Smith v. USA - 2255
Filing
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MEMORANDUM OPINION. Signed by Judge Roger W Titus on 6/4/2015. (c/m 6/5/15 jf2s, Deputy Clerk).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
ISAAC JEROME SMITH
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Petitioner
v.
UNITED STATES OF AMERICA,
Respondent.
Criminal Case No. RWT-09-0213
Civil Case No. RWT-14-213
MEMORANDUM OPINION
Pending is Petitioner Isaac Jerome Smith’s Motion to Vacate, Set Aside, or Correct
Sentence Under 28 U.S.C. § 2255. Upon review of the papers filed, and for the reasons stated
below, the Court will deny Smith’s Motion.
BACKGROUND
From 2005 through 2007, the leadership of the Metro Dream Homes (“MDH”) program
made extraordinary promises to investors. For an upfront investment of $50,000, not only would
MDH make an investor’s monthly mortgage payment, but would also pay off the investor’s
mortgage in full in five to seven years, no matter how much remained on the investor’s
mortgage.
ECF No. 726 at 1.
MDH supposedly used investor funds to purchase revenue
generating equipment, consisting of ATM/check-cashing machines, point-of-sale vending
machines, and “electronic billboards,” i.e. flat-screen televisions that displayed advertisements.
Id. Investors were told that these machines would generate the massive revenues required to
meet MDH’s massive obligations.1 Id. at 2.
Although MDH did purchase some of this equipment, it generated only nominal revenue.
Id. In reality, MDH relied entirely on new investor funds to pay its obligations to investors. Id.
MDH was thus a classic Ponzi scheme, and like all Ponzi schemes, it collapsed. The collapse
was precipitated in August 2007 by a series of negative articles in the Washington Post, and
furthered by a cease-and-desist order issued by the Maryland Securities Commissioner
prohibiting MDH from enrolling new investors.
Id. at 2-3.
Since the fuel driving any
“successful” Ponzi scheme is new investor money that can be used to pay off existing investors
and continue the mirage of a healthy revenue-generating enterprise, this action by Maryland
inevitably led to MDH’s collapse. Id. MDH was placed into receivership by a Maryland court.
Id. at 3.
Smith was initially an early investor in MDH. Id. at 1. Shortly after investing, however,
he changed his status from “future victim” to “future defendant” by getting hired as president of
MDH, and enriching himself at the expense of other MDH investors, despite his knowledge that
MDH was a fraud. Id. at 1-4.
Smith and his codefendants were indicted on April 22, 2009. ECF No. 1. Smith was
charged with one count of conspiracy to commit wire fraud, fifteen substantive counts of wire
fraud, and one count of money laundering.
Id.
Smith proceeded to trial, along with
codefendants Michael Hickson and Alvita Gunn, on January 11, 2011. ECF No. 258. After a
lengthy trial, the jury returned a verdict of guilty on all counts. ECF No. 337. All of the
1
These claims were truly extraordinary. If an investor invested $50,000, and had a 30-year mortgage of $500,000,
for MDH to be able to use that initial investment to make just the investor’s minimum monthly mortgage payment
over the life of the mortgage would require an outrageous annual return on investment of 30%. Paying the mortgage
off in five years, as MDH promised, would require an astronomical annual return on investment of 180%! And
these numbers ignore the payment of interest on the mortgage’s outstanding balance.
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defendants appealed, and the appeals were consolidated. The Fourth Circuit affirmed this Court
on January 24, 2013. United States v. Hickson, 506 Fed. App’x 227 (4th Cir. 2013).
Smith filed a § 2255 petition on January 27, 2014, ECF No. 701, and filed a second
petition on January 30, 2014. The only difference between these two petitions appears to be that
the second one was signed by Smith.2 Smith asserts the following grounds for relief:
1. Ineffective assistance of counsel where counsel failed to argue on appeal that an
email should not have been admitted due to attorney-client privilege;
2. Ineffective assistance of counsel where counsel failed to object to a government
witness’s testimony that overstated Smith’s salary from MDH by $1.2 million;
3. Ineffective assistance of counsel where counsel failed to argue that Smith’s money
laundering conviction should have merged with his wire fraud conviction.
Id. at 4-10.
ANALYSIS
Under 28 U.S.C. § 2255(a), a prisoner in custody may file a motion to vacate, set aside,
or correct a sentence, “claiming the right to be released upon the ground that the sentence was
imposed in violation of the Constitution or laws of the United States, or that the court was
without jurisdiction to impose such sentence, or that the sentence was in excess of the maximum
authorized by law, or is otherwise subject to collateral attack.” 28 U.S.C. § 2255(a). Pursuant to
28 U.S.C. § 2255(b), the Court may deny the motion without a hearing if “the motion and the
files and records of the case conclusively show that the prisoner is entitled to no relief.”
