Justia U.S. 8th Circuit Court of Appeals Opinion Summaries

The U.S. Commodity Futures Trading Commission (CFTC) sued Arrington, Kratville, Welke, Elite Holdings, and MJM, alleging that they fraudulently induced more than 130 individuals to invest $4.7 million in commodity pools, in violation of the Commodity Exchange Act (CEA), 7 U.S.C. 1. The district court granted summary judgment against Kratville. The Eighth Circuit affirmed, upholding denial of his request for more time to review purportedly new evidence; consideration affidavits from investors who signed releases and from investors who allegedly lacked credibility; refusal to consider the affidavit of an expert opining on the authenticity of emails; summary judgment on the CFTC's claim that Kratville committed fraud and related violations of the CEA and CFTC regulations in soliciting persons to invest and maintain funds in commodity investment pools; and a determination that the litigation strategy of Kratville's attorney was not excusable neglect warranting relief under FRCP 60(b)(1). Kratville's misrepresentations and omissions related to potential profit and risk, the identities of brokers, and ownership of a proprietary trading system were material. He hid from investors that pool funds were being sent out of the country and that the Nebraska Department of Banking and Finance had ordered Elite Pools to be closed and participants’ funds to be returned. View "Commodity Futures Trading Comm'n v. Kratville" on Justia Law

Poynter operated an Original Issue Discount (OID) scheme, under which taxpayers falsely list large amounts of OID interest income from municipal bonds and certificates of deposit and corresponding amounts of withholding and claim large tax refunds. Johnson recruited clients and paid Poynter 50 percent of the fee. Her contract included a statement that Poynter’s material was not legal or tax advice. By signing the contract, Johnson agreed that she was not affiliated with the IRS. Clients signed a contract that listed a $20 million penalty for disclosure and certified that the client was not affiliated with any government agency. Johnson completed Kennedy’s 2008 return stating that Kennedy had earned $89,605 in OID income, that $87,492 was withheld, and that Kennedy was entitled to a $61,959 refund. Kennedy was unemployed and received only disability income, none of which was withheld. Kennedy paid Johnson $4117 by deposit into a third party’s bank account. Poynter submitted Gray’s 2007 tax return, listing income of $401,068 and withholding of $401,067. The IRS deposited a $278,874 refund; Gray paid Poynter $15,000. Gray filed additional fraudulent returns for other tax years. After Poynter’s scheme was uncovered, 14 defendants were indicted. Johnson and Gray were each convicted of making a false claim for a tax refund, 18 U.S.C. 287. Johnson was sentenced to 48 months’ imprisonment; Gray to 60 months. The Eighth Circuit affirmed, rejecting challenges to the sufficiency of the evidence; to calculation of the intended amount of loss; and to application of an increase for an offense that involved sophisticated means. View "United States v. Johnson" on Justia Law

Hughes guides hunting parties, charging $1,600 to $2,600 per person for accommodations, meals, hunting stands, field dressing, and carcass-cleaning facilities. To hunt buck in Iowa, a hunter must have a “tag.” Non-residents must enter a lottery. Hughes gave his non-resident clients tags belonging to others. After they killed a buck, Hughes falsely reported to the Iowa DNR that the tag owner had killed the buck. The bucks were transported out of state. Hughes was indicted under the Lacey Act, 16 U.S.C. 3371, which prohibits selling in interstate commerce any wildlife taken in violation of state law. The value of the wildlife determines whether the offense is a felony or a misdemeanor. The court instructed the jury: you may, but are not required to, consider, the price the wildlife would bring if sold on the open market between a willing buyer and seller; the price a hunter would pay for the opportunity to participate in a hunt for the wildlife; or Iowa’s valuation of the wildlife in state prosecutions where such wildlife is unlawfully taken. The jury found that the market value of the wildlife exceeded $350. The district court sentenced Hughes to three years’ probation, $7,000 in fines, and $1,802.50 in restitution. The Eighth Circuit reversed; the jury was not properly instructed as to the meaning of “market value.” View "United States v. Hughes" on Justia Law

