United States v. Billie Mac Jobe, Stephen Taylor, Philip Mark Sutton, Stanley Pruet Jobe, and Fernando Novoa
Docket: 94-50646
Court: Court of Appeals for the Fifth Circuit; December 5, 1996; Federal Appellate Court
Billie Mac Jobe, Stanley Pruet Jobe, Stephen Taylor, Philip Mark Sutton, and Fernando Novoa were convicted of participating in a check-kiting scheme involving multiple El Paso banks. They appealed their convictions and sentences, raising various challenges. The Fifth Circuit Court of Appeals affirmed the convictions for all defendants except for Stanley Pruet Jobe, whose convictions on Counts 5 and 6 were vacated, along with the managerial or supervisory sentencing enhancements for both Stanley and Novoa, who were remanded for resentencing.
The defendants were indicted for bank fraud under 18 U.S.C. §§ 1344 and 2, and conspiracy under 18 U.S.C. § 371, which included making false statements on loan applications and other fraudulent activities. The indictment also sought criminal forfeiture of property. Following a nearly two-week trial, the jury convicted all defendants of conspiracy to commit bank fraud, with individual convictions for bank fraud, aiding and abetting, and making false bank entries among the appellants.
At sentencing, the district court noted a lack of evidence for monetary loss to banks, leading to relatively light sentences: Billie Mac received 18 months and a $30,000 fine; Stanley received a 5-month sentence with community confinement and a $15,000 fine; Taylor and Sutton received 10 months each; and Novoa received 5 months with community confinement. All defendants were also sentenced to three years of supervised release.
A comprehensive analysis of the evidence is crucial to understanding the relationships between the appellants and the financial institutions involved in the prosecution. Billie Mac held a one-third ownership stake, along with roles as officer and director, in Jobe Concrete Products, Inc., and was involved in Cal-Tex Spice Co. He and his son, Stanley, owned 40% of First Park National Bank (FPNB) in Montana and maintained checking accounts there, as well as at El Paso State Bank (EPSB), where Billie Mac was also a shareholder. Stanley, who served as president and one-third owner of Jobe Concrete Products and was involved in EPSB, also maintained a checking account at FPNB.
Additional appellants included key employees from these financial institutions. Taylor was the president of EPSB, while Novoa, a cashier and officer at EPSB, approved significant wire transfers related to Billie Mac. After leaving EPSB, Novoa became president of Cal-Tex Spice and performed financial tasks for Jobe Concrete Products. Sutton was president of Continental National Bank (CNB), another institution implicated in the check-kiting scheme.
The check-kiting operation, involving Billie Mac and Stanley, was exposed by FBI agent Randy Wolverton, who analyzed Jobe's checking accounts from December 1989 to July 1991. The scheme involved inflating account balances through wire transfers, writing checks against uncollected funds, and utilizing fraudulent loans, allowing large checks to be cashed despite insufficient funds. Unlike typical kiting schemes, this operation remained effective without self-destruction; no checks were ever returned for insufficient funds, and all loans were repaid with interest.
Wolverton's testimony revealed the scale of the kiting operation, showing that between December 1, 1989, and March 12, 1990, Jobe accounts appeared to have $150 million deposited, while only approximately $20 million was actually present. Similarly, from April to June 1991, records indicated $58 million in deposits, with about $44 million being mere exchanges among accounts, leaving only $13 million as actual deposits.
Profits from a scheme financed business ventures for Billie Mac and Stanley, including a nearly $3.5 million purchase of a spice plant by Cal-Tex Spice Co., co-owned by Billie Mac, in late 1989. Testimony from Austin Hale, Jobe Concrete Products' credit manager, indicated that neither Jobe nor Billie Mac had sufficient liquidity for such acquisitions, and that Stanley expressed concern about their cash flow and his father's stress from the situation.
Billie Mac initiated a check kiting scheme by opening a checking account for the Jobe Bar Track Ranch at CNB, from which he wrote a $990,000 check before the account was officially active, depositing it at EPSB. Despite the account having only a $1,000 balance, EPSB issued a cashier's check for $3,536,347 to Billie Mac on the same day, without proper record-keeping. Billie Mac used this check to purchase the spice plant.