28 U.S.C. § 2255(b); see, e.g., Zelaya v. United States, No. DKC 05-0393, 2013 WL 4495788,
at *2 (D. Md. Aug. 20, 2013).
2
The first was signed by Smith’s wife. ECF No. 701 at 13.
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Each of Smith’s claims are ineffective assistance of counsel claims. In order to establish
ineffective
assistance
of
counsel,
Smith
must
satisfy
the
test
set
forth
in
Strickland v. Washington, 466 U.S. 668, 687 (1984). Under the Strickland test, Smith must show
that his counsel’s performance fell below an objective standard of reasonableness. Id. at 689.
He must also show the deficient performance prejudiced him, i.e. that but for counsel’s deficient
performance, “there is a reasonable probability that…the result of the proceeding would have
been different.” Id. at 694.
I.
Failure to Argue on Appeal that Email was Privileged
Smith argues that his attorney was ineffective because he failed to argue on appeal that an
email between Smith and one Richard Lipsman, whom Smith characterizes as his personal
attorney, should have been excluded as protected by attorney-client privilege. ECF No. 701-2
at 10. However, Smith manages to destroy his own argument here in one fell swoop. “The
Petitioner then forwarded this e-mail to others, including Hickson and Gunn.” Id. (emphasis
added). It is well-established that attorney-client privilege is waived when a person covered by
the privilege discloses confidential information to a party not covered by the privilege.
Hawkins v. Stables, 148 F.3d 379, 384 (4th Cir. 1998). Since Smith waived whatever privilege
may have attached to the email when he forwarded it to others, he had no basis to claim the
privilege. Accordingly, his attorney was not ineffective for failing to make a losing argument on
appeal.
II.
Failure to Object to Mischaracterization of Smith’s Income
Smith argues that his attorney was ineffective for failing to object to a government
witness’s statement that he drew a $1.4 million salary, when he in fact only drew a $200,000
salary. ECF No. 701-2 at 4. According to Smith, this misstatement, coming as it did in the
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middle of “the recent economic downturn,” so inflamed the jury’s natural prejudice towards the
wealthy that it abandoned all reason and convicted Smith based on its (misplaced) jealousy of
Smith’s income alone. Id. at 4-7 (“Defense counsel failed to object to this mis-statement,
thereby allowing the jury to be prejudiced. There [c]an be little doubt that the recent economic
downturn has resulted in a rise in prejudice against the wealthy.”).
This argument has no basis in fact. First, the government witness who testified as to what
Smith received stated that, in total, he received $1.4 million in payments from MDH, not that
this was his yearly salary. ECF No. 633 at 159 (testifying that “what we’re talking about,
salaries; we’re talking about the monies for his mortgages, the money for the Bentley.”). Also,
while it may be true that Smith’s attorney did not object to the government witness’s statement
of how much money he was paid by MDH,3 his attorney did undertake a vigorous
cross-examination of this witness, challenging her characterization of this amount, and ultimately
getting her to admit that the $1.4 million figure was offset by over $900,000 in payments Smith
made into the MDH program. Id. at 148-73.
Smith’s attorney effectively challenged the
government witness’s conclusions regarding his remuneration.
III.
Failure to Argue Merger of Money Laundering Conviction with Wire Fraud
Conviction
Smith makes at least a colorable argument that his money laundering conviction should
have merged into his convictions for wire fraud and conspiracy to commit wire fraud.
ECF No. 701-2 at 13-15. The Supreme Court in United States v. Santos, 553 U.S. 507 (2008)
held that where a defendant was convicted of both running an illegal gambling operation, and of
illegally laundering the proceeds of that operation by paying money out to the winners, the
3
Smith does not say what the basis for this objection would have been under the Federal Rules of Evidence, other
than apparently the statement was factually incorrect. Of course, the factual accuracy of testimony can be sussed out
on cross-examination, as it was here.
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money laundering conviction merged into the illegal gambling operation conviction. The Fourth
Circuit subsequently held that, where the government charged a defendant with wire fraud for
operating a Ponzi scheme, and with money laundering for making payments to investors in
connection with the Ponzi scheme, the conviction for money laundering merges with the
conviction for wire fraud, because the payments to investors constitute “essential expenses” for
carrying out the Ponzi scheme.
United States v. