United States Court of Appeals
June 9, 2008
Elisabeth A. Shumaker
PUBLISH Clerk of Court
UNITED STATES COURT OF APPEALS
UNITED STATES OF AMERICA,
v. Nos. 06-5206 and 06-5207
WAKON IRON REDCORN, JR., and
BRADLEY N. FROST,
STATE OF OKLAHOMA ex rel. KIM
HOLLAND, Insurance Commissioner,
in her capacity as Oklahoma Insurance
Commissioner and as receiver for
Heritage National Insurance Company,
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
(D.C. No. 05-CR-001-SPF)
Kenneth P. Snoke, Assistant United States Attorney (David E. O'Meilia, United
States Attorney, with him on the brief), Tulsa, Oklahoma, for Plaintiff-Appellee.
Robert R. Nigh, Jr., (Clark O. Brewster with him on the brief), Brewster & De
Angelis, Tulsa, Oklahoma, for Defendant-Appellant Bradley N. Frost.
Stanley D. Monroe, Attorney at Law, Tulsa, Oklahoma, for Defendant-Appellant
Wakon Iron Redcorn, Jr.
Daniel D. Draper, III, Draper Law Firm, Owasso, Oklahoma, and Michael W.
Ridgeway, General Counsel, Oklahoma Insurance Department, Oklahoma City,
Oklahoma, for Amicus Curiae the State of Oklahoma ex rel. Kim Holland,
Insurance Commissioner, in support of Plaintiff-Appellee. Before O'BRIEN, BALDOCK and McCONNELL, Circuit Judges. McCONNELL, Circuit Judge.
Appellants Bradley N. Frost and Wakon Iron Redcorn, Jr., were the
president and the chief financial officer of Heritage National Insurance Company
(HNIC), an Oklahoma health insurer. Using their positions, they managed
between them to bleed the company of some $1.7 million. On January 6, 2006,
they were indicted in federal district court on charges of embezzlement from a
health care benefit program, wire fraud, and money laundering. A jury found
them guilty, and each was sentenced to concurrent terms of 72 months'
imprisonment on every count. In this direct appeal, we affirm in part, reverse the
wire fraud convictions, and remand for resentencing.
[End Page 2]
HNIC sold life, accident, and group health insurance. First licensed to sell
insurance in Oklahoma in 1974, 1 by the late 1990s HNIC's fortunes had fallen and
it was forced into receivership by the Oklahoma Insurance Department (OID).
Mr. Frost and another investor acquired the company, and they, along with Mr.
Redcorn, rehabilitated it out of receivership and into the black. As of mid-1999,
HNIC was owned by a holding company of which Mr. Frost owned half; a
different investor, Steven Silverstein, along with his wife, owned the other half;
and Mr. Redcorn had an option to acquire part of their interests. Mr. Frost served
as HNIC's president, and Mr. Redcorn as the secretary/treasurer and CFO; Mr.
Silverstein was HNIC's chairman and the CEO of the holding company. By 2000,
HNIC's revenues had climbed to over twelve million dollars a year. In that year
HNIC also purchased the business book of a failing Texas insurer, giving it
From early 2000, however, Mr. Frost and Mr. Redcorn started removing
money bit by bit from HNIC. They began by "investing" HNIC moneys in other
companies they controlled. They would also write checks to themselves on HNIC
accounts and designate the payments on the books as "loans" or "consulting fees."
The company was known as First Family Life Insurance until 1991, then
as Access Insurance until 1999.
[End Page 3]
Although they would pay back most of the alleged loans and investments, the
evidence showed that they retained over $400,000 for themselves. Then in
August of that year Mr. Frost opened a new bank account in HNIC's name at
Bank of America. The account sat, unused, until March 2001, when Mr. Redcorn
instructed Kendra Blevins, an employee in HNIC's financial department, to start
diverting incoming premium payments away from the company's ordinary
accounts and into the separate account. He told her that he and Mr. Frost were
planning to save up a war chest of one million dollars to sue their partner Mr.
Silverstein, whom they suspected of stealing from the company. Well over a
million dollars was funneled into the account over a period of only weeks. Then,
in mid- and late-April 2001, Mr. Redcorn and Mr. Frost withdrew $500,000.00
apiece in checks payable to themselves, recording the payments on HNIC's books
as short-term investments. They deposited the funds briefly in their private bank
accounts, then shifted them to personal investment accounts with a broker in
Florida. They never sued Mr. Silverstein and never returned the money to HNIC.
Around this time, federal authorities and state regulators were starting to
take an interest in HNIC's finances. The FBI interviewed Mr. Redcorn in January
2001 as part of an investigation of Mr. Silverstein, who was, apparently,
independently engaged in a multi-million-dollar bank fraud scheme involving
[End Page 4]
check kiting with HNIC moneys. 2 The focus turned to Mr. Redcorn and Mr.
Frost, however, after the Oklahoma Insurance Department began its investigation.
At the beginning of May 2001, the OID sent a financial examiner, Hallie Burnett,
to HNIC to conduct a review of its records. In late summer, the OID ordered
HNIC to be placed under supervision, and appointed Ms. Burnett as conservator
with authority to prevent the removal of any more money from the company. On
November 11, 2001, a court ordered HNIC into receivership. All its assets were
auctioned off, and the insurance guaranty associations of Oklahoma and Texas
had to shoulder thousands of outstanding obligations to persons HNIC had
insuredâ€"$19 million dollars' worth.
On January 26, 2006, Mr. Frost and Mr. Redcorn were indicted on one
count of health care fraud in violation of 18 U.S.C. § 669 (for taking money from
a health insurance company), four counts of wire fraud in violation of 18 U.S.C. §
1343 (for transferring the money using interstate wires), and a total of twenty-six
counts of money laundering in violation of 18 U.S.C. § 1957(a) (for a variety of
financial transactions using the stolen money). At their eight-day trial in
On November 9, 2005, Mr. Silverstein was separately indicted on one
count of health care fraud and twenty-seven counts of money laundering.
Indictment, United States v. Silverstein, No. 05-CR-165-SPF (N.D. Okla. Nov. 9,
2005). On September 13, 2006, the indictment was dismissed without prejudice
on the government's motion. Order, id. (Sept. 13, 2006).