When the $990,000 check was later presented at CNB, senior vice president Martha Karlsruher noticed irregularities and informed Sutton, the account officer, who authorized payment, citing a pending loan as a source of funds. CNB subsequently lent Billie Mac $925,000, back-dating the loan to facilitate the payment of the check, though the funds went directly into the Jobe Bar Track Ranch account rather than replenishing Billie Mac's liquidity.
Suspicious activities continued in the Jobe Bar Track Ranch and other accounts, leading Hale to suspect check kiting and ultimately resign. Karlsruher raised concerns about potential kiting to Sutton, who dismissed them as normal business practices, despite her contrary experience.
Sutton's actions at CNB began to violate standard banking practices by extending deadlines to allow Billie Mac to cover overdrafts, a practice not afforded to other customers. Despite warnings from Karlsruher about potential kiting activities and suggestions to file a criminal referral, Sutton continued approving excessive forced payments from Billie Mac's account. Karlsruher refrained from filing a referral after receiving a board resolution prohibiting such actions. Concerns about Sutton's approvals were echoed by CNB's attorney, Patrick Kennedy, and loan review officer, Patricia McLean, who warned of potential legal lending limit violations, but their concerns were ignored.
On May 21, 1990, Sutton approved a $750,000 loan to Deer Creek Spice Co., guaranteed by Stanley, without management review, despite the large amount requiring it. The loan proceeds were used to clear a $750,000 check written by Billie Mac, revealing a circular funding mechanism. Following a meeting with Kennedy and board members discussing Billie Mac's banking relations, Sutton instructed Karlsruher to seek his approval before contacting bank directors or attorneys, threatening job loss for any employee filing a criminal referral against Billie Mac. Despite these pressures, CNB eventually closed the Jobe Bar Track Ranch account, and Billie Mac compensated CNB for the use of uncollected funds at a rate lower than commercial loans.
Billie Mac and his associates continued their check kiting scheme even after the closure of their CNB account, utilizing loans from other banks and unconventional wire transfer practices to artificially inflate account balances and hide overdrafts. Unlike typical wire transfers, which are processed immediately, Billie Mac's transfers were expedited by Taylor, EPSB's president, and Novoa, the cashier, who authorized immediate crediting of his checks and wire transfers without ensuring sufficient funds were available. Internal auditor Diana Vincent testified that this violated EPSB's policy requiring collected funds for wire transfers, which would have revealed Billie Mac's insufficient balances on bank reports.
Laura Avila, from the wire transfer room, along with administrative assistant Maria Reyes, noted that Billie Mac's daily wire transfer amounts escalated from $50,000 to $1,000,000. Concerns about kiting arose among EPSB employees. Reyes reported witnessing insufficient funds in Billie Mac's account but was directed by Novoa to proceed with a wire transfer regardless. After discussing her concerns with Taylor, she received no follow-up. Yvonne Pearson from the proof department indicated that employees could bypass the proof machine's checks and balances, using specially initialed deposit slips for Billie Mac that allowed for next-day availability and prevented his checks from appearing on uncollected funds reports. Pearson concluded that these practices indicated Billie Mac was indeed kiting checks.
Vincent, EPSB's internal auditor, alerted Taylor in a memorandum about Billie Mac's check kiting, estimating daily kiting amounts between $790,000 and $1,760,000, which were increasing. She noted that Taylor and Novoa's decision to allow Billie Mac next-day availability on checks complicated the detection of the kiting. Taylor delayed responding for nearly three weeks, ultimately asking Vincent to monitor the activity. After two days of tracking, Vincent reported that Billie Mac received over $3,200,000 in immediate credit for wire transfers. Vincent testified that Taylor did not take any action or discuss the findings after receiving the memo.
Concerns about the deposit and wire transfer activities were also raised by Billie Mac's employees. Hale from Jobe Concrete Products mentioned a system developed by Novoa that provided immediate credit for deposits using special slips. After Novoa left EPSB to work for Billie Mac, Baker, the acting cashier, discovered the problematic practice of allowing wire transfers on uncollected funds, which hindered audit trails and analysis of float and collectability. Baker subsequently sent Taylor a memo suggesting funds be collected before allowing further wire transfers. During their meeting, Taylor expressed shock at the situation but discarded Baker's memo, insisting on keeping it out of circulation. Despite this, he continued to approve wire transfers for Billie Mac on uncollected funds.
