US v. Ted Johnson, Jr.

Filing

UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 7:07-cr-00048-sgw-1. Copies to all parties and the district court/agency. [998490649] [09-4417]

US v. Ted Johnson, Jr.

Doc. 0

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 1

UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 09-4417 UNITED STATES OF AMERICA, Plaintiff - Appellee, v. TED JAMES JOHNSON, JR., Defendant - Appellant.

Appeal from the United States District Court for the Western District of Virginia, at Roanoke. Samuel G. Wilson, District Judge. (7:07-cr-00048-sgw-1) Argued: September 24, 2010 Decided: December 23, 2010

Before TRAXLER, Chief Judge, KING, Circuit Judge, and Jerome B. FRIEDMAN, Senior United States District Judge for the Eastern District of Virginia, sitting by designation. Affirmed by unpublished per curiam opinion. ARGUED: Brian Jay Grossman, CROWGEY & GROSSMAN, Richmond, Virginia, for Appellant. Thomas Ernest Booth, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Timothy J. Heaphy, United States Attorney, Jennie L. M. Waering, Assistant United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Roanoke, Virginia; Lanny A. Breuer, Assistant Attorney General, Greg D. Andres, Acting Deputy Assistant Attorney General, David A. Bybee, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

Dockets.Justia.com

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 2

Unpublished opinions are not binding precedent in this circuit.

2

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 3

PER CURIAM: Ted James Johnson, Jr. ("Johnson") appeals his convictions on various felony charges stemming from Johnson's creation and operation of a Ponzi scheme. Johnson does not dispute his

involvement in such illegal scheme nor his guilt on numerous mail and wire on fraud counts, money but instead argues counts that should his be

convictions reversed.

certain

laundering

Additionally, Johnson seeks reversal of three counts

relating to the unlawful operation of a "commodity pool" based on Johnson's assertion that the applicable statute of For the

limitations expired before he was indicted on such charges. the reasons set forth below, we affirm the judgment of

district court on all counts.

I. The facts of this case are largely undisputed. In 1992,

Johnson and his co-conspirator, Frank Farrier ("Farrier") began a partnership known as Mountain Investments Limited ("Mountain Investments"). Johnson and Farrier portrayed themselves as

commodity pool operators that pooled and traded investor funds in the commodities futures financial market. and Farrier were never registered with the However, Johnson U.S. Commodities

Futures Trading Commission, as required by law.

3

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 4

The Mountain Investments office was located in Johnson's home and was outfitted with numerous computer monitors that were used as a prop to instill confidence in the Johnson company. as an

Additionally,

potential

investors

recognized

upstanding member of the community due to his former employment as the Giles County Circuit Court Clerk as well as Johnson's position within his church. Although Johnson and Farrier

claimed to have a foolproof trading system and offered potential investors very high rates of return, in reality, Mountain

Investments suffered a trading loss every year it operated. Johnson and Farrier began accepting investor funds in 1992, and they commingled those funds in various personal and business checking accounts. Although commodity futures trading accounts

were set up in Mountain Investments' name, little trading ever took place. In 1995, Johnson and Farrier established a second

company, Dogwood Farms Incorporated ("Dogwood Farms") for the purpose of buying, selling, and developing real estate.

However, like Mountain Investments, Dogwood Farms was primarily used in furtherance of the Ponzi scheme. Johnson's Ponzi scheme initially created the illusion of success, and several investors received full repayment of their principal as well as interest at the rates promised. investors and sustain the subterfuge, Mountain To placate Investments

4

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 5

prepared false 1099s reflecting interest on investments that had never been made. In January of 2001, began the Virginia State Corporation Investments

Commission

("SCC")

investigating

Mountain

based on an anonymous tip.