[End Page 5]
December 2005, the defendants claimed that the "investments" they had made for
themselves with company money were authorized by the minutes of a 1991 board
meeting of HNIC's predecessor, and that the funds they had taken in April 2001
were a legitimate buyout or severance because they were planning to leave the
company. They also attacked the OID's special investigator Hallie Burnett as
incompetent, possibly corrupt, and the dupe or cat's-paw of Steve Silverstein.
But the jury returned a verdict of guilty on all counts on December 16,
2005. Mr. Redcorn and Mr. Frost now appeal, and raise four chief areas of
argument: that the indictment was legally insufficient, that the evidence adduced
at trial was insufficient to establish their guilt, that they were entitled to a new
trial because of evidence they received afterward, and that their sentences
violated the Constitution. We reject all these arguments except as to the
sufficiency of the evidence to establish the elements of wire fraud.
II. SUFFICIENCY OF THE INDICTMENT
"â€˜An indictment is sufficient if it sets forth the elements of the offense
charged, puts the defendant on fair notice of the charges against which he must
defend, and enables the defendant to assert a double jeopardy defense.'" United
States v. Chisum, 502 F.3d 1237
, 1244 (10th Cir. 2007) (quoting United States v.
Dashney, 117 F.3d 1197
, 1205 (10th Cir. 1997)). "â€˜[I]t is generally sufficient that
[End Page 6]
an indictment set forth an offense in the words of the statute itself, as long as
those words themselves fully, directly, and expressly, without any uncertainty or
ambiguity, set forth all the elements necessary to constitute the offence intended
to be punished.'" United States v. Hathaway, 318 F.3d 1001
, 1009 (10th Cir.
2003) (quoting Hamling v. United States, 418 U.S. 87
, 117 (1974)). Therefore,
where the indictment quotes the language of a statute and includes the date, place,
and nature of illegal activity, it "need not go further and allege â€˜in detail the
factual proof that will be relied upon to support the charges.'" United States v.
Dunn, 841 F.2d 1026
, 1029 (10th Cir. 1988) (quoting United States v. Crippen,
579 F.2d 340
, 342 (5th Cir. 1978)). We review the sufficiency of an indictment
de novo, United States v. Todd, 446 F.3d 1062
, 1067 (10th Cir. 2006), but a
challenge to the indictment is not a vehicle for testing the government's evidence.
"Rather, â€˜[a]n indictment should be tested solely on the basis of the allegations
made on its face, and such allegations are to be taken as true.'" Id. (quoting
United States v. Hall, 20 F.3d 1084
, 1087 (10th Cir. 1994)).
A. Count 1: Health Care Fraud
Count 1 of the indictment charged Appellants with violation of 18 U.S.C. §
669, which outlaws embezzlement of "any of the moneys . . . or other assets of a
health care benefit program." "Health care benefit program" is defined in another
[End Page 7]
[T]he term "health care benefit program" means any public or private
plan or contract, affecting commerce, under which any medical
benefit, item, or service is provided to any individual, and includes
any individual or entity who is providing a medical benefit, item, or
service for which payment may be made under the plan or contract.
18 U.S.C. § 24(b). Appellants contend that a health insurance company cannot be
a health care benefit program as so defined, and thus that because the indictment
alleged that HNIC was both a health insurance company and a health care benefit
program it did not properly state a violation of § 669. They assert also that
federal prosecution of insurance-related crimes under § 669 is precluded by the
McCarran-Ferguson Act, 15 U.S.C. § 1012(b), which leaves insurance regulation
generally in the hands of the states.
[End Page 1. Inconsistency of Allegations]
Count 1 of the indictment alleges, in its entirety:
From on or about April 3, 2000 and continuing through June 7,
2001, in the Northern District of Oklahoma and elsewhere,
REDCORN and FROST, defendants herein, aiding and abetting each
other, did knowingly and willfully embezzle, steal or otherwise
convert to the use of a person other than the rightful owner and did
intentionally misapply, approximately $1,264,000.00 of the monies,
funds, premiums, credits, and other assets of HNIC, a health care
benefit program as defined in Title 18, United States Code, Section
All in violation of Title 18, United States Code, Sections 2(a)
and 669. [End Page 8]
R., Vol. I, Doc. 3, at 4 (emphasis added) 3. This sets forth the charged offense in
the words of the statute itself, and contains the date, place, and nature of the
charged illegal activity. It is thus entirely sufficient to give the defendants fair
notice and enable them to determine whether to raise a double jeopardy defense.
That is all that our precedents require.
The defendants point out, however, that the introduction to the indictment
describes HNIC as "an insurance company doing business in Oklahoma." Id. at 3.
They contend that it is not possible for a private insurance company to be a
"health care benefit program" as that term is defined in the Act, because a
company is not a "plan or contract." We are not necessarily persuaded. A private
insurance company, which makes payments to providers for the cost of medical
services, appears to be the private equivalent of Medicare or Medicaid. These are
unquestionably health care programs under § 24(b). See United States v. Morgan,
505 F.3d 332
, 341â€"42 (5th Cir. 2007); United States v. McGovern, 329 F.3d 247
248â€"49 (1st Cir. 2003) (collecting cases). But there are no precedents squarely on
point, and this seems to be an open question. We need not answer it here.
Whether HNIC actually was an insurance company is a matter of the evidence,
not the indictment, and if it was not, then the issue is moot.
Mr. Frost and Mr. Redcorn have designated records on appeal that are
identical in nearly all respects. Citations correspond to both records.
[End Page 9]
Appellants' attempt to characterize the problem as one of internal
inconsistency within the indictment gets them no farther. To succeed on such an
argument they would have to demonstrate not only that insurance companies are
not necessarily health care benefit programs, but that it is impossible for an
insurance company also to be a health care benefit program. In light of the
existence of hybrid arrangements like health maintenance organizations, which
are both insurers and health care providers, we do not think this is impossible.
(We are not saying that HNIC was a health maintenance organization, only that
there is no logical inconsistency within the indictment.)
Moreover, even if there were an inconsistency between the indictment's
prefatory averment that HNIC was an insurance company and the averment in
Count 1 that it was a health care benefit program, this would not render Count 1
insufficient. "â€˜Each count in an indictment is regarded as if it was a separate
indictment.'" United States v. Powell, 469 U.S. 57
, 62 (1984) (quoting Dunn v.