Frustrated, Billie Mac began transferring funds from CNB, where he lacked an account. Sutton authorized these wire transfers, a privilege not extended to other customers. However, these transactions were flagged on the bank's reporting system due to large uncollected balances. Sutton's attempt to conceal these transactions with a special transaction code was rejected. On the day bank examiners arrived at CNB to investigate transfer activities, Billie Mac ceased wire transfers from that bank. As examiners reviewed accounts at CNB and EPSB, they uncovered the extensive nature of Billie Mac's kiting operations, revealing that EPSB was lending significant amounts to Billie Mac and Stanley while maintaining negative average collected balances.
Taylor engaged with bank examiner Tom Burress regarding a cashier's check exceeding $3,500,000 issued to Billie Mac on December 29, 1989, without confirming sufficient account funds. Taylor claimed that Fernando Novoa had presented the check for his signature and justified signing it based on his trust in the cashier. He initially alleged that Novoa had withheld checks until January 4, 1990, but later retracted this statement, admitting he had no prior reason to doubt Novoa's integrity.
As the investigation by bank examiners and federal agents deepened, the fraudulent check kite orchestrated by Billie Mac unraveled. Testimony at trial revealed contention over whether the banks incurred losses, with expert accountant Rene Pena asserting that all loans and checks had been satisfied, indicating no loss. Pena acknowledged frequent overdrafts in Jobe accounts but described them as part of normal cash management practices for the Jobe entities.
In the context of appeals by Billie Mac, Stanley, Sutton, and Novoa, they challenged the district court's refusal to conduct an evidentiary hearing on juror misconduct and its denial of new trial motions based on these claims. A juror, John A. Shamaley, reported that a relative informed him of Billie Mac's past bank fraud conviction, raising concerns about bias. Shamaley confirmed he did not share this information with other jurors and noted that no evidence of prior convictions was presented at trial. The appellate court reviews the district court's decisions regarding new trial motions and juror misconduct investigations for abuse of discretion, as established in precedent cases.
The court reaffirmed the presumption of jury impartiality, which can be challenged if there is evidence that external factors influenced the jury's deliberations. A district court must investigate claims of juror misconduct only when a credible assertion of extrinsic influence is presented. In Ruggiero, it was established that a defendant is entitled to a new trial if extrinsic evidence is introduced to the jury room unless it can be shown that the jury's verdict was unaffected by this evidence. This creates a rebuttable presumption of prejudice for the defendant, placing the burden on the government to demonstrate that the breach was harmless. The district court should consider the nature of the extrinsic material, how it reached the jury, and the strength of the evidence against the defendant.
In the current case, the district court investigated the alleged misconduct involving Juror Shamaley through his affidavit and trial evidence, concluding that there was no reasonable possibility of prejudice to the appellants. The court found no indication that Billie Mac Jobe was affected by the incident since Juror Shamaley did not report it and the jury acquitted Jobe on four of six counts. The court determined that the extrinsic information did not taint Shamaley's deliberations, was not communicated to other jurors, and that the evidence against Jobe was compelling, thus denying the request for a new trial without requiring an evidentiary hearing.
Additionally, the appellants argued that the district court wrongly refused to provide their requested jury instruction on good faith and improperly shifted the burden of proof to them. They claimed that the given instruction limited their defense of good faith regarding false entry offenses. Billie Mac specifically contended that the court failed to define "willfulness" and "specific intent," which hindered his defense presentation.
District courts have significant discretion in formulating jury instructions, and the refusal to provide a requested instruction is reviewed for abuse of discretion. An instruction will not be deemed an abuse unless it meets three criteria: it must be a correct statement of law, not substantially covered elsewhere in the charge, and must address an important trial point that impairs the defendant's ability to present a defense. In this case, the district court provided a good faith instruction, allowing jurors to consider whether a defendant believed their actions were legal, which did not diminish the government's burden of proof or unfairly shift burdens to the defendants. Appellants' challenges to this instruction were unfounded, as it applied equally to all defendants and offenses.