Based on their involvement in promoting or selling stock for Petro America, an unregistered company that had no value, eight coconspirators were charged with conspiracy to commit securities fraud and wire fraud 18 U.S.C. 371. Hawkins was also charged with aiding and abetting securities fraud, 15 U.S.C. 77q and 18 U.S.C. 2, aggravated currency structuring, 31 U.S.C. 5324(a)(3) and (d)(2), money laundering, 18 U.S.C. 1957, and two counts of wire fraud, 18 U.S.C. 1343. Brown was also charged with securities fraud and wire fraud; Heurung was charged with two additional counts of wire fraud; and Miller was charged with money laundering and wire fraud. The others pled guilty to various charges. Hawkins, Brown, Heurung, Miller and Roper proceeded to trial. Hawkins argued that Petro America was a legitimate company and that the government was prosecuting so that it could confiscate the company's substantial assets. The others acknowledged that Petro America was a sham but claimed they had believed in good faith that the company was real and that they could promote or sell its stock. The Eighth Circuit affirmed their convictions on all counts, rejecting challenges concerning jury selection and evidentiary rulings. View "United States v. Hawkins" on Justia Law

Kaplan operated an illegal sports-booking business in New York that moved to Costa Rica in the 1990s. In 2004, the company went public on the London Stock Exchange. Before going public, Kaplan placed $98 million in trusts off the coast of France. Kaplan neglected to pay federal income or capital gains tax for the trusts for 2004 and 2005. In 2006, Kaplan was indicted for operating an illegal online gambling business within the U.S. Kaplan accepted a plea agreement, which stated: [N]othing contained in this document is meant to limit the rights and authority of the United States … to take any civil, civil tax or administrative action against the defendant. The court asked: Do you understand … that there is a difference between a criminal tax proceeding and a civil tax proceeding … that [this] doesn't preclude the initiation of any civil tax proceeding or administrative action against you? Kaplan replied, "I understand." The court sentenced Kaplan to 51 months of imprisonment, and ordered forfeiture of $43,650,000. Later, the IRS issued Kaplan a notice of deficiency with penalties, totaling more than $36,000,000. The Eighth Circuit affirmed: since Kaplan failed to file a return, the period to assess taxes never began to run; the plea agreement was unambiguous; and the government's failure to object to the Presentence Report did not prevent the government from bringing a civil tax proceeding. View "Kaplan v. Comm'r of Internal Revenue" on Justia Law

H & Q and the Doll Companies owned membership units of Double D Excavating, LLC. The Doll Companies opened account 121224 in the name of "Double D Excavating" and deposited a check payable to the LLC and opened account 119992 in the name of David Doll. The Doll Companies deposited into Account 121224 multiple payments that LLC customers made to the LLC and then transferred funds from Account 121224 to Account 119992, commingled funds from Account 119992 with funds belonging to the Doll Companies, and used those funds to pay Doll Companies' expenses. H&Q claims that the Doll Companies failed to give notice or obtain consent for any of those activities and represented to H&Q that the LLC was struggling financially and needed additional financial assistance. The Doll Companies contributed a portion of the funds from Account 119992 back to the LLC and, according to H&Q, represented to H&Q that these were fresh capital contributions. H&Q also invested additional capital. After discovering the Doll Companies' alleged conduct, H&Q filed suit asserting state law claims and claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1961. The Eighth Circuit affirmed dismissal, agreeing that the complaint did not sufficiently allege any racketeering activity. View "H & Q Props, Inc. v. Doll" on Justia Law

Lemons applied for social security disability benefits after being diagnosed with a pain disorder caused by inflammation of a membrane that surrounds the nerves of the spinal cord. An ALJ awarded benefits and Lemons began receiving $802 per month. The ALJ, advised that Lemons’s condition was expected to improve, recommended follow-up review. The Administration failed to conduct the review and never contacted Lemons until it received an anonymous letter, including photographs of Lemons engaged in various activities. Investigators conducted surveillance. The Administration initiated review. Lemons responded that she could not pick up anything over 20 pounds nor sit more than 30 minutes without causing increased pain. The Administration discontinued benefits. Lemons appealed and chose to continue benefits during the process. Investigators met with Lemons’s treating physician, and showed her surveillance videos; the doctor revised her assessment and concluded that Lemons could perform some work. A cessation of benefits decision recorded a finding of “Fraud or Similar Fault.” Lemons was convicted of making a false statement, 18 U.S.C. 1001, and theft of government funds, 18 U.S.C. 641. The district court calculated a guidelines range of 27-33 months’ imprisonment, based on an intended loss totaling $284,018.64, varied downward, and sentenced Lemons to 12 months and one day. The Eighth Circuit affirmed. View "United States v. Lemons" on Justia Law