The SCC thereafter advised Johnson

and Farrier that they appeared to be operating an unregistered commodity pool. Johnson and Farrier responded by advising the

SCC that Mountain Investments stopped taking new investments on January 22, 2001. Notwithstanding such representation, Johnson continued

soliciting and accepting investments through Dogwood Farms using what proved to be worthless Deeds of Trust as collateral. Once

such new investments were received by Dogwood Farms, the money was simply transferred into Mountain Investments accounts. Once

transferred, such money was used to make payments to investors in Mountain Investments in an effort to extend the life of the fraudulent scheme. Johnson solicited new investments through

Dogwood Farms in order to disguise the source of the money and avoid SCC scrutiny. In August of 2001, Mountain Investments entered into a

settlement agreement with the SCC and agreed that all investors would be repaid within one year. Mountain Investments not only

failed to meet such deadline, but sought to disguise its failure 5

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 6

by

sending

the

SCC

"statements

of

satisfaction"

for

several

accounts that were not repaid but were instead merely converted into Dogwood Farms investments. such conversion for was merely In an Unbeknownst to the investors, exchange 2002, of at one the fraudulent same time

investment

another.

late

Johnson's ability to obtain new funds was dwindling, the demands for repayment were increasing. The Ponzi scheme inevitably

collapsed. Several years after the collapse of his Ponzi scheme,

Johnson was indicted in the United States District Court for the Western Johnson District was of Virginia. of Following counts a of trial mail by jury, two

convicted

eighteen

fraud,

counts of wire fraud, three securities frauds counts related to operating a commodity pool, one count of conspiracy to commit money laundering, four substantive money laundering counts, and eight counts of engaging in monetary transactions in property derived from specified unlawful activities. 1 Prior to his

sentencing, Johnson raised the same arguments asserted in the instant appeal in a Rule 29 Motion for Judgment of Acquittal; The convictions for conspiracy to commit money laundering, money laundering, and engaging in monetary transaction in property derived from specified unlawful activities, are collectively referred to herein as "the money laundering counts."
1

6

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 7

however, sentenced

such to a

motion term

was of

denied.

Johnson of two

was

thereafter months,

imprisonment

hundred

followed by three years of supervised release.

II. Although Johnson's primary argument on appeal focuses on the interpretation of the Supreme Court's opinion in United

States v. Santos, 553 U.S. 507 (2008), he advances such legal argument in an effort to establish that the government failed to introduce money there sufficient evidence to prove his guilt on several that a

laundering was

counts.

Additionally, to prove

Johnson that he

argues

insufficient

evidence

operated

commodity pool during the limitations period. We novo. 2007). review challenges to the sufficiency of evidence de

United States v. Kelly, 510 F.3d 433, 440 (4th Cir. "In doing so, our role is limited to considering whether

there is substantial evidence, taking the view most favorable to the Government, to support the conviction." Id. (internal

quotation marks and citation omitted).

Evidence is substantial

if "a reasonable fact-finder could accept [it] as adequate and sufficient to establish a defendant's guilt beyond a reasonable doubt." 2010). United States v. Mehta, The credibility of 594 F.3d 277, 279 (4th Cir. and conflicts in the

witnesses 7

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 8

evidence

are

not were

assessed, resolved

as by

we the

instead jury in

assume the

that

any

discrepancies favor.

government's

Kelly, 510 F.3d at 440.

III. Johnson's first challenge on appeal seeks reversal of

several, but not all, of his convictions on the money laundering counts based on Johnson's interpretation of United States v. Santos. 2 The government disagrees with Johnson's reading of

Santos, highlighting the fractured nature of the Supreme Court's decision and arguing that Santos results in a limited rule of law that does not extend to the instant case. As discussed in

detail below, we agree with the government's position. In United States v. Santos, the Supreme Court held, in a plurality opinion, that the term "proceeds" in the federal money laundering statutes refers to "profits," not "gross receipts." Santos, 553 U.S. at 514. generated the funds that The underlying offense in Santos that were purportedly laundered was an

illegal gambling operation.
2

Although an oversimplification of

Johnson concedes, as he must, that even were we to adopt the legal theory that he espouses, seven of the money laundering counts should be affirmed. Additionally, Johnson does not challenge his convictions on the twenty mail and wire fraud counts that resulted in twenty concurrent sentences of 180 months.

8

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 9

the

holding,

the

four

justice

plurality

concluded

that

"proceeds" always means profits based on the rule of lenity; one concurring justice concluded that "proceeds" can mean profits in some scenarios and gross receipts in others, but in Santos it meant profits, and four dissenting justices concluded that

"proceeds" always means gross receipts. In the short time since Santos was decided, circuit courts have adopted widely divergent views on the precedential value of such splintered decision. Most notably, the Fifth Circuit

recently acknowledged the four-way circuit split in the wake of Santos yet "[r]eluctantly . . . refrain[ed] from joining any of these camps" and instead adopting a fifth different reading of Santos. Garland v. Roy, 615 F.3d 391, 402-03 (5th Cir. 2010).

