IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
UNITED STATES OF AMERICA, CASE NO.: 99-2214
Appellee,
vs.
CHANTAL McCORKLE,
Appellant.
ON APPEAL FROM
THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF FLORIDA
REPLY BRIEF OF APPELLANT, CHANTAL McCORKLE
MARK L. HORWITZ, ESQUIRE
Florida Bar No.: 14744
DAVID D. FUSSELL, ESQUIRE
Florida Bar No.: 435147
LAW OFFICES OF HORWITZ & FUSSELL,
a Professional Association
17 East Pine Street
Orlando, Florida 32801
(407) 843-7733
Attorneys for Appellant, Chantal McCorkle
. . .
SUFFICIENCY OF THE EVIDENCE.
The government's statement of facts reveals that its proof of guilt of Chantal McCorkle is based upon guilt by association with William McCorkle and a strained interpretation of the evidence. In considering the sufficiency argument the Appellant must reply to portions of the governments Statement of Facts.
The government routinely cites to William and Chantal McCorkle or the McCorkles when the evidence relates to William McCorkle. Examples include page 5 of the government's brief, which states William and Chantal McCorkle began broadcasting infomercials. While infomercials were broadcast, the evidence revealed Chantal McCorkle's involvement was limited to assisting her husband by interviewing four people posing as customers or appearing on an infomercial at his direction. There was no proof that Chantal McCorkle was involved in editing, producing or airing the infomercials.
On page 6 of its brief, the government contends that Chantal McCorkle interviewed many of the people involved in testimonials. The evidence however, revealed that Chantal McCorkle interviewed four people in testimonials. The infomercials contained between 25 to 40 testimonials (Govt. Exhs. 3, 4, 11, 12, 13, 17, 18). The government introduced evidence that eight testimonials were false. The defense introduced testimony from Gary Sondergeld (R63-8862-63); Marianne Fasolo (R64-8973, 8991); Mario Taboada (R64-9145-46); and Raymond Castillo (R67-10064) that their testimonials were true. In addition, a case agent, IRS Agent Carl Coffman, testified that eight other testimonials were true (R38-2049-76). The remaining testimonials were not proven false.
The evidence concerning the testimonials revealed that the true testimonials set forth the same general information as the four testimonials in which Chantal McCorkle took part. The government offered no proof that Chantal McCorkle knew that it was fraud to use actors to portray a product in a fair way.
The government characterizes Chantal McCorkle's role in the infomercials without substantiating proof of its contentions. For example, "The out-takes and raw footage from the videotaping sessions which were discovered in the McCorkle's home, vividly demonstrates how both William and Chantal McCorkle played critical roles in the production, making up false testimonials that they aired as the truth to unsuspecting viewers. Govt. Exhibits 2, 5, 9." (Govt. Br., p. 7)
These exhibits reveal William McCorkle conducted the interviews of all testimonials with the exception of four actors posing as satisfied customers, interviewed by Chantal McCorkle. In those four interviews, William McCorkle was directing the testimonials, instructing, and at times screaming at Chantal McCorkle. The evidence does not reveal a critical role by Chantal McCorkle, rather she is taking direction from William McCorkle just as all the other people on the testimonials.
Throughout its statement of facts, the government refers to the "McCorkles" when the evidence relates to William McCorkle's product and business practices. For example, on page 8, the government contends that the McCorkles made representations about the business advisors. The evidence however, revealed that Chantal McCorkle did not work with the business advisors. Perhaps even more disturbing, however, is the implicit contention that Chantal McCorkle committed fraud because her husband staffed the business advisors section with from one to seven advisors.
The government also ignores evidence of its own witnesses. On page 9, it contends that customer service personnel were instructed to make no more than 10 to 20 refunds a day, even though more requests came in. It cites to the direct testimony of Mr. Patel, a bookkeeper (R36-1454-1457). While the government does have the benefit of being able to interpret the evidence in a light most favorable to its position, this rule does not justify ignoring the testimony of its own witnesses or misinterpreting the evidence.
Mr. Patel testified that he was never given specific instructions as to how many refunds to give (R36-1455). On cross examination, Mr. Patel was asked:
Q. Can you give us a number of the approximate number of credit card refunds you would process in a day?
A. I would say approximately about seventy-five.
(R-36-1478-1479).