United States, 284 U.S. 390
, 393 (1932)). There is no need to look beyond the
borders of a particular count to determine what offense is charged; indeed, it is
generally improper to do so except where a count incorporates other allegations
expressly, as permitted by Federal Rule of Criminal Procedure 7(c)(1). See
United States v. Caldwell, 302 F.3d 399
, 412 (5th Cir. 2002); United States v. [End Page 10]
Stoner, 98 F.3d 527
, 535 (10th Cir. 1996). An indictment need not contain
introductory or prefatory matter at all, see Fed. R. Crim. P. 7(c)(1), so if it does
such matter is perforce superfluous unless expressly incorporated into one of the
counts. "â€˜A part of the indictment unnecessary to and independent of the
allegations of the offense [to be] proved may normally be treated as a useless
averment that may be ignored.'" United States v. Nickl, 427 F.3d 1286
(10th Cir. 2005) (quoting United States v. Miller, 471 U.S. 130
, 136 (1985)); see
also, e.g., Ford v. United States, 273 U.S. 593
, 602 (1927) ("[A] useless averment
is innocuous and may be ignored.").
We have here a situation not unlike that presented in United States v.
Hajecate, 683 F.2d 894
(5th Cir. 1982), in which the defendants claimed that the
allegations of the indictment were inconsistent with the government's allegations
in a bill of particulars provided, at defendants' request, to explain the indictment.
"Even if the bill was inconsistent with the indictment," the Fifth Circuit
explained, "the proper remedy is not dismissal of the indictment but clarification
of the bill. The indictment . . . , unless properly amended or superseded,
constitutes the full statement of the charges against the defendants." Id. at 897;
accord United States v. Arge, 418 F.2d 721
, 724â€"25 (10th Cir. 1969) ("The
indictment must stand on its allegations and whatever the bill of particulars
[End Page 11]
contained in the way of variance from this allegation . . . does not effect [sic] the
sufficiency of the indictment."). The same reasoning applies to each count in an
indictment, for each is to be treated as separate. Prefatory factual allegations
inconsistent with one count of a thirty-one count indictment, we hold, can warrant
dismissal of that count no more easily than factual allegations in a bill of
particulars inconsistent with the very count the bill purports to explain.
The case might be different in the unusual situation where an indictment's
introductory matter made the instrument as a whole so confusing or misleading
that a reasonable defendant would not be "on fair notice of the charges against
which he must defend." Chisum, 502 F.3d at 1244 (internal quotation marks
omitted); cf. Hajecate, 683 F.2d at 898 n.2 ("We . . . will not countenance
government tactics that confuse defendants by creating inconsistencies between
the indictment and the bill."). But here, the defendants were on notice that they
needed to defend against the charge of embezzling from a health care benefit
program, and it was not necessary for the government to prove the extraneous
allegations in the introduction or for defendants to defend against them. If it is
true, as defendants contend, that the allegations about HNIC contained in the
introduction and in Count 1 are mutually exclusive, the proper course would have
been to wait until it was proved that HNIC was an insurance company and then
[End Page 12]
argue the insufficiency of the evidence to support Count 1.
[End Page 2. McCarran-Ferguson Act]
Appellants also challenge the health care fraud charge as precluded by the
McCarran-Ferguson Act, which provides that state law shall generally govern
No Act of Congress shall be construed to invalidate, impair, or
supersede any law enacted by any State for the purpose of regulating
the business of insurance, or which imposes a fee or tax upon such
business, unless such Act specifically relates to the business of
insurance . . . .
15 U.S.C. § 1012(b). Appellants say that Section 669 impairs "Oklahoma's
administrative efforts to protect insurance policy holders" because their
prosecution "undermine[d]" a lawsuit by the state to recover the money they had
embezzled from HNIC. Aplts' Br. 43. In their reply brief, they explain the
nature of the interference: "Mr. Frost and Mr. Redcorn were completely unable to
defend, or work toward settlement of their case with the [OID] while they were
preparing for trial and defense of the federal criminal prosecution." Reply Br.
17â€"18. Indeed, the case was stayed by mutual agreement during the pendency of
this prosecution, and subsequently settled.
We agree with the government, and with amicus the Director of the
Oklahoma Insurance Department, that this type of "interference" does not trigger
[End Page 13]
McCarran-Ferguson preclusion. Section 669 does not "invalidate, impair, or
supersede" any state regulation of insurance; state insurance regulations remain
fully in force. Appellants' argumentâ€"that being tied up in a federal forum in one
kind of proceeding made them unavailable to appear in state court for an
insurance-related proceedingâ€"could be made against any federal criminal
prosecution. They might as easily have been busy defending charges of importing
a mongoose, 18 U.S.C. § 42(a)(1), or using the character "Smokey Bear" for
profit without authorization, id. § 711, or shanghaiing a sailor, id. § 2194. All
would distract them from defending or working toward settlement of their case
with the OID. Yet enforcement of those laws in such a circumstance is surely not
precluded by the McCarran-Ferguson Act.
The Supreme Court clarified in Humana Inc. v. Forsyth, 525 U.S. 299
(1999), that McCarran-Ferguson does not entirely "cede the field of insurance
regulation to the States, saving only instances in which Congress expressly orders
otherwise." Id. at 308. Rather, "[w]hen federal law does not directly conflict
with state regulation, and when application of the federal law would not frustrate
any declared state policy or interfere with a State's administrative regime, the
McCarran-Ferguson Act does not preclude its application." Id. at 310 (emphasis
added). So, in Humana, the Court upheld against a McCarran-Ferguson challenge
[End Page 14]
a private RICO action against an insurer to recover treble damages for corrupt
insurance practices, even though state law provided a parallel remedy. The Court
observed that "RICO's private right of action and treble damages provision
appears to complement Nevada's statutory and common-law claims for relief,"
and held that "[b]ecause RICO advances the State's interest in combating
insurance fraud, and does not frustrate any articulated Nevada policy," the suit
was not barred by McCarran-Ferguson. Id. at 313â€"14. Here, even more clearly, §
669 does not "directly conflict" in any way with Oklahoma insurance law; rather,
as the Insurance Department urges, it complements state regulation and furthers
the state's policy against financial crimes that jeopardize the stability of insurers.
