United States v. James Hubert Cain, Jr.

Citations: 128 F.3d 1249; 1997 U.S. App. LEXIS 31830; 1997 WL 700928Docket: 96-2666

Court: Court of Appeals for the Eighth Circuit; November 12, 1997; Federal Appellate Court

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James Hubert Cain, Jr. was convicted after a five-day trial on charges including conspiracy to commit mail fraud, mail fraud, and interstate transfer of money obtained by fraud. The judgment indicated a discrepancy in the number of counts for which he was convicted compared to the indictment and jury instructions. Cain was sentenced to 51 months in prison and ordered to pay restitution of $508,096.61. He appealed, arguing insufficient evidence, improper admission of hearsay, and refusal of a jury instruction on 'honest opinions' and 'mere puffing.' Additionally, he contested the calculation of loss amount affecting his sentencing and restitution. The appellate court affirmed the convictions but remanded for resentencing. The case involved allegations that Cain misled investors about guaranteed investments in government bonds, which were never actually secured. Witness testimony characterized Cain as the operational leader of the company, with direct control over its financial dealings. Evidence presented indicated that he was involved in revising investor materials that falsely claimed investments were guaranteed by an escrow fund, despite knowing no such fund existed.

Marion Johnson testified about attending a September 1993 investors' meeting where Mr. Cain assured her that "the principal is safe," and an advertising consultant corroborated this by noting that the principal was supposedly protected by zero coupon bonds. A tax accountant provided additional testimony that Mr. Cain thoroughly explained the prospectus, emphasizing an escrow fund, after which Ms. Johnson signed over nearly $250,000 in insurance and annuity proceeds to the company.

Post-meeting discussions among Mr. Cain and company executives revealed they intended to use Ms. Johnson's funds to pay approximately $90,000 in outstanding bills and to establish a guaranty fund. However, it became clear that no escrow fund existed at that time, and Mr. Cain expressed no surprise that it had not been funded. Despite inquiries from the chief financial officer about establishing the escrow fund, Mr. Cain redirected responsibility back to the CEO, who instructed the CFO to delay funding.

Further investor meetings in fall 1993 included individuals like Donald and Eva Jantz, Robert Ross, and Charles Heiman, all of whom invested based on the revised summary sheet distributed during those meetings. The CFO continued to press for the establishment of the guaranty fund, but Mr. Cain consistently avoided taking action, instead directing funds elsewhere.

The evidence indicates that Mr. Cain colluded with others to misrepresent the existence of an escrow fund to induce investments, despite knowing no such fund was in place. The document cites precedents to support claims of fraudulent misrepresentation.

The trial court determined that a conspiracy existed, with Mr. Cain as a member, and that statements made by other conspirators were admissible under Fed. R. Ev. 801(d)(2)(E). On appeal, Mr. Cain contends that no conspiracy existed, a claim that was dismissed based on sufficient evidence. He argues against the admissibility of certain statements, asserting that any made after November 1993 were not coconspirator statements due to antagonism among conspirators, but he did not specify which statements he objected to. The court found any potential error in statement admissions to be harmless.

Mr. Cain also claims the trial court wrongly denied a jury instruction on 'honest opinions' and 'mere puffing.' The court ruled that the instruction was not applicable to the misrepresentation about an escrow fund’s existence. Furthermore, jury instructions were deemed adequate, covering the relevant law and addressing Mr. Cain's proposed instruction.

At sentencing, the trial court concluded that the conspiracy lasted from December 1992 to December 1993, with Mr. Cain responsible for $508,096.61 obtained during this period. This sum included amounts from stock transactions and sales made by others. On appeal, Mr. Cain argued there was insufficient evidence to prove his knowledge of certain stock sales and contended that he should not be held accountable for any sales prior to his joining the company in mid-July 1993.

The chief financial officer testified that stock sales began in early March 1993, executed by him, the chief executive officer (CEO), and a commissioned stockbroker. The CEO recounted his initial meetings with Mr. Cain around March or April 1993, during which Mr. Cain had full access to company operations and records. The CEO discussed the stockbroker's sales, describing the broker as problematic, and Mr. Cain expressed intentions to address issues with the broker, who received high commissions. The CEO also mentioned discussions about the non-existent bond fund that was misrepresented in documents presented to potential investors.

Mr. Cain was officially hired in mid-July 1993, after which he became well-acquainted with the company's financial status, specifically tracking cash flow and account balances. He was aware of the stockbroker's sales, having witnessed a heated exchange involving the broker. 

Under federal sentencing guidelines, a participant's relevant conduct in a conspiracy includes all acts committed in furtherance of the conspiracy but excludes actions by others prior to the participant’s involvement. The evidence suggests that when Mr. Cain was hired, he was informed about the stock sales and the misrepresentation regarding the escrow fund, implying his tacit agreement to use this information in future stock sales. However, there is insufficient evidence to confirm that Mr. Cain joined the conspiracy between March and July 1993, as speculation does not support his prior agreement to use the misrepresented documents.

Consequently, the attribution of stock sales to Mr. Cain before mid-July 1993 is reversed. The court vacates his sentence and remands the case for further proceedings to establish an appropriate guidelines range and restitution owed by Mr. Cain, affirming his conviction.