This Court has not adopted a position via published opinion, but did conclude in a recent unpublished opinion that Santos applies only to illegal gambling operations. See United States v.

Howard, 309 Fed. Appx. 760, 771 (4th Cir. 2009) ("Because Santos does not establish a binding precedent that the term `proceeds' means `profits,' except regarding an illegal gambling charge, we are bound by this Court's precedent establishing that `proceeds' means `receipts.'"). Although it has no bearing on our analysis

herein, Congress also acted in the wake of Santos and modified the federal money laundering 9 statutes to expressly define

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 10

"proceeds"

as

gross-receipts

in

all

cases,

effectively

superseding the rule of law established by the plurality and concurrence in Santos. 3 Prior to Santos, we have held that the word "proceeds" in the federal money laundering statutes refers to gross receipts of a criminal enterprise. 236, 247 (4th Cir. See United States v. Singh, 518 F.3d (finding that money received by

2008)

prostitutes in payment for their services that is later used to pay the cost of a motel room constitutes "proceeds"); United States v. Stewart, 256 F.3d 231, 250 (4th Cir. 2001) (indicating that "reinvestment" of money received from selling drugs into the drug enterprise, including using money from drug sales to purchase more drugs and to pay for courier services to ship drugs, was sufficient to support money laundering convictions); see also United States v. Caplinger, 339 F.3d 226, 233 (4th Cir. 2003) (indicating that circumstantial evidence can be sufficient to establish that a defendant used unlawful proceeds to promote and perpetuate a criminal scheme and that "records documenting In 2009, the following definition was added to the federal money laundering statutes: "the term `proceeds' means any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity." 18 U.S.C. § 1956(c)(9); see 18 U.S.C. § 1957(f)(3) (cross referencing § 1956(c)(9)). Ex post facto concerns obviously prevent this Court from considering such statutory change in the context of this case.
3

10

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 11

specific expenditures" are not necessary). contention precedent. Because the plurality opinion in on appeal is that Santos

Johnson's primary our prior

overrules

Santos,

authored

by

Justice Scalia, depended on Justice Stevens' concurrence to form a majority, "the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds." Marks v. United States, 430 U.S.

188, 193 (1977) (internal quotation marks and citation omitted). According to dicta in the plurality opinion, the concurrence rested on narrower grounds because the concurrence held "that `proceeds' means `profits' [only] when there is no legislative history to the contrary." Santos, 553 U.S. at 523. Although at

least one circuit has recognized such statement as defining the precedential value of Santos, United States v. Yusuf, 536 F.3d 178, 186 n.12 (3d Cir. 2008), we decline to adopt such position as it is in direct conflict with Justice Stevens'

characterization of his own written opinion. Stevens purest not of only labels but Justice Scalia's that

Tellingly, Justice statement Justice "is not as "the

dicta," of the

indicates

Scalia's correct."

interpretation

concurring

opinion

Santos, 553 U.S. at 528 n.7 (Stevens, J., concurring) (citation omitted). 11

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 12

In explaining the correct interpretation of his own words, Justice Stevens explains that his concurrence rests on his

"conviction that Congress could not have intended the perverse result that the dissent's rule would produce if its definition of `proceeds' were applied to the operation of an unlicensed gambling business." Id. Accordingly, Justice Stevens notes

that "[i]n other applications of the statute not involving such a perverse result, I would presume that the legislative history summarized by Justice Alito reflects the intent of the enacting Congress." Justice Id. As the legislative that history proceeds summarized always by

Alito's

dissent

suggests

means

gross receipts, Justice Stevens' narrow concurrence carves out an exception that appears to be limited only to illegal gambling operations. (11th Cir. See United States v. Jennings, 599 F.3d 1241, 1252 2010) (treating "Justice Stevens's opinion as

controlling in its narrowest form" and therefore declining to extend it to a case involving mail and wire fraud). As the plurality opinion in Santos does not appear to

extend beyond illegal gambling operations, 4 we are bound by this

Other circuits have adopted a broader reading of Justice Stevens' concurrence, holding that it extends beyond illegal gambling cases to cases where the "merger problem" discussed in Santos would result in a significantly higher sentence. See United States v. Kratt, 579 F.3d 558, 562 (6th Cir. 2009) 12