Munich American Reinsurance Company v. Crawford, 141 F.3d 585
Cir. 1998), which predated Humana, is of no assistance to Appellants. That case
concerned application of the Federal Arbitration Act to force certain insurance
actions into fora other than the state receivership court, which state law made the
exclusive forum. See id. at 594â€"95. This is not at all on point; the statutes
conflicted directly and enforcement of the federal law would have thwarted
express state policy. That is not the case with Section 669. Indeed, because in
the face of a federal criminal prosecution a state retains parallel jurisdiction to
prosecute offenses under its own laws, we are skeptical that a federal criminal
[End Page 15]
statute would ever be preempted by McCarran-Ferguson unless it were to forbid
something affirmatively required by state insurance law.
B. Counts 2â€"5: Wire Fraud
Counts 2 through 5 charged Mr. Redcorn and Mr. Frost with wire fraud. A
defendant is guilty of wire fraud if, "for the purpose of executing [a] scheme or
artifice" to defraud or to obtain money by false pretenses, he "transmits or causes
to be transmitted by means of wire, radio, or television communication in
interstate or foreign commerce, any writings, signs, signals, pictures, or sounds."
18 U.S.C. § 1343. The allegations here were that Appellants diverted incoming
HNIC premiums to an Oklahoma HNIC bank account, moved the funds to their
personal accounts at the same bank, and thenâ€"these are the four charged
communicationsâ€"wired the moneys to their personal investment accounts with a
broker in Florida.
"It simply cannot be suggested," Mr. Redcorn and Mr. Frost propose first
on appeal, "that transfers of funds by the officers of an insurance company are
wire fraud." Aplts' Br. 40. This argument is frivolous. The gravamen of the
charge is not that funds are transferred, it is that this is done by wire
communication in interstate commerce. Communication by wire for whatever
function, by whomeverâ€"corporate officers, tooâ€"is wire fraud if done "for the
[End Page 16]
purpose of executing" a fraudulent scheme.
Appellants further contend that the indictment was insufficient because it
did not "allege false statements or deception of any kind," and these are a
necessary component of any scheme to defraud. Id. at 41. Not so. For purposes
of the mail and wire fraud statutes, "[t]he concept of â€˜fraud' includes the act of
embezzlement, which is â€˜the fraudulent appropriation to one's own use of the
money or goods entrusted to one's care by another.'" Carpenter v. United States,
484 U.S. 19
, 27 (1987) (quoting Grin v. Shine, 187 U.S. 181
, 189 (1902)). False
statements are not necessary for perpetrating an embezzlement scheme, so they
need not be alleged in an indictment for wire fraudâ€"unless in some unusual case
this were necessary to "put the defendant on fair notice of the charges against
which he must defend, and enable the defendant to assert a double jeopardy
defense." Chisum, 502 F.3d at 1244 (internal quotation marks omitted).
III. SUFFICIENCY OF THE EVIDENCE
At the close of the government's evidence, and again after the verdicts
were handed down, Mr. Redcorn and Mr. Frost moved for a judgment of acquittal
on the insufficiency of the evidence to support the charges. On appeal, they
renew their arguments as to Counts 2 through 31 of the indictment. 4 Our review
In their brief, the title of the section concerning sufficiency of the
[End Page 17]
is de novo, United States v. Mendez, 514 F.3d 1035
, 1041 (10th Cir. 2008), and in
considering whether the record supported conviction "we must view the evidence
in the light most favorable to the government, and reverse only if no rational jury
could have found the evidence sufficient to convict beyond a reasonable doubt."
United States v. Nacchio, 519 F.3d 1140
, 1157 (10th Cir. 2008).
A. Counts 2â€"5: Wire Fraud
Appellants contend that they should have been acquitted of the wire fraud
charges because there was no evidence that the four charged transfers, from their
private bank accounts in Oklahoma to their out-of-state investment accounts, were
"for the purpose of executing [a] scheme or artifice" to "defraud." 18 U.S.C. §
1343. Once the funds were in their personal accounts, they argue, the scheme (if
any) was already complete. 5
evidence appears to announce a challenge concerning Count 1, health care fraud,
as well. As the government correctly points out, however, the brief turns out to
contain no such argument. We will therefore not consider whether the evidence
was sufficient to support that count, notwithstanding a terse and conclusory
argument on this point raised for the first time in Appellants' reply brief. See
Hanh Ho Tran v. Trustees of State Colls. in Colo., 355 F.3d 1263
, 1266 (10th Cir.
2004) ("â€˜Issues not raised in the opening brief are deemed abandoned or waived.'"
(quoting Coleman v. B-G Maint. Mgmt. of Colo., Inc., 108 F.3d 1199
, 1205 (10th
Cir. 1997))); Utahns for Better Transp. v. U.S. Dep't of Transp., 305 F.3d 1152
1175 (10th Cir. 2002) ("[I]ssues will be deemed waived if they are not adequately
Appellants also claim the evidence was insufficient for a jury to conclude
[End Page 18]
The transmission charged in Count 2, for example, took place when Mr.
Redcorn wired $90,000 of money to his investment account with Janney
Montgomery Scott (JMS) in Florida, from funds previously embezzled from
HNIC and deposited in his Bank of America (BOA) account. Likewise, the
transmission charged in Count 5 was a $300,000 wire transfer from Mr. Frost's
personal BOA account to his JMS account on April 20. Mr. Frost had previously
embezzled these funds from HNIC by drawing three checks from HNIC's BOA
account, signed by himself, for a total of $500,000, and depositing them into his
personal BOA account. The transfers charged in Counts 3 and 4 were similar; the
money was routed from Mr. Redcorn's BOA account first to his account at Arvest
Bank, and thence to JMS. In each instance, the appellants' personal BOA, JMS,
and Arvest accounts were opened in their true names with their own Social
beyond a reasonable doubt that there was a scheme of any sort to defraud.
"[V]iewing the evidence," as we must, "in the light most favorable to the
government," United States v. Atencio, 435 F.3d 1222
, 1232 (10th Cir. 2006), we
disagree. Additionally, in their reply brief Appellants assert that, "[i]n order . . .
to have participated in a â€˜scheme to defraud' as alleged in Counts 2â€"5, they would
have been required to have foreknowledge that the company would ultimately fail.