Billie Mac's argument regarding the need for separate definitions of willfulness and specific intent was rejected, as the court adequately defined "knowingly" based on established jury instructions. The court's charge on intent was sufficient, and the proposed instructions on specific intent were deemed redundant.
Additionally, the district court denied a joint motion for severance filed by Stanley, Taylor, Sutton, and Novoa, who argued that Billie Mac would provide exculpatory testimony if tried separately. The court found that Billie Mac's affidavit did not provide a solid basis for severance, as it primarily consisted of unsupported assertions of good faith and innocence, and any testimony he could offer would lack significant evidentiary value.
To establish a prima facie case for severance based on a co-defendant's exculpatory testimony, a defendant must demonstrate that the testimony is genuinely exculpatory. The affidavit from Billie Mac did not meet this standard. The appellants incorrectly relied on the precedent set in United States v. Neal, where severance was warranted due to compelling, specific exculpatory testimony from the conspiracy's leader, which was not present in this case. The court differentiated Neal by noting that the affidavit provided was conclusory and non-incriminating, failing to show that the appellants suffered any prejudice from not being severed. The district court acted within its discretion in denying the severance motion.
Additionally, the appellants claimed that the Supreme Court's decision in United States v. Gaudin necessitated a reversal of their convictions. Gaudin established that a trial court's failure to submit the question of materiality to the jury violates a defendant's constitutional rights if materiality is an element of the offense. In this case, the district court’s instructions indicated that the jury need not consider materiality for certain counts, which the appellants argued was a violation of their rights. However, the applicability of Gaudin to the specific charges of conspiring to commit bank fraud and aiding and abetting bank fraud remains uncertain, raising questions about whether materiality is indeed an essential element of those offenses.
The court found no explicit case law requiring that all conspirators in a conspiracy offense must incorporate the elements of each underlying substantive offense committed or attempted. Assuming such a requirement exists, the conspiracy convictions in Count 1 would necessitate materiality findings related to the charged offenses of false statements and bank fraud, which inherently involve a materiality element. For Count 2, which charged aiding and abetting, the government had to prove that the appellants participated in Billie Mac's material misrepresentations to the banks. Several offenses charged included actual or potential materiality elements. However, since the appellants did not object to the jury instructions regarding materiality during the trial, the appellate review is limited to a plain error analysis. This standard, consistently applied by multiple courts of appeals, requires proof of (1) an error, (2) that the error was clear and obvious, and (3) that it affected the defendants' substantial rights. The court referenced precedents regarding the plain error standard and noted that changes in law occurring after a trial cannot be used to argue for plain error. The ruling in a related case, United States v. Pettigrew, was distinguished based on its specific facts and the nature of the error being preserved by objection, contrasting with the current situation where no such objection was made.
No legal basis existed for raising a Gaudin objection at the time of trial, as established by precedent, which holds that materiality under 18 U.S.C. § 1001 is a legal matter for the court. The Fourth Circuit's position, which permits plain error review only when an objection would have been baseless under existing law, supports the orderly administration of justice and discourages frivolous objections based on potential future legal changes. While acknowledging a plain error due to defective jury instructions, the court concluded that the errors did not necessitate overturning the convictions, as substantial government resources had been invested, and the evidence against the appellants was compelling. The materiality of false entries and representations was largely undisputed by the defendants, indicating no reasonable likelihood of prejudice from the instructional error.
Regarding the conspiracy charges under 18 U.S.C. § 371, the government must prove an agreement to violate federal law and an overt act in furtherance of that agreement, along with the defendants' knowledge and voluntary participation in the conspiracy. The court found the evidence against Novoa, Taylor, and Stanley Jobe sufficient to uphold their convictions, rendering their sufficiency challenges meritless.
