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Sufficiency In Wire Fraud Cases: Evidence Must Demonstrate That Acts Were Made In Furtherance Of A Fraudulent Scheme


 criminal appeals attorney, sufficiency in wire fraud cases, evidence must demonstrate that acts were in furtherance of a fraudulent scheme.

U.S v. Durham, Cochran, and Snow

United States Court of Appeals for the Seventh Circuit

Nos. 12-3819, 12-3833 & 12-3867

Decided on: September 4, 2014

Blog By: Stephen N. Preziosi Esq., Criminal Appeals Attorney

Where Appellate Court Reviews For Sufficiency Of Evidence, Review Is De Novo

Issue: Whether there was sufficient evidence to support a criminal conviction for conspiracy to commit wire fraud and securities fraud and whether Defendants’ used the wires in furtherance of that scheme where the evidence produced at trial consisted of single-page printouts reflecting transfers that were meant to be the first pages of much larger exhibits and the Government neglected to introduce additional evidence regarding the circumstances of these transfers.

Summary: Defendants’ were convicted of perpetrating widespread financial fraud at Fair Holding, a respectable company that had been in the business of providing financial services primarily focusing on consumer receivables. Fair Holdings’s accountants soon began questioning its financial statements, raising numerous concerns about third-party loans and noting that they lacked sufficient collateral. As problems mounted, the FBI began a criminal investigation into Fair’s activities after receiving a proffer from a Fair board member who was targeted in a separate investigation. The board member disclosed that Fair was being operated as a Ponzi scheme.

The FBI investigated for approximately 8 months, then sought and obtained authorization to tap Durham, Fair Holding’s CEO’s phone. Recorded phone calls revealed many discussions about how to hide Fair’s true financial status from regulators and investors. The FBI used this evidence to obtain a warrant to search Fair’s office and seize its computer servers, effectively shutting the company down.

Durham was charged with conspiracy to commit wire fraud and securities fraud; and the substantive crimes of wire fraud and securities fraud. Durham challenged the sufficiency of evidence on two counts of wire fraud. The Seventh Circuit Court of Appeals concluded that there was insufficient evidence in the record to establish that these particular wire transfers were made in furtherance of a fraudulent scheme.

See Also: Confrontation Rights At Federal Revocation Hearings: Defendant’s Limited Confrontation And Due Process Rights

Holding: The Seventh Circuit Court of Appeals held that the Government introduced no evidence from which a jury reasonably could conclude that these particular wire transfers were made in furtherance of the fraudulent scheme. The gap in the trial record left the Court no choice but to reverse Defendant Durhams’s conviction on insufficient evidence. Although the single-page print outs were meant to be the first pages of much larger exhibits, the Government failed to introduce additional evidence regarding the circumstances of the transfers.

The Seventh Circuit held that in order to prove that these transfers constituted wire fraud, the Government needed to establish that Defendant 1) was involved in a scheme to defraud; 2) had an intent to defraud; and 3) used the wires in furtherance of that scheme.

The Seventh Circuit held that they review evidence in the light most favorable to the Government and will ask whether any trier of fact could have found the essential elements of the crime beyond a reasonable doubt.

Facts: Defendants’ Timothy Durham, James Cochran, and Rick Snow were convicted of perpetrating widespread financial fraud at Fair Holding. Durham was its CEO, Cochran was its COO and chairman of the board, and Rick Snow was its CFO. Fair Holdings’s accountants soon began questioning its financial statements, raising numerous concerns about third-party loans and noting that they lacked sufficient collateral. As problems mounted, the FBI began a criminal investigation into Fair’s activities after receiving a proffer from a Fair board member who was targeted in a separate investigation. The board member disclosed that Fair was being operated as a Ponzi scheme.

Durham was charged with conspiracy to commit wire fraud. and securities fraud. He challenged the sufficiency of evidence on two counts of wire fraud. The Seventh Circuit Court of Appeals concluded that there was insufficient evidence in the record to establish that these particular wire transfers were made in furtherance of a fraudulent scheme.

Legal Analysis: The Seventh Circuit Court of Appeals held that in order to review sufficiency of evidence, they review the evidence in the light most favorable to the Government and ask whether any trier of fact could have found the essential elements of the crime beyond a reasonable doubt, Unites States v. Love, 706 F.3d 832, 837 7th Cir.2013. In this case, Defendant Durham argues that the evidence was insufficient on Counts 2 and 5. Count 2 involved a transfer of $250,000 from Fair to Fair Holdings; Count 5 concerned a transfer of $50,000 from Fair to Fair Holdings.

The Seventh Circuit held, in order to prove that these transfers constituted wire fraud, the Government needed to establish that Defendant 1) was involved in a scheme to defraud; 2) had an intent to defraud; and 3) used the wires in furtherance of that scheme. Unites States v. Leahy, 464 F.3d 773, 786 7th Cir. 2006

.The Seventh Circuit held that they agreed with Defendant that there was insufficient evidence in the record to establish that these particular wire transfers were made in furtherance of the fraudulent scheme.

Here, the Government introduced single-page printouts reflecting each transfer. At most, the evidence shows that the wire transfers were in fact made; it does not establish that the transfers were made in furtherance of the fraudulent scheme.

The Government intended to introduce additional evidence regarding the circumstances of these transfers, however, they neglected to do so. The single-page printouts were meant to be the first pages of much larger exhibits. The complete exhibits were transferred to the Court of Appeals in connection with this appeal; the exhibits included financial records tracing the money and documenting how it was used. For what it’s worth at this too-late stage of the case, The Court held that these additional documents showed that the $250,000 wire transfer paid for a luxury garage and the $50,000 transfer was used to pay dues at a country club. Consequently, the trial record contained only the single-page printouts showing that the two wire transfers were made. Without the additional documentary evidence, the jury had no evidence about how the money was used.

The Government offers up a Hail Mary in an attempt to salvage these two convictions. Its theory is that the trial evidence was sufficient to show that the modus operandi of the entire scheme involved wire transfers between Fair and Fair Holdings.

The Seventh Circuit held that the argument is problematic because it will essentially transform every wire transfer from Fair to Fair Holdings into a criminal act. The evidence supports the basic theory that Fair Holdings was used to further Defendant’s illicit scheme, but the Government has not established that fraud was its exclusive function. Moreover, because this argument was not raised at trial, Defendant Durham was unable to defend against it.

The Seventh Circuit Court of Appeals reversed on Counts 2 and 5 and remanded for re-sentencing.


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