There was no evidence to support this proposition." Reply Br. 12. We can answer
this bizarre contention only by saying that defrauding a companyâ€"just like
defrauding an individual, or the United Statesâ€"does not require that the victim
"fail," let alone that the defendant have "foreknowledge" of it.
[End Page 19]
To meet § 1343's "purpose" requirement, a wire transmission must be "part
of the execution of the scheme as conceived by the perpetrator at the time."
Schmuck v. United States, 489 U.S. 705
, 715 (1989). The defendant need not
have made the transmission personally, merely caused it to be made. It need not
be at the heart of a scheme, nor necessary or even helpful for its success; it need
not itself be false or deceptive. Rather, as we have said, a transmission is
"considered to be for the purpose of furthering a scheme to defraud â€˜so long as
the transmission is incident to the accomplishment of an essential part of a
scheme.'" United States v. Mann, 884 F.2d 532
, 536 (10th Cir. 1989) (quoting
United States v. Puckett, 692 F.2d 663
, 669 (10th Cir. 1982)); accord Pereira v.
United States, 347 U.S. 1
, 8â€"9 (1954). 6 Nonetheless, at some point the fraudulent
scheme must be complete, and the perpetrators' subsequent enjoyment of its
fruitsâ€"buying groceries, going to the movies, redecorating the bathroomâ€"is not
an "essential" part of the scheme. United States v. Taylor, 789 F.2d 618
, 620 (8th
Cir. 1986); United States v. Altman, 48 F.3d 96
, 103 (2d Cir. 1995). The
defendants claim that once they had deposited the embezzled funds in their
Interpretations of the federal mail fraud statute, 18 U.S.C. § 1341, are
"authoritative in interpreting parallel language in § 1343." United States v. Lake,
472 F.3d 1247
, 1255 (10th Cir. 2007) (citing Pasquantino v. United States, 544 U.S. 349
, 355 n.2 (2005)). In this section we therefore look to the law of the two statutes without differentiation.
[End Page 20]
personal bank accounts in Oklahoma, the scheme was complete; the subsequent
transfers to Florida, they say, were simply a means of using their ill-gotten gains. 7
Reluctantly, we are forced to agree. Once the defendants deposited the
funds into their personal bank accounts, they had accomplished their crime and
the funds were available for their personal use. That they chose to transfer part of
their stolen money to their broker in Florida for the purpose of investments is
purely incidental to the fraud; they could just as easily have decided to blow it on
a luxury trip to the Ozarks. Without a closer connection to the mechanism of
their fraud, what they did with the stolen money afterward cannot itself relate to
an "essential part of [the] scheme." Mann, 884 F.2d at 536. (quoting Puckett, 692
F.2d at 669).
A chorus of Supreme Court opinions applying the parallel language of the
mail fraud statute limns the boundaries of a "scheme to defraud" and explains
when liability for post-fraud communications is apt. Kann v. United States, 323 U.S. 88
(1944), was a prosecution of several defendants for cashing checks they
had received in a fraudulent scheme; the defendants were charged with mail fraud
after the paying banks mailed the checks to the drawee banks for recoupment. Id.
at 90â€"92. Although the defendants had caused the use of the mails, the Court
We put aside the defendants' insistence that there was no embezzlement
and their gains were not ill-gotten, which is irrelevant to the current discussion.
[End Page 21]
held that the interbank mailings were not in furtherance of their fraudulent
The scheme . . . had reached fruition. The persons intended to
receive the money had received it irrevocably. It was immaterial to
them, or to any consummation of the scheme, how the bank which
paid or credited the check would collect from the drawee bank. It
cannot be said that the mailings in question were for the purpose of
executing the scheme, as the statute requires.
Id. at 94. Later, in Parr v. United States, 363 U.S. 370
(1960), the Court quoted
this passage in holding that mail fraud liability would not lie for fraudulent use of
a school district's credit card to purchase gasoline merely because the vendor
mailed invoices to the school district and the district mailed the payment. Id. at
393. Similarly, in United States v. Maze, 414 U.S. 395
(1974), it held that a
defendant who had used a stolen credit card at a motel could not be convicted of
mail fraud simply because the motel had invoiced the issuing bank by mail:
[T]he mailings . . . were directed to the end of adjusting accounts
between the motel proprietor, the . . . bank, and [the card's rightful
holder], all of whom had to a greater or lesser degree been the
victims of respondent's scheme. Respondent's scheme reached
fruition when he checked out of the motel, and there is no indication
that the success of his scheme depended in any way on which of his
victims ultimately bore the loss.
Id. at 402.
In Schmuck v. United States, 489 U.S. 705
(1989), the Court at last upheld
a mail fraud conviction. The defendant, a used-car distributor, illegally rolled
[End Page 22]
back the odometers on some 150 automobiles before selling them to unknowing
dealers at fraudulently inflated prices. The dealers, on later reselling the
automobiles to consumers, had to mail title-application forms to the state to
transfer title and complete the sale. Id. at 707-08. The defendant was convicted
of mail fraud for causing twelve such mailings and sought reversal, citing Kann,
Parr, and Maze to support his claim that his scheme had reached fruition when
the dealers had paid him and the later mailings were not in furtherance of it. Id.
at 711. But the Court distinguished its prior cases, noting that the mailings in
Schmuck facilitated the defendant's ongoing scheme because "a failure of th[e]
passage of title would have jeopardized Schmuck's relationship of trust and
goodwill with the retail dealers upon whose unwitting cooperation his scheme
depended." Id. at 714.
The government argues that the final, charged transfers to Appellants' JMS
accounts "facilitated the scheme to provide Appellants with hundreds of
thousands of dollars . . . . The wire transfers of money into their [JMS] accounts
merely completed the scheme to defraud HNIC and its policyholders . . . ."
Govt's Br. 27. At a post-conviction motion hearing before the district court, the
government had put forward one theory of the role the charged transfers played in
the scheme: they "got the money out of Oklahoma and helped conceal the
[End Page 23]
embezzlement from the auditors. The auditors were aware of the Bank of
America account of HNIC and they would much easier be able to find and locate
the monies if they hadn't got it out of the state." R., Vol. V, at 11. On appeal,
the government offers up a somewhat different theory: having the money in the
Florida accounts was the goal of Appellants' scheme, and depositing the
embezzled checks briefly in their BOA accountsâ€"which required the subsequent,
charged transfers to complete the plotâ€""would have speeded the immediate
availability of the full face value of the checks to Appellants." Govt's Br. 28.