4

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 13

Court's precedent holding that "proceeds" means gross receipts. Our precedent on this issue is most clearly demonstrated by

Singh, where we held that a conviction for money laundering can be based on the use of funds from a completed crime, or

completed stage of a crime, to pay "expenses" in furtherance of the continuation of the criminal enterprise. More specifically,

in Singh, the head of a prostitution ring made arrangements with two motels whereby prostitutes would not pay for a motel room until after they had used it for the purpose of prostitution. Singh, 518 F.3d at 247. The payments to the motels "were made

with receipts from the [prostitutes'] first daily customers, and allowed the prostitutes to service other customers thereafter." Id. at 248. Because such transactions utilized criminally

derived proceeds of a completed offense, or at a minimum, a completed stage of an offense, the payments to the motels

involved the use of "proceeds" within the meaning of the money (indicating that proceeds means profits "only when the § 1956 predicate offense creates a merger problem that leads to a radical increase in the statutory maximum sentence . . ."). This court need not decide whether to adopt such broader interpretation of Santos as doing so would not impact the resolution of the instant case. Tellingly, unlike in Santos where the money laundering counts carried a statutory maximum sentence four times greater than the maximum statutory penalty for illegal gambling, here, the money laundering counts have the same, or lessor, statutory maximums as the wire and mail fraud counts.

13

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 14

laundering transactions

statutes. that

Id.

Similarly, the money

here,

the

financial convictions

supported

laundering

involved criminally derived proceeds of a completed offense, or at a minimum, a completed stage of an offense, as the funds at issue were obtained by Johnson through defrauding individual

investors.

Furthermore, just as the payments to the motel in

Singh helped enable the prostitutes to promote and conceal their illegal prostitution ring, here, Johnson's payments to investors helped Johnson promote and conceal his illegal Ponzi scheme. Accordingly, Johnson fails to establish that there was

insufficient evidence to sustain his convictions. 5

Although the accuracy of the jury instructions is not squarely before the Court, we note that the instant case was tried after Santos was decided and, in contrast to our ruling above, the jury instructions reflect the limitation espoused by the Santos plurality, i.e., that "proceeds" means "profits." (J.A. 1587, 1592, 1597). Based on such statement of the law, which our opinion today concludes is too restrictive, the jury still convicted Johnson of all of the charged money laundering counts. Such finding may have been based on expert testimony indicating that Johnson's companies "profited" in 2002 as they defrauded investors out of more money than they repaid. (J.A. 557-59). We need not, however, consider the sufficiency of the evidence regarding whether Johnson's companies profited as the law only requires that the disputed transactions involved "gross receipts" of Johnson's fraudulent activities. Accordingly, although the jury instructions needlessly restricted the term "proceeds" to "profits," such error was in Johnson's favor and does not result in any prejudice. See Rowland v. American General Finance, Inc., 340 F.3d 187, 191 (4th Cir. 2003) ("If we find the instructions flawed, we will not reverse unless the 14

5

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 15

IV. Johnson's second challenge alleges that his convictions on three counts associated with operating a commodity pool are

barred by the statute of limitations. 6 five year limitations period is

It is undisputed that a to the disputed

applicable

counts and that, based on the date Johnson was indicted, the evidence must prove that Johnson engaged in illegal conduct

after July 27, 2002.

Johnson argues in his brief that because

there is no evidence that he was pooling investments or trading securities after such date, the evidence is insufficient to

establish that Johnson "operated" a commodity limitations argument, period. Johnson's (1) Upon questioning had by the

pool within the Court at but on oral to an

counsel

little position

choice relies

acknowledge:

that

Johnson's

exceedingly narrow interpretation of the concept of "operating" a commodity pool; and (2) that to succeed on his claim, Johnson must somehow overcome the fact that he solicited and received new funds from investors after the limitations cut-off date. error seriously prejudiced the challenging party's (internal quotation marks and citation omitted).
6

case.")