The court's review standard requires assessing whether a reasonable jury could find guilt beyond a reasonable doubt based on evidence viewed favorably to the government. The evidence presented supported the convictions of Novoa, Taylor, and Stanley Jobe for conspiracy to commit bank fraud with Billie Mac, affirming their convictions under Count 1. To establish aiding and abetting under Count 2, the defendants must share the criminal intent of the principal and assist in the crime. The appellants argued that the government failed to prove they willingly participated in the criminal venture. However, the evidence allowed a rational jury to conclude they aided Billie Mac in committing bank fraud. Previous cases, such as United States v. Knipp, demonstrate that facilitating fraudulent activities can uphold convictions for aiding and abetting. The court affirmed the Count 2 convictions based on the appellants' intent to defraud. Furthermore, Taylor was convicted under Count 16 for making materially false bank entries by issuing a cashier's check without appropriately documenting the transaction, with the evidence supporting his conviction.
Stanley Jobe was convicted of making false statements on a loan application and aiding Philip Sutton in making false entries, in violation of 18 U.S.C. 1014. Jobe contends there is insufficient evidence to support these convictions. The court agrees, finding that the government failed to prove beyond a reasonable doubt that Jobe made a false statement to a financial institution or that he was involved in a loan application related to the Deer Creek Spice loan. The government's theory was that Jobe misrepresented the loan's purpose, which allegedly influenced the loan approval at CNB. However, the evidence did not show that Jobe made any direct statements regarding the loan, as he was neither the borrower nor the payee and did not sign any loan application; instead, a loan presentation form was used without his signature. The trial did not produce any loan application with a false statement attributed to Jobe, leading to the reversal of his convictions on Counts 5 and 6. Additionally, Jobe challenges two sentence enhancements imposed by the district court, particularly a two-level enhancement for managing criminal activity, arguing that there was no supporting evidence for such a designation.
The district court's reliance on Stanley's position as a director of two banks involved in a kiting scheme to conclude that he managed or supervised criminal activity is deemed incorrect. Sentencing enhancements under the Guidelines are upheld if they result from a legally correct application based on factual findings that are not clearly erroneous. A Presentence Report (PSR) is generally considered reliable evidence for the trial judge's factual determinations. However, a review of the record shows no evidence that Stanley managed or supervised his co-defendants in the criminal acts, necessitating the vacation of his sentencing enhancement under Guideline 3B1.1(c), which requires proof of organizational control over at least one participant in the crime.
In contrast, a second sentencing enhancement based on the abuse of a position of trust was found less problematic. This enhancement was based on two criteria: whether Stanley occupied a position of trust and whether he abused that position to facilitate the crime. The court must assess if his role significantly facilitated the offense compared to others involved. Stanley challenges this enhancement by arguing that his relationships with lenders were not trust-based and that he did not exploit his trust position to aid his father's illegal activities. While the evidence is close, Stanley's PSR indicates he was aware of his father's check kiting at a bank meeting and was informed of overdrafts covered by transfers, highlighting his involvement as a director at both involved banks.
Evidence supports the district court's conclusion that Stanley held positions of trust at two banks and utilized these roles to assist in or mask his father’s check kiting scheme, justifying a sentence enhancement under § 3B1.3 for abuse of trust. Novoa argues that his Sixth Amendment right to confrontation was violated when the court denied his motion to sever, as established in Bruton v. United States. The Bruton standard applies when co-defendants are tried together, one defendant's extrajudicial statement implicates another, and the confessor does not testify, preventing cross-examination. Novoa claims that statements made by co-defendants Taylor and Billie Mac, who did not testify, infringed on his rights. Specifically, Taylor's statement, relayed through bank examiner Burress, indicated that Novoa presented a check without ensuring sufficient funds and did not respond when questioned about the transaction's legality. Novoa's counsel objected to this testimony on hearsay grounds, and while the district court provided a limiting instruction to the jury, Novoa contends it could not remedy the Bruton violation, referencing Cruz v. New York to substantiate his position.
Taylor's statements, as conveyed through Burress, did not infringe upon Novoa's Sixth Amendment right to confront witnesses under the Bruton standard, as they did not directly incriminate Novoa without reference to other admissible evidence. The only potentially incriminating remark indicated that Novoa had checks in his possession until a certain date, which was a tentative opinion later retracted by Taylor. Consequently, the court's limiting instruction was deemed sufficient to mitigate any potential prejudice to Novoa.