We agree with the government that a transfer is part of a scheme to defraud
if it is necessary to put the stolen money in a form useable to the perpetrator. In
United States v. Odiodio, 244 F.3d 398
(5th Cir. 2001), for instance, the
defendant stole and altered a million-dollar check from one corporation to another
and deposited it in a bank account he opened in a false name. Id. at 400. He then
wired the money to a third party's account, and coerced the third party to wire it
overseas to the defendant's real accountâ€"a transfer that enabled him to use the
funds. See id. at 403. United States v. Rude, 88 F.3d 1538
(9th Cir. 1996),
provides a similar example. The defendants in that case used an investment
swindle to induce a Hawaii nonprofit called Unity House to wire $10 million to a
Swiss bank account, opened in its name, over which the defendants had power of
[End Page 24]
attorney. Id. at 1542. Then they wired the funds to their own account in the
United States, and later wired $650,000 of the principal back to the victim, falsely
representing it as return on the investment. Id. They were charged and convicted
of wire fraud, not for the initial transfer to Switzerland, but for the subsequent
transfers, and sought reversal on appeal, claiming that "the wire fraud was
completed" once the money was out of the victim's coffers and under the
defendants' control in Switzerland. Id. at 1544. The Ninth Circuit affirmed. The
transfer from Switzerland to the United States, it held, effected a step in the
scheme because it "plac[ed] the funds outside of Unity House's account, outside
of the scope of Unity House's authorization, and within [defendants'] own
control." Id. at 1545. It was a final step toward the goal of having the money in
a useable form.
Rude illustrates a second, important principle as well: transfers, or other
wire communications, may constitute wire fraud if they are carried out to conceal
an otherwise completed fraud. Thus, although the funds in Rude were under the
defendants' "control" and beyond the victim's grasp once they had been
transferred out of the Swiss account, the later transfer of a portion of the funds
back to Unity House, "to create the impression that Unity House was earning an
immediate, substantial return on its investment, . . . was not only relevant to the
[End Page 25]
fraudulent conspiracy, but extended the overall scheme" by lulling Unity House
into a false complacency about the fraud. Id. at 1544.
The similar notion of the post-fraud "lulling letter" as relating to an
essential part of a scheme to defraud is well accepted. Even after the schemer has
extracted what he wants from his victims, a communication will be mail fraud (or
wire fraud) if it is intended to "lull the victims into a false sense of security,
postpone their ultimate complaint to the authorities, and therefore make the
apprehension of the defendants less likely." Maze, 414 U.S. at 403; accord
United States v. Trammell, 133 F.3d 1343
, 1352â€"53 (10th Cir. 1998). It has long
been understood that "[a]voidance of detection and prevention of recovery of
money lost by the victims are within, and often a material part of, the illegal
scheme. Further profit from the scheme to defraud, as such, may be over, and yet
the scheme itself be not ended." United States v. Riedel, 126 F.2d 81
, 83 (7th Cir.
However, not every wire transfer of ill-gotten money violates § 1343. As
the Supreme Court has repeatedly emphasized in the parallel context of § 1341,
"â€˜[t]he federal mail fraud statute does not purport to reach all frauds, but only
those limited instances in which the use of the mails is a part of the execution of
the fraud, leaving all other cases to be dealt with by appropriate state law.'"
[End Page 26]
Schmuck, 489 U.S. at 710 (quoting Kann v. United States, 323 U.S. 88
(1944)). It is therefore not correct to claim without qualification, as the
government did in its closing argument to the jury, that use of the wires is illegal
if at all "in relation to" a scheme to defraud, R., Vol. XIV, at 1625. Setting aside
cases where the wires are employed so that the fruits of the fraud are useable to
the defendant, and cases of lulling or concealment, "as a general proposition, use
of the [wires] after a scheme reaches fruition will not constitute grounds for a
conviction." Taylor, 789 F.2d at 620; accord Altman, 48 F.3d at 103.
We can find in the record of this case no evidence that, as "the scheme
[was] conceived by the perpetrator[s] at the time," Schmuck, 489 U.S. at 715, the
charged wire transfers from Appellants' personal BOA accounts to their personal
JMS accounts were necessary to gain control over the funds or to conceal the
nature of Appellants' fraud on HNIC. Certainly they do not fit the classic mold
of the "lulling" communication, carried out to delay complaint or to enable an
ongoing scam to continue, as HNIC had no reason to learn of the transfers at all.
The government asserted below that these transfers "helped conceal the
embezzlement from the auditors," R., Vol. V, at 11, but that claim was not
supported then by reference to the transcripts, and is not supported now by our
own review of the auditors' testimony. There is no evidence that the transfers
[End Page 27]
charged in this case helped conceal Appellants' fraud or were meant to do so. If
anything, the four charged transfers to separate investment accounts in Florida
made it more, not less, obvious that Appellants were taking these funds for
themselves: the transfers undercut Appellants' defense that they were holding
these funds as a war chest to sue Steve Silverstein on HNIC's behalf. 8
Nor do we find any evidence to support the government's current theory
that the transfers to Florida somehow "speeded the immediate availability" of the
funds. Govt's Br. 28. The funds were "available" from the moment they were
deposited in Appellants' BOA accounts, and could be spent, transferred, or
otherwise drawn on at their pleasure. We see nothing to bear out the contention
that moving the stolen funds to JMS would have been slower without the
intermediate stopovers. On the contrary, in Counts 2, 3, and 4 the BOA stopovers
lasted four days or longerâ€"hardly a sign that speed was of the essence.
It might well be that Appellants' use of their Bank of America accounts
speeded the availability of the embezzled funds. But they were not prosecuted for
transferring the funds to those accounts; they were prosecuted for subsequent
transfers to their broker in Florida. We think the "scheme to defraud" ended at
The question here is not whether, after the fact, the transfer was useful for
purposes of concealment, but with whether that was its purpose. See Schmuck,
489 U.S. at 711, 715.
[End Page 28]
the earlier step, before the interstate wires were used. It was at that point that
"[t]he persons intended to receive the money had received it irrevocably" and the
scheme "had reached fruition." Kann, 323 U.S. at 94. Although Appellants may
have wished to draw an investment return on the proceeds of their fraud, investing
stolen money is no more a part of a scheme to defraud than spending it.
