further its fraudulent purposes. We find that there is sufficient evidence to support the jury's verdict on all counts.
The government's case is based on evidence of Thornton's role in keeping Landbank's books and records and in preparing allegedly misleading audited financial statements that Landbank sent to investors to demonstrate its solvency and to promote its loan packages. The evidence at trial tended to show that Thornton's inaccurate audit reports were part of a scheme to distort the character of Landbank's finances. Kathleen McGaughey, an auditor who examined Landbank's financial situation, an FBI agent who investigated Landbank, and another auditor who was retained by Landbank all testified at trial to inculpatory statements made by Thornton. These statements tended to show that he was aware of Landbank's activities and problems at the same time that he was publicly proclaiming to investors the accuracy of the financial statements and the financial health of the company. Information available during the time that these representations were being made, such as overdraft information and delinquency reports, shows that Landbank's true situation was not as Thornton represented it to be.
Fred Smolen, an accountant-expert witness for the government, testified to various ways in which Thornton's financial representations were false. For example, amounts listed as income for the sale of loans failed to account for Landbank's repurchase promise and servicing obligations and thus overstated Landbank's income and net worth. The statements also did not reflect substantial foreclosure losses sustained by Landbank, by representing that the loans had been acquired by a Landbank subsidiary. (The minutes of a June 1984 meeting at which Thornton was present reveal that it was Thornton's suggestion that Landbank hide foreclosure losses in this manner.) Thornton also failed to include certain other transactions between Landbank and its subsidiaries, some of which were ultimately found to have no legitimate business purpose.
Contrary to Thornton's assertion that he was ignorant of Landbank's investment activities, the evidence supports the conclusion that Thornton knew that his financial statements were being used to find investors for the loan packages. For example, the minutes of the June 1984 meeting include discussion of Landbank's warehousing arrangement by which it funded mortgages until they were purchased by investors. Thornton's claim of ignorance is also undermined by evidence that he was frequently present at the Landbank offices and received a large part of his income from Landbank accounting work. The evidence also tends to show that Thornton was aware of the insider loans. He signed false employment verification forms in connection with them and had access to Landbank's books and records, which would have shown that Landbank rather than the employee was the actual payor. We find that there is ample evidence from which a rational jury could have concluded that Thornton was part of a "scheme or artifice to defraud" by the unlawful use of the wire. 18 U.S.C. Sec. 1343.
We also conclude that there is sufficient evidence to support Thornton's conviction on the count of conspiracy to commit racketeering activity. The facts and circumstances outlined above are sufficient for a jury to infer Thornton's participation in the conspiracy in connection with Landbank's fraudulent activities. See United States v. Norris, 749 F.2d 1116, 1121 (4th Cir.1984) (in a conspiracy count, guilt may be inferred from the circumstances). Finally, we find no merit in Thornton's other assignments of error.
The judgments of conviction are therefore