Patel stated that he would credit refunds "at least four days out of the week." (R36-1479) In addition, Patel reviewed documents relating to refunds by check during the few weeks that he worked at Cash Flow. (CM Exh. 4 through Exh. 14; R36-1486-99). These exhibits revealed check refunds prepared by Patel between March 11, 1996 and April 24, 1996. The evidence revealed that refunds were not limited to 20 per day as set forth in the government's brief. The reference to Mr. Patel's direct testimony to that effect does not justify the government stating that as a fact, nor ignoring the full development of the subject from Patel on cross-examination.
In another example of a strained interpretation of evidence, the government at pages 11 - 12 states that the Cash Flow fax machine was turned off to avoid customer proposals. This is hardly proof of fraud, yet it was emphasized by the government. The evidence from the government's own witnesses on this point varied as follows: Tarek Patel, a bookkeeper for several weeks said that the fax was not turned off, but did run out of toner and he saw faxes coming in (R361460-1461); Tonia Wise said the fax machine was turned off (R42-3037); Cynthia Carlin said the fax machine was going constantly (R44-3559-3661); Carl Glismore said faxes were constantly coming in every day (R62-8310). This type of evidence hardly shows criminal intent, yet the government feels justified in setting forth a statement of facts which is not consistent with a fair interpretation of its own witnesses.
The continued use of the term "McCorkles" throughout the statement of facts is an improper citation to the record in an effort to utilize evidence concerning William McCorkle against Chantal McCorkle.
A. Perjury
The government's argument on the evidence relating to the perjury count fails for two reasons. First, it fails to consider the entire affidavit, and second, it misinterprets the evidence.
The first false statement is alleged to be:
Those seizures (on May 9, 1997) resulted in the seizure of all funds of the companies, all funds in the personal accounts of my husband and I (excluding less than $5,000) and the paperwork of our company. (Underlined portion in indictment representing false declaration).
(R2-76-52).
This statement is alleged to be false in the indictment by setting forth that Chantal McCorkle, "Knew that the government had not seized all funds by the companies or all funds in their personal accounts on May 9, 1997 (R2-76-52).
The government's argument never addresses the fact that the indictment alleges that this statement is false because Chantal McCorkle knew that all funds were seized on May 9, 1997. This is not addressed because the affidavit does not contend that all funds were seized on May 9, 1997, but rather, the search and seizure on that day resulted in seizures. The government also ignores the information set forth in affidavit about the other funds. These include Chantal McCorkle setting forth that she and William McCorkle had access to approximately $30,000 per week from sales plus the return of prepaid advertising. Rather than reference to the $30,000 per week set forth in the affidavit, the government cites to the description of the weekly income as "a small number of orders trickling in." As noted in Appellant's brief, when compared to the orders before the seizure this characterization is fair.
The evidence revealed that refunds of prepaid advertising between May 9, 1997 and the affidavit included $140,674.00 from Media Source (R53-6184-86) and $114,657.50 from Rosenheim (R53-6196-97) for a total of $255,301.50. The affidavit also references $30,000 per week in orders which would total approximately $180,000 for the six weeks between the seizure and the date of the affidavit.
The government on page 42 of its brief states, "The evidence showed, contrary to the first Chantal's sworn statements, that the seizures and restraint had not reached all funds of the companies and the McCorkles." This is not what a full reading of the affidavit puts forth.
The government also argues that there was over $200,000 in the Nassofer account after the date of Chantal McCorkle's affidavit (Govt. Br., p. 42). This has no bearing on the truthfulness of the affidavit which reveals that sales were continuing and therefore income was coming in even after the affidavit.
The government contends that the evidence showed substantial proceeds other than prepaid advertising and a "small number of sales." The evidence of deposits into the Wyoming account does not support the government's argument for a review of the "bundled up" deposits reveal that those deposits were from sales.
The government concludes its argument on page 43 by again referencing to the affidavit's reference to "a small number of orders." The use of the adjective "small" is however explained in the affidavit by reference to sales of approximately $30,000 per week after the raid. This puts the adjective in perspective especially when compared to average weekly credit card sales of over $550,000 for each of the 19 weeks of 1997 prior to the raid.
The indictment alleged that the underlined statements of the affidavit were false because "(2) she knew that there existed substantial funds to which she had access that were not refunds of pre-paid advertising or the proceeds of a small number of orders being received by her companies since the government executed seizure warrants on May 9, 1997." (R2-76-52).
The government bases its perjury on a comparison of adjectives by saying that Chantal McCorkle's characterization of sales as small whereas the indictment alleges she knew funds were "substantial." The government in its argument ignores the entirety of the affidavit which references small sales as approximately $30,000 per week. This analysis is contrary to the law which requires that in considering whether a statement is false, the government may not take the statement out of context. See, United States v. Manapat, 928 F.2d 1097, 1101 (11th Cir. 1991). In addition, the government offered no proof of funds available other than from sales after the raid and refunds of prepaid advertisements.