If Mr. Redcorn and Mr. Frost had used the interstate wires to transfer
money directly from an HNIC account to their own, they would be liable for wire
fraud. Instead, they deposited the proceeds of their scheme by check into
accounts at the same bank. The government has pointed to no evidence in the
record that could show that the subsequent, charged transfers from Appellants'
checking accounts to their investment accounts were "incident to the
accomplishment of" anything more than drawing a better return on the money.
Mann, 884 F.2d at 536 (quoting Puckett, 692 F.2d at 669). Without evidence that
these transfers were "â€˜a step in the plot'" to defraud HNIC, Schmuck, 489 U.S. at
711 (quoting Badders v. United States, 240 U.S. 391
, 394 (1916)) (alteration
omitted), we must reverse the convictions on Counts 2 through 5.
B. Counts 6â€"31: Money Laundering
The remaining counts of the indictmentâ€"Mr. Redcorn was convicted on
Counts 6 through 23, and Mr. Frost on Counts 24 through 31â€"fell under 18
[End Page 29]
U.S.C. § 1957(a), which punishes anyone who "knowingly engages or attempts to
engage in a monetary transaction in criminally derived property of a value greater
than $10,000 and is derived from specified unlawful activity." 9 "Criminally
derived property" is "any property constituting, or derived from, proceeds
obtained from a criminal offense." Id. § 1957(f)(2). "Specified unlawful
activity" includes health care fraud under 18 U.S.C. § 669, see id. §§ 24(a)(1),
1956(c)(7)(F), 1957(f)(3), and wire fraud under 18 U.S.C. § 1343, see id. §§
1956(c)(7)(A), 1957(f)(3), 1961(1).
Appellants now argue that, because they should be acquitted of the health
care fraud and wire fraud counts, there was no "criminally derived property" and,
as a result, these money laundering counts should be dismissed for lack of an
adequate predicate. Our review shows that all the transactions charged under §
1957(a) involved the proceeds of the health care fraud charged in Count 1. As we
uphold the convictions on that count, the money laundering counts stand as well.
Section 1957(a) is erroneously drafted so that it is the offender who must
be "derived from specified unlawful activity." Compare Anti-Drug Abuse Act of
1986, Pub. L. No. 99-570, Title I, § 1352(a), 100 Stat. 3207, 3207-21, and 18
U.S.C.A. § 1957(a) (West), with 18 U.S.C.S. § 1957(a) (LexisNexis) (inserting the
phrase "that is" before "of a value greater than $10,000"). However, the
requirement is well understood to apply to the criminally derived property instead.
See, e.g., United States v. Lake, 472 F.3d 1247
, 1260 (10th Cir. 2007); United
States v. Lovett, 964 F.2d 1029
, 1042â€"43 (10th Cir. 1992).
[End Page 30]
IV. NEWLY DISCOVERED EVIDENCE
The jury returned its verdict of conviction on December 16, 2005. On
February 6, 2006, the Oklahoma Insurance Department turned over 534 pages of
documents it had not previously produced in response to a defense subpoena.
Citing this newly discovered evidence, Mr. Redcorn and Mr. Frost moved for a
new trial under Rule 33(a) of the Federal Rules of Criminal Procedure, which
permits a court to vacate a conviction and grant a new trial "if the interest of
justice so requires." In support of their motion, and now their appeal after the
district court's denial, Mr. Redcorn and Mr. Frost point to four emails and two
letters among the February 6 disclosure which they say could have won them the
"A motion for a new trial based on newly discovered evidence is generally
disfavored and should be granted only with great caution." United States v.
Gwathney, 465 F.3d 1133
, 1143 (10th Cir. 2006) (internal quotation marks
omitted). Where the basis for a motion is evidence merely newly discovered, and
there is no claim that evidence was improperly withheld, the defendant must show
(1) the evidence was discovered after trial; (2) the failure to learn of
the evidence was not caused by his own lack of diligence; (3) the
new evidence is not merely impeaching; (4) the new evidence is
material to the principal issues involved; and (5) the new evidence is
[End Page 31]
of such a nature that in a new trial it would probably produce an
acquittal. Gwathney, 465 F.3d at 1144 (quoting United States v. Sinclair, 109 F.3d 1527
1531 (10th Cir. 1997)). But when a movant alleges "suppression by the
prosecution of evidence favorable to [the] accused upon request," Brady v.
Maryland, 373 U.S. 83
, 87 (1963), the standard is easier to meet. The defendant
need show only that "â€˜(1) the prosecution suppressed evidence, (2) the evidence
was favorable to the defendant, and (3) the evidence was material.'" United
States v. Mendez, 514 F.3d 1035
, 1046 (10th Cir. 2008) (quoting United States v.
Quintanilla, 193 F.3d 1139
, 1149 (10th Cir. 1999)). In the former case, our
review of the denial of a motion for a new trial is for an abuse of discretion,
Gwathney, 465 F.3d at 1144; in the latter, it is de novo, Mendez, 514 F.3d at
On appeal, Mr. Redcorn and Mr. Frost "contend the Government did not
comply with Brady by withholding [the OID disclosures] from the defense."
Aplts' Br. 49. However, they made no such claim below, and at a hearing did not
elect to differ with the district court's interpretation of their arguments: "We do
not have here an assertion of a Brady . . . violation. . . . This is a straightforward
newly discovered evidence issue, which does not involve any suggestion of
[End Page 32]
misconduct by the U.S. [G]overnment in this case." R., Vol. V., at 15. This
Brady claim was therefore forfeited, and we review it now for plain error only.
In that light we need not decide whether there was error at all, because the
error if any was not plain. The material at issue was allegedly withheld by the
Oklahoma Insurance Department, not by the United States Attorney's Office or
any other federal agency or officer. Although some cases suggest that "[t]he
government cannot compartmentalize the Department of Justice" and so "different
â€˜arms' of the government, particularly when . . . closely connected," should be
treated together for Brady purposes, United States v. Deutsch, 475 F.2d 55
(5th Cir. 1973), overruled on other grounds by United States v. Henry, 749 F.2d 203
(5th Cir. 1984), others emphasize that "Brady expressly applies to material
evidence withheld from the defense by the prosecution," United States v. Sherlin,
67 F.3d 1208
, 1218 (6th Cir. 1995), and that where "documents were never
disclosed to the government and not in the government's possession, th[e] case
would not appear to fall within the mandatory disclosure rule of Brady v.
