Appeal from the United States District Court for the Western District of Washington John C. Coughenour, Senior District Judge, Presiding D.C. No. 2:10-cr-00269-JCC-1
The opinion of the court was delivered by: Rakoff, District Judge:
D.C. No. 2:10-cr-00269-JCC-1
Argued and Submitted August 27, 2012-Seattle, Washington
Before: Mary M. Schroeder and Ronald M. Gould, Circuit Judges, and Jed S. Rakoff, Senior District Judge.*fn1
The panel reversed a mail fraud conviction and the district court's decision to deny the government's forfeiture application, but affirmed the district court in all other respects in a case arising from the defendant's fraudulent scheme to obtain, for personal use, funds from a high-tech startup company of which he was CEO.
The panel reversed the mail fraud conviction because the success of the fraudulent scheme did not depend in any way on the use of the mails. The panel affirmed the defendant's money laundering convictions because they do not raise a Santos merger problem, and "proceeds" should thus be defined as "gross receipts" rather than "profits" in the context of this case. The panel held that the prosecutor's referenc es during closing argument to the defendant's lies during the course of the fraudulent scheme and on the stand did not constitute misconduct.
Reviewing for plain error, the panel rejected the defendant's vagueness/overbreadth challenge to a supervised release condition prohibiting the defendant from "frequent[ing] places where controlled substances are illegally sold, used, distributed, or administered." The panel held that a reasonable person would understand that the condition prohibits the defendants from knowingly going to a specific place where drugs are illegally used or sold, but that it does not prohibit him from living in Seattle or going to a given neighborhood simply because a person is selling drugs somewhere within that neighborhood.
On the government's cross-appeal, the panel held that the district court erred by refusing to enter an in personam forfeiture judgment. The panel wrote that the rule in Libretti v. United States, 516 U.S. 29 (1995) -- that there is no constitutional right to a jury verdict on forfeitability" in a criminal forfeiture proceeding -- has not been abrogated by subsequent Supreme Court decisions; and that there is no statutory requirement for a jury determination where the government seeks only a money forfeiture.
Mark Phillips, the former CEO of MOD Systems, Inc. ("MOD"), appeals from his conviction on four counts of wire fraud, one count of mail fraud, and two counts of money laundering. These seven counts related to the same basic scheme: Phillips's successful plan to fraudulently obtain funds from MOD and use those funds for his personal benefit. After a jury trial, the district court sentenced Phillips to 48 months in prison and three years of supervised release. In his appeal, Phillips argues that his mail fraud and money laundering convictions should be reversed, that he should be granted a new trial because of Government misconduct during closing arguments, and that a condition of his supervised release should be stricken. The Government also cross-appeals and argues that the district court erred in rejecting the Government's application to enter a $100,000 in personam forfeiture judgment against Phillips. We reverse the mail fraud conviction and the district court's decision to deny the Government's forfeiture application, but we affirm the district court in all other respects.*fn3
In evaluating the sufficiency of the evidence for the mail fraud and money laundering convictions, we must view the facts in the light most favorable to the Government. McDaniel v. Brown, 130 S. Ct. 665, 673 (2010). The pertinent facts, viewed in that light, are as follows:
In May 2005, Phillips and Anthony Bay co-founded MOD, a high-tech start-up that was developing a platform to enable retailers to sell and distribute digital content to consumers. Phillips was MOD's majority shareholder, and from 2005 until he resigned in March 2009, Phillips was also MOD's CEO and a member of MOD's Board of Directors ("the Board"). Bay was Chairman of the Board during most of the relevant time period.
In January 2008, Phillips began using false invoices to steal money from MOD. He used that money to buy expensive watches, to invest in a private company, and to partially pay for a $2.3 million penthouse condo in Seattle. Many of the steps of the fraud were laid out in clear and painstaking detail in emails between Phillips and his girlfriend, Jan Wallace, as well as in numerous other emails with other parties.
In December 2007, Wallace introduced Phillips to Feel Good Watches, a fine watch retailer based in Arizona with which she had an arrangement. On December 10, 2007, Phillips wrote to Wallace that he would need MOD to do very well financially before he could purchase a certain Breguet watch. Eventually, however, Phillips decided to purchase two $30,000 Breguet watches from Feel Good Watches. Phillips agreed to pay for the first watch upon delivery and for the second watch in three installments of $10,000.