Count 36 charges operation of a commodity pool without being registered, Count 37 charges embezzlement by a commodity pool operator, and Count 38 charges fraud by a commodity pool operator. 15

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 16

The issue regarding the timing of Johnson's operation of a commodity pool was properly presented to the jury as the jury instructions for the commodity pool counts expressly stated: "In order for the government to sustain its burden of proof as to [this count], you must find beyond a reasonable doubt that the defendant acted as a commodity pool operator, as defined by

these instructions, after July 27, 2002." 1617). The instructions further define

(J.A. 1606, 1612, a commodity pool

operator as: "a person who, in connection with an investment trust or similar enterprise, solicits, accepts, or receives

funds, securities, or property for the purpose of trading in commodity futures contracts." (J.A. 1607).

As highlighted by the government, the statutory definition of a commodity pool operator does not require the operator to engage in actual trading. See 7 U.S.C. § 1a(5) (defining a

commodity pool operator as "any person engaged in a business that is of the nature of an investment trust, syndicate, or similar form of enterprise, and who, in connection therewith, solicits, accepts, or receives from others, funds, securities, or property . . . for the purpose of trading in any commodity . . . .) (emphasis added); Commodity Futures Trading Comm'n v. Equity Financial Group LLC, 572 F.3d 150, 158 (3d Cir. 2009) ("If an entity is engaged in a business in the nature of an

16

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 17

investment trust, syndicate, or similar form of enterprise, and it solicits, accepts, or receives funds for the purpose of

trading, it is a commodity pool operator. commodity futures is not required.").

The actual trading of Based on such legal

standard, the evidence, viewed in a light most favorable to the government, prevents Johnson's counsel from making a compelling argument on appeal. Specifically, the evidence presented to the

jury reveals that, after July 27, 2002, Johnson: (1) continued soliciting funds from investors; (2) continued representing to investors that he was still trading their invested funds; and (3) continued noting in his journal that he was actively seeking out money to trade. Johnson obtained See (J.A. 735) (testimony indicating that from an investor in August of 2002

money

because "he had some deal to work on" and that the investor thought Johnson was trading with his money); (J.A. 348, 738) (excerpt from Johnson's journal indicating that on August 17, 2002, Johnson "[w]orked all day on and off trying to come with something to trade "); (J.A. 1065-66) (testimony indicating that an investor loaned Johnson $30,000 in September of 2002 and that the purpose of the loan was the same as all of his prior

investments, that is, "for Mr. Johnson to use to trade, to make money, to make profits, and to pay [the investor] interest"); (J.A. 348, 1063) (excerpt from Johnson's journal indicating that

17

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 18

on September 26, 2002, Johnson was "[t]rying to come up with something to trade. p.m."; (J.A. Working on something to trade until 10:00 (testimony indicating that after an

168-72)

investor repeatedly contacted Johnson trying to find out why her money was not being repaid she received a letter from Johnson in October 2002 stating, inter alia, "I'm trading now"). 7 Based on the above, viewing the evidence in a light most favorable to the government, it is plain that the jury had

sufficient evidence on which to find that Johnson continued to solicit and receive funds for the purpose of trading after July 27, 2002. Tellingly, although increasing demands on Johnson for

repayment appear to have led to his inability to obtain enough "new" money to actually trade, his own journal entries confirm that he was for actively the soliciting of funds making after the limitations trades.

period

purpose

additional

The evidence further established that as late as December of 2002, Johnson convinced existing investors to transfer investments from Mountain Investments to Dogwood Farms. The accounts being transferred were part of the Mountain Investments commodity pool and the exchange of such investments may alone be sufficient to establish that Johnson was still "operating" a commodity pool in December of 2002, albeit a failing one. See United States v. United Med. and Surgical Supply Corp., 989 F.2d 1390, 1398 (4th Cir. 1993) (citing United States v. Andreas, 458 F.2d 491, 491 (8th Cir. 1971)) ("[P]rosecution for a scheme to defraud devised outside limitations period but continued into limitations period is permissible.").

7

18

Case: 09-4417 Document: 78

Date Filed: 12/23/2010

Page: 19

Accordingly, Johnson fails to establish that the jury's verdict on the disputed counts should be reversed.

V. For the aforementioned reasons, we affirm the judgment of the district court. AFFIRMED

19