Fry solicited funds from investors for promissory notes issued by Petters, stating that the notes would finance purchases of merchandise that would be resold at a profit. In fact, the notes were part of a Ponzi scheme orchestrated by Petters, who was convicted separately. The transactions were fictitious, documentation was fabricated, and early investors were paid purported profits with money raised from the sale of notes to later investors. From 1999-2008, Fry and his recruits raised more than $500 million. Fry continued to misrepresent the investments and to solicit investments after the scheme began to unravel, causing $130 million in losses for 44 victims, while he collected tens of millions of dollars in fees. Fry made false statements to the SEC during its investigation. He was convicted of securities fraud, 15 U.S.C. 77q(a), 77x ,18 U.S.C. 2; wire fraud, 18 U.S.C. 1343; and making false statements to the SEC, 18 U.S.C. 1001(a)(2). The district court sentenced Fry to 210 months’ imprisonment. Other participants in the Petters scheme pleaded guilty to various charges and were sentenced by the same judge. The Eighth Circuit affirmed Fry’s conviction and sentence, rejecting an argument that it should presume that the court sentenced him vindictively, in retaliation for his exercise of the right to a jury trial, because Fry’s sentence was longer than sentences imposed on defendants who pleaded guilty. View "United States v. Fry" on Justia Law

Hansen, a farmer, served as a bank trust officer. In 2003, he invested, through Johnson (a stock broker), in the Hudson Fund, a hedge fund Johnson ran with Onsa and Puma. Hansen continued investing with the three. In 2007 Hansen and Johnson formed RAHFCO limited partnership. Hansen served as general partner, but delegated responsibility for executing trades to the Hudson Fund. Hansen misrepresented RAHFCO to investors, directly and through a private placement memo. Hansen prepared and sent investors earnings statements that falsely inflated RAHFCO’s performance. Hansen later testified that he relied on Onsa and Johnson to provide the numbers and never confirmed them. Hansen hired an accounting firm for an audit, but the firm quit after Hansen refused to authorize it to obtain a brokerage statement confirming RAHFCO’s investments. RAHFCO’s law firm withdrew. Johnson was charged in 2007 with securities fraud concerning another company. Onsa was sued civilly for fraudulent securities trading in 2009. Hansen never informed investors of any of these events nor did he attempt to find another auditor. In 2011, RAHFCO collapsed. Convicted of mail fraud, wire fraud, and conspiracy to commit mail fraud and wire fraud, 18 U.S.C. 1341, 1343, 1349, Hansen was sentenced to 108 months imprisonment and ordered to pay $17 million restitution to 75 victims. The Eighth Circuit affirmed, upholding the use of a willful blindness instruction and an instruction on conspiracy. View "United States v. Hansen" on Justia Law

Rodd, an investment advisor who produced and was regularly featured on a Minnesota local radio show, “Safe Money Radio,” was convicted of wire fraud, 18 U.S.C. 1343 and mail fraud, 18 U.S.C. 1341, for swindling 23 investors out of $1.8 million. Rodd used the radio show to market low-risk investment products to gain customers’ trust and maintain a client base for soliciting participants in a fraudulent investment scheme. Rodd solicited money by promising liquidity, safety, and a 60% six-month return. Rodd instead used the money for personal and business expenses, hiding behind false assurances of security and payouts to his early investors. Finding an advisory guidelines range of 70 to 87 months, the district court sentenced Rodd to 87 months in prison, applying a two-level enhancement for abusing a position of trust, U.S.S.G. 3B1.3, The Eighth Circuit affirmed, upholding the finding that Rodd occupied a position of trust. As a self-employed investment advisor, Rodd was subject to no oversight except by his investors. The discretion and control he possessed over client funds adequately supported the finding. The court did not err in failing to apply a two-level acceptance-of-responsibility reduction. Rodd took his case to trial and denied his guilt to the end. View "United States v. Rodd" on Justia Law