B. Conspiracy to Commit Mail Fraud
The government's argument on sufficiency stresses guilt by association rather than relying on a fair interpretation of the evidence.
The government relies upon Chantal McCorkle's position as President, as well as her involvement in refunds, the merchant account, and general statements that she ran things in William McCorkle's absence as proof of fraud (Govt. Br., p. 56). Personal knowledge of fraud and false statements of material matter is required for a showing of intent. No vicarious liability is authorized under the mail fraud statute. United States v. Brown, 79 F.3d 1550 (11th Cir. 1996); United States v. Toney, 605 F.2d 200, 208 (5th Cir. 1979).
In United States v. Brown, 186 F.3d 661, 666 (5th Cir. 1999), the court pointed out evidence establishing criminal intent of the defendant as manager. In Brown, employees reported directly to the defendant concerning the excessive fees and overcharging that constituted the fraud. Knowledge by the defendant of the false statement or scheme must be shown in order to show the necessary intent. The defendant must be shown to have a conscious knowing intent to defraud. See,
United States v. Kreimer, 609 F.2d 126, 128 (5th Cir. 1980); United States v. Foster, 10 F.2d 577 (5th Cir. 1926). There was no evidence of employees relating misconduct to Chantal McCorkle as was present in Brown.
The government contends on page 46 that Chantal McCorkle played a crucial role in the infomercial testimonials. This is not supported by the record. The various infomercials contained between 25 and 40 testimonials. Chantal McCorkle interviewed four people in 1992 who were actors. Those four testimonials did not appear in many of the infomercials produced by William McCorkle. Furthermore, the out-take,, (Govt. Exh. 2) of Chantal McCorkle interviewing the actors in 1992 reveals that she is following the instructions of William McCorkle.
The important issue, however, is whether the use of actors to depict what is believed to be true is a material false statement. The government proved that eight testimonials were by actors or friends of William McCorkle. There were, however, 11-25 other testimonials (depending upon the infomercial) never proven false.
The government introduced no evidence that Chantal McCorkle knew that it was fraudulent to use actors or employees to portray the results of William McCorkle's program or that the testimonials by actors interviewed by Chantal McCorkle differed in any material way from results obtained by those who successfully used the program.
The government contends that Chantal McCorkle took part in infomercials in which her husband was referred to as a millionaire (Govt. Exh. 47). This is not proof of fraud since William McCorkle was a millionaire as evidenced by the fends seized by the government. Furthermore, the contention that Chantal McCorkle "took part" in an infomercial falls far short of knowledge of wrongdoing. There was no evidence that Chantal McCorkle did anything other than appear in infomercials at the direction of William McCorkle. She did not edit, produce, or arrange for the telecast of commercials. This is but another example of guilt by association.
The government introduced evidence and argued in its brief at page 48 that Chantal McCorkle knew that it was fraudulent to use a jet as a prop in the infomercial. There was, however, no proof that use of luxury props such as homes, jets, helicopters or yachts in an infomercial was known to be fraudulent.1
In a further effort to stretch the evidence to establish intent, the government at page 48 contends that Chantal McCorkle walked past employees who "constantly read false statements over the phone." The citation to the record concerns the testimony of an ex-employee, Tonia Wise, who testified that on occasion Chantal McCorkle would "walk by the area" where phone operators made representations (R42-3042). From this, the government argues that employees "constantly read false statements" and that Chantal McCorkle by walking by the area overheard the representations and knew the representations to be false. This falls far short of evidence to support a finding of guilt and again raise questions as to the government's interpretation of the record.
The record when stripped of guilt by association and facts related to other wrongful acts such as tax returns, credit card applications and merchant account applications does not provide evidence that Chantal McCorkle intended to defraud customers or knew of material false representations.
C. Money Laundering
The government again resorts to guilt by association through referencing conduct of the "McCorkles" when the record only reflects actions by William McCorkle.
The government, at page 57 of its brief contends that "the McCorkles" chose National Media in order to disguise the Cayman Company to which funds were transferred. There was no evidence that Chantal McCorkle had any involvement in the choice of the name National Media or the location of the Cayman Islands for the account. National Media company was formed by William McCorkle, and Chantal McCorkle was not an officer or director of the company. Furthermore, Chantal McCorkle had no signing authority or control over the Cayman Island bank accounts. (R32-324-25).