On January 15, 2008, Feel Good Watches mailed Phillips the first Breguet watch via Federal Express, and it was delivered to Phillips the following day. On the day that he received the watch, Phillips wrote to Wallace, "I received the watch, it's beautiful . . . If possible could I pay you for this so I can pay out of a company for consulting work." The next day, Phillips contacted Larry Garrett, his personal lawyer, and told him that Phillips wanted to pay a company called Wallace Black LLC ("Wallace Black") for consulting services that Wallace Black had purportedly provided to Phillips in his personal capacity. Phillips e-mailed Garrett, "Sorry, hate to use you as a merchant service, but the [sic] part of the attorney client privilege is nice too." Garrett agreed to route money to Wallace Black through Garrett's trust account. Garrett did not know that Phillips's girlfriend was the owner of Wallace Black.
Around the same time, Phillips told Ken Gordon, MOD's Vice President of Finance, that he wanted to pay a "few people" who had provided consulting services to MOD (rather than consulting for him personally). Gordon responded that he "need[ed] an invoice" from the consultants before Gordon could make any payments. Phillips then asked Garrett to send him an invoice so that Phillips could have it for his records. Garrett gave Phillips an invoice on the letterhead of his firm; the invoice stated that payment would be made to "Wallace Black" for "Consultant/Contract Services."
Phillips knew that the Board would not want to pay Phillips's girlfriend for consulting and that the Board had never authorized any payments to Wallace. Therefore, Phillips altered the invoice he got from Garrett to change the payee from "Wallace Black" to "W-Black" so that the Board would not know that MOD was paying Wallace. Phillips then e-mailed Wallace to let her know that he had altered the invoice to change the name of her company.
Based on the false invoice, Gordon believed that Phillips was paying a consultant named W-Black for work done for MOD, and thus Gordon wired $30,000 of MOD funds to Garrett's trust account on January 18, 2008. If Gordon had known that Phillips was planning to use those funds for his personal benefit, he would not have wired the money. Four days after Gordon transferred the funds to Garrett's trust account, Phillips instructed Garrett to wire the $30,000 of MOD funds to Wallace Black's bank account. Later that same day, Wallace wired $30,000 to Feel Good Watches as payment for the Breguet watch that Phillips had received a week earlier.
On March 3, 2008, the owner of Feel Good Watches e-mailed Phillips seeking payment for the second Breguet watch that Phillips had ordered two months earlier. Phillips replied that he would send Feel Good Watches $20,000 to account for the two $10,000 installment payments that he had missed. That evening, Phillips emailed Wallace to tell her that he would send more money to her bank accounts and that she should wire that money to Feel Good Watches. Phillips took the first invoice that Garrett had sent him and changed the date, amount, and "Wallace Black" to "W. Black." Phillips gave this fake $60,000 invoice to Gordon, and Gordon, who still believed that the payment was for consulting services that were provided to MOD, wired $60,000 of MOD funds to Garrett's trust account. Garrett wired the $60,000 to Wallace Black, and the next day, Wallace, based on instructions from Phillips, sent a $20,000 payment to Feel Good Watches for Phillips's second watch. This left $40,000 of MOD funds in Wallace Black's account.
On April 2, 2008, Phillips directed Wallace to wire $25,000 of those funds to pay for Phillips's investment in a high-tech startup called Sampa. On April 7, 2008, Paul Gross, the CEO of Sampa, wrote to Phillips and said, "We received a wire for $25K today but it came from Jan Wallace in Paradise Valley AZ. Is this from you?" Phillips replied, "Yes. This is from me." Gross then replied, "Mysterious but excellent."
On April 6, 2008, Phillips e-mailed Wallace and told her to wire the remaining $15,000 in MOD funds to his personal bank account. The next day, Phillips received the money from Wallace and used that money to partially fund a $50,000 earnest money deposit on the condominium he was purchasing.
On April 29, 2008, Feel Good Watches e-mailed Phillips to remind him that he still owed $10,000 for the second Breguet watch. Phillips forwarded this e-mail to Wallace the minute he received it along with the additional message, "I think I need to wire you more money." On Monday May 12, 2008, Phillips e-mailed Wallace, and asked her to pay Feel Good Watches, promising to pay her back. When Wallace said that she would need money to be sent to Wallace Black by Wednesday, May 14th, because she was short on cash, Phillips responded, "I'll ask Kenn [Gordon] to pay this tomorrow. Thanks." The same day, Phillips provided another fake invoice to Gordon, and Gordon made another $10,000 transfer to Garrett's trust account on May 15, 2008. Again, Garrett transferred the money to Wallace Black, and Wallace used the money to pay the final $10,000 that Phillips owed to Feel Good Watches for the second Breguet watch.
Around November 2007, Phillips began negotiations with MOD to license intellectual property and technology owned by a company he had started called AnythingBox. MOD's corporate counsel, Bill Bromfield, and two members of the Board told Phillips several times that any licensing agreement with AnythingBox required the ...