The document also references precedent, indicating that a nontestifying defendant's confession can be admitted if a proper limiting instruction is provided. A Bruton violation arises only when statements clearly implicate a codefendant, and any such error can be considered harmless if the overall evidence against the defendant is substantial. In the case at hand, the court found that the statements did not clearly implicate Novoa, affirming the district court's discretion in denying a motion to sever trials.
Additionally, a statement from Billie Mac through Hale, which suggested Novoa's involvement with deposit slips at El Paso State Bank, was deemed potentially incriminating. However, since Novoa did not object to this testimony at trial, the court would review it only for plain error. Upon review, the court decided not to correct any potential Bruton error, concluding that even without the contested statements, the evidence was sufficient to uphold Novoa's convictions for aiding and abetting bank fraud under Counts 1 and 2.
The court determined that any potential Bruton error regarding Novoa was harmless due to substantial admissible evidence against him, referencing prior cases that support a harmless error analysis in similar contexts. Novoa's appeal also challenged a two-level enhancement under USSG 3B1.1(c), arguing he did not manage or supervise other participants in the check-kiting scheme. The court found Novoa's interpretation of the enhancement requirements correct; he must have exercised management over co-defendants, which was not demonstrated in the record. Consequently, the enhancement was vacated, and the case was remanded for resentencing.
Additionally, Novoa contested the denial of a sentence reduction under USSG 3B1.2 for being a minor participant. The court noted that Novoa had initially sought a four-level reduction as a minimal participant, which could imply waiver of the minor participant claim. However, the court concluded that the denial was justified based on the evidence indicating Novoa's involvement exceeded that of a minor participant. Ultimately, the court affirmed most convictions, vacated specific convictions for Stanley, and remanded both Stanley and Novoa for resentencing.
All petitions for rehearing have been denied. Judge Parker recused himself from the case after oral arguments, and the opinion is solely from Judges Jones and Stewart. The review of the record was complicated due to frequent incorrect or missing citations from the parties. Relevant statutes cited include 18 U.S.C. 1014, 1005, 1956(a)(1)(A)(i), and 2, among others. A district court judgment of acquittal was issued following a separate forfeiture proceeding. The normal closing deadline for CNB was 2:00 p.m., after which uncollected funds could not be settled for overnight investment, risking loss of interest. The government acknowledged that while unconventional, banks have some discretion to extend immediate credit on uncollected funds. Although Novoa's initials typically appeared on checks, other authorized personnel sometimes initialed them. Novoa raised objections to testimony under Bruton v. United States, which will be addressed later. There were inaccuracies in information relayed to Shamaley regarding Billie Mac's prior conviction, which was only admissible for impeachment if Billie Mac testified. A court cannot inquire into jury deliberations due to Federal Rule of Evidence 606(b), limiting juror testimony on several grounds. The jury was instructed that to find conspiracy, they must determine beyond a reasonable doubt that the defendant knowingly joined the unlawful agreement. The defendants argued that materiality is an element of making false entries in bank records, supported by case law from other circuits.
Materiality is not explicitly recognized as an element of the offense in this circuit, apart from the acknowledgment that both material omissions and misstatements can constitute a false entry (United States v. Jackson). The discussion assumes, without deciding, that materiality may be an element. Under the aiding and abetting statute (18 U.S.C. § 2), the government must establish not only the substantive offense elements but also the aiding and abetting component (United States v. Hall). Novoa contends that the government failed to demonstrate he shared the intent to defraud required for his conspiracy and aiding and abetting convictions. However, evidence indicates he was responsible for the wire room and endorsed transactions linked to check kiting, allowing the jury to infer his guilty intent. Investigators did not suspect Jobe of criminal activity, and a promissory note was signed by Frank Owen. The enhancement of Stanley's sentence requires evidence of management responsibility over criminal activities (USSG § 3B1.1(c)). Novoa's claims regarding the testimony of Taylor, which he suggests implicates him in an illegal transaction, lack supporting evidence. Objections raised by Novoa during the trial did not pertain to the specific testimony he now contests. The potential for an upward departure in sentencing based on Novoa's management role in the check kiting scheme remains open.