The transfers to William McCorkle's accounts in the Cayman Islands were done through normal banking channels and there was no evidence whatsoever that the transfers promoted the business activities of Cash Flow. The conspiracy to commit money laundering in Count 17 sets forth both the promotion and concealment objective. The general verdict did not however, specify which of the objectives supported the verdict.
In relation to the substantive money laundering counts, all transfers were from accounts controlled by William McCorkle to the Cayman bank accounts. Not only was there no proof of promotion in relation to Counts 18-47, but also as to Counts 18-21, the transfers were to the Cayman accounts in William McCorkle's name thereby further weakening the government's argument that concealment was established by transfers to the National Media account. Counts 18-21 therefore involved normal banking transfers from William McCorkle's business accounts to a Cayman account in William McCorkle's name.
The evidence fails to establish that Chantal McCorkle had specific intent that transfers of business funds through normal banking procedures to accounts of her husband concealed the source of the funds, or promoted any illegal activity. Evidence of intentional concealment and promotion is required to sustain these convictions. See, e.g., United States v. Brown, 186 F.3d 661, 670 (5th Cir. 1999); United States v. Olaniyi-Oke, 199 F.3d 767, 770 (5th Cir. 1999).
EVIDENTIARY ISSUES.
The government contends that the exclusion of evidence of customers satisfied with the product due to its educational value was proper. In support of this position, the government contends that the "charged scheme was that the McCorkles had fraudulently misrepresented, among other things, their real estate success, their promise to partner deals, the possibility of success, and the availability of a refund". (Govt. Br., p. 61) This is a prime example of Chantal McCorkle's guilt by association with William McCorkle which permeates the government case. The representations of real estate success were by William McCorkle of his program, not "their" representation; the promise to partner deals was William McCorkle's promise, not "their" promise; the possibility of success and refunds were also William McCorkle's representations. These representations were but a few of the numerous statements by William McCorkle which were allegedly false. The issue as to Chantal McCorkle was, however, whether she knew the statements by William McCorkle were materially false and intended to deceive.
While the number of partnered deals were small, the conditions set by William McCorkle were onerous. There was no proof that Chantal McCorkle knew that it was fraud for William McCorkle to set difficult conditions for a deal or to speak optimistically of his product and its chances of success. There was no evidence that Chantal McCorkle had any role in reviewing deals to see if they met the criteria for financing. Furthermore, the product was undeniably educational in nature and that aspect of the product was significant to the product's worth and the intent of Chantal McCorkle in her belief that William McCorkle's product was legitimate.
Given the small number of people who partnered a deal with William McCorkle, the importance of the educational value of the product became even greater to the defense. The defense was entitled to show that customers viewing the infomercial purchased the product for its educational value and were satisfied with the product. This evidence was crucial to the issue of whether Chantal McCorkle intended to defraud customers.
In this case William McCorkle had thousands of customers. The government called 30 customers who testified that they were not satisfied with the product for various reasons. This had an effect upon the jury's consideration of intent. The court's exclusion of witnesses who bought the product for its educational value and were satisfied would have presented a crucial element of evidence that would have been circumstantial evidence of Chantal McCorkle's good faith in her husband's product and lack of intent to defraud.
SENTENCING.
A sentence of 24 years 4 months under the money laundering guidelines was improper because the trial court erroneously used total credit card sales of $40,000,000.00 as the amount of laundered funds. The government argues that amounts received in sales equals funds laundered. This position is erroneous under the facts of this case for it equates fraud with money laundering and ignores required elements of the crime of money laundering under both § 1956 and § 1957.
The government cites to cases which did not involve the sale of a product with value in support of the proposition that the deposit of proceeds from victims into the business constitutes the amount for money laundered.
The case of United States v. Mullens, 65 F.3d 1560 (11th Cir. 1995) involved a traditional ponzi scheme where the defendant sold interests in nonexistent investments and used part of the proceeds to pay early investors' returns.
United States v. Coscarelli, 105 F.3d 984 (5th Cir. 1997)is described as a telemarketing fraud by the government (Govt. Br., p. 78) but bears no relation to the instant case. In Coscarelli the defendants told victims that they had won a contest and in order to collect the prize the victim had to pay taxes and shipping. Likewise, United States v. Leonard, 61 F.3d 1181, 1184 (5th Cir. 1995) involved a contest scheme whereby victims were told they won a prize and had to pay for shipping, handling, registration and promotion fees.
The facts in this case revealed the sale of an educational product concerning distressed real estate and an offer by William McCorkle to partner deals under specific conditions.