Maryland." United States v. Wilson, 798 F.2d 509
, 514 (6th Cir. 1986). We find
nothing in the cases to show that federal prosecutors may be held responsible for
the omissions of a state regulatory agencyâ€"an arm of a different government
altogetherâ€"and nothing in the record of this case to indicate that the U.S. [End Page 33]
Attorney's Office and the OID had a working relationship close enough to trigger
such a rule if it existed. Plain error must be "clear or obvious under current law,"
United States v. Goode, 483 F.3d 676
, 681 (10th Cir. 2007) (internal quotation
marks omitted), which this was not. Moreover, for the reasons explained next, we
could not find that any error as to these disclosures affected Appellants'
"substantial rights" or "seriously affect[ed] the fairness, integrity, or public
reputation of judicial proceedings," as would be required for their claim to
succeed. United States v. Chisum, 502 F.3d 1237
, 1244 (10th Cir. 2007) (internal
quotation marks omitted).
To the extent Appellants still pursue the newly-discovered-evidence claim
they brought below, we find denial of their motion well within the district court's
discretion. The item Appellants told the district court they thought most
important was a June 26, 2001, internal email from OID Deputy Director Frank
Stone, an actuary who testified at the trial, to John Beers, an OID examiner. In it,
Mr. Stone mused, "If Brad Frost owns 50% of Heritage National and is the
President, how can he be terminated and how could he be stealing from the
company?" R., Vol. II, Doc. 122, Exh. C. If this was meant to express the legal
opinion that a corporate officer and shareholder cannot steal from his own
company, it was both inadmissible and incorrect. Nor could it have been used, as
[End Page 34]
Appellants proposed below, to bolster their defense that they took the money in
good faith, or to show that the "resignation letters" they produced at trial, dated
April 10, 2001, to support their defense that the money they took was a severance
or buyout. The email was written two and a half months later and still assumed
that Mr. Frost "is the president" of the company. The same applies to another
email from Mr. Stone to Mr. Beers, dated July 6, 2001, in which Mr. Stone
wondered why Brad Frost would go to a meeting to sign an HNIC financial
statement: "John, I thought that Brad Frost resigned from the company. Can he
sign a financial statement today?" Id., Exh. D. This could hardly establish that
Appellants had resigned three months prior; if anything, it showed that they were
still involved in corporate affairs in a way inconsistent with their claimed
We need not tarry long with the rest. Two other items Appellants cite were
letters in April and May 2001 from Steve Silverstein, the co-owner of HNIC, to
OID which mentioned loans to corporate officers and which Appellants think
would have "demonstrated the department had knowledge of the loans to
Appellants." Aplts' Br. 50. Even if this were true, the OID's knowledge could
not establish that the "loans" were legitimate and not a cover for embezzlement.
Last is a May 17, 2001, email from Hallie Burnett, the OID accountant who
[End Page 35]
investigated HNIC's finances from the inside, to a Mark Jaster at OID. The email
discussed offshore bank accounts, blackmail, and other sly dealings of Mr.
Redcorn and Mr. Frost. They now say these allegations were false, and that by
exposing the falsehoods they could have undermined Ms. Burnett's credibility.
Assuming arguendo that her claims were false, it would yet be a risky gambit to
point the jury to accusations against oneself in hopes of later disproving them and
so discrediting the accuser. If the ploy failed, the self-inflicted damage could be
severe. Even if successful, though, at best it would have provided "merely
impeaching" ammunition, in no way "material to the principal issues involved,"
to use against Ms. Burnett. Gwathney, 465 F.3d at 1144.
"Denial of a new trial â€˜is an abuse of discretion only if it is arbitrary,
capricious, whimsical, or manifestly unreasonable.'" United States v. Lamy, 521 F.3d 1257
, 1266 (10th Cir. 2008) (quoting Gwathney, 465 F.3d at 1144). Given
the weaknesses in the proposed evidence, and the reams of documents and
volumes of testimony that were presented to the jury in this case, the district court
was not unreasonable to conclude that none of these newly discovered items could
possibly be considered so significant as to "probably produce an acquittal."
Gwathney, 465 F.3d at 1144.
[End Page 36]
Finally, Appellants contend that the sentences imposed upon them by the
district court were unconstitutional because the court calculated their advisory
ranges under the United States Sentencing Guidelines on the basis of facts, such
as the amount of HNIC's loss, which were not specifically found by the jury. We
interpret this as an argument that it is unconstitutional for the sentencing judge to
rely upon a fact not found by the jury or admitted by the defendant in determining
a sentence, where the sentence would not be reasonable in the absence of that
fact. That argument, however logical based on the interpretation of the Sixth
Amendment in Blakely v. Washington, 542 U.S. 296
(2004); see Rita v. United
States, 127 S. Ct. 2456
, 2476â€"78 (2007) (Scalia, J., concurring in part and
concurring in the judgment), carries no weight under the remedial opinion in
United States v. Booker, 543 U.S. 220
(2005). As the Court explained in Booker,
"when a trial judge exercises his discretion to select a specific sentence within a
defined [statutory] range, the defendant has no right to a jury determination of the
facts that the judge deems relevant." Id. at 233. For a violation of 18 U.S.C. §
669, health care fraud, the statutory maximum term of imprisonment is ten years,
id. § 669(a). For wire fraud, the maximum is twenty years, id. § 1343; and for
money laundering, ten years, id. § 1957(b). These defendants received concurrent
[End Page 37]
sentences of 72 months apiece on each count of conviction. The district court
was within its constitutional authority in finding the facts that led to discretionary
sentences within those statutory ranges.
For these reasons, we REVERSE the judgments of conviction as to Mr.
Redcorn and Mr. Frost on Counts 2 through 5 of the indictment, and AFFIRM on
all other counts. Because the district court ordered each defendant to serve a
post-imprisonment term of supervised release of three years on every count
except 2 through 5, but of five years on the reversed counts, we REMAND to the
United States District Court for the Northern District of Oklahoma for
[End Page 38]