The evidence of funds utilized in transactions was limited to transactions involved in the substantive counts of money laundering. The government did not prove the expenditures of the $40,000,000.00 that went into scoring the money laundering. Rather, the $40,000,000.00 represented purchases deposited into the merchant account.
In order to prove money laundering under § 1957, there must be proof of a transaction over $10,000 from funds derived from criminal activity. See, United States v. Adams, 74 F.3d 1093, 1101 (11th Cir. 1996). There was no proof that any deposit into the credit card accounts was over $10,000, as required by § 1957(a).
The requirements of § 1956 were not met so as to justify $40,000,000.00 in scoring the money laundering when the facts of this case as to Chantal McCorkle are analyzed in relation to the law.
The government's attempt to equate total sales receipts with the amount of funds laundered ignores not only the elements of § 1956, but also the Sentencing Commission's position on money laundering.2
In United States v. Smith, 186 F.3d 290, 298 (3d Cir. 1999) the court stated:
When U.S.S.G. § 2S1.1 was adopted, the money laundering statutes, 18 U.S.C. §§ 1956 and 1957 had been in effect for only six months. Id. For that reason, the Commission chose a high offense level to punish the activity which had aroused congressional concern: '1) situations in which the laundered funds derived from serious underlying criminal conduct such as a significant drug trafficking operation or organized crime; 2) situations in which the financial transaction was separate from the underlying crime and was undertaken to either: a) make it appear that the funds were legitimate, or b) promote additional criminal conduct by reinvesting the funds in additional criminal conduct.'
The funds paid by purchasers of the product into the credit card account is identical to the government's theory of the underlying crime (i.e. the sale of the product).
The court in Smith, 186 F.3d at 300, noted that paying funds through checks on the business account to creditors was not the kind of conduct contemplated by the guidelines. See also, United States v. Olaniyi-Oke, 199 F.3d 767, 771 (5th Cir. 1999). In Olaniyi-Oke, the court noted expenditure of funds for personal benefit does not violate the concealment prong of § 1956. As to Chantal McCorkle, there was no proof that the sales deposits into the credit card accounts was in any way concealed. so as to justify the government's theory that the receipt of funds equaled the amount of laundered funds through concealment.
The last basis for justifying that use of gross credit card sales with money laundering is that deposits facilitated the unlawful activity. This fails for several reasons.
First, as noted in Smith, the intent of the sentencing guidelines was that the enhanced money laundering guidelines does not apply to situations in which the underlying crime and the financial transactions were the same.
Second, the financial transactions relating to the credit card sales involved payment by customers to William McCorkle's company. The funds therefore are proceeds of the customers and there is no proof that the customers were using funds from an unlawful activity to make the purchase. The question then becomes whether Chantal McCorkle knew that all sales were fraudulent so as to satisfy § 1956 which requires that the defendant know that the property involved is from an unlawful activity. When as here the sales were from a sale of a product which has value, there was no proof that Chantal McCorkle knew that the financial transactions were done with the purpose of promoting the unlawful activity.
The government would have this court expand the theory of United States v. Mullens, 65 F.3d 1560 (11th Cir. 1995) beyond its logical requirement. In Mullens, the receipts from victims were held to be equal with laundered proceeds to promote the unlawful activity. That case, however, involved a ponzi scheme where the proof revealed that the defendant knew that sales were not legitimate and no real product was sold, and therefore all funds from sales were the product of unlawful activity.
The court in United States v. Brown, 186 F.3d 661, 668 (5th Cir. 1999) held that expenditures made in relation to a car dealer's operating expenses did not justify a finding that the payments were intended to carry on the fraud that was conducted by the dealership. The specific intent to promote the unlawful activity is not satisfied even by a showing that a financial transaction promoted the carrying on of the illegal activity. See also, United States v. Olaniyi-Oke, 199 F.3d 767, 770 (5th Cir. 1999).
The gross deposits from credit card sales should not be equated with laundered funds when the sales involved a product which has value rather than funds raised in a ponzi scheme. Chantal McCorkle should not have been sentenced to 24 years, 4 months, and that sentence should be reversed.
1 The jet, the luxury home, and the yacht were included in the indictment as part of the fraud. The government proved that these were not owned by William McCorkle. The jury was allowed to consider whether these false statements constituted the fraud. In fact, we do not know if the verdicts were based on these facts. Such use of props in an infomercial cannot be legally material.
2 Appellant's Brief at p. 67 cited to United States v. Hildebrand, 152 F.3d 756 (8th Cir. 1998) on the issue of fraud and money laundering measuring different types of harm. In error, the Appellant cited Hildebrand as an 11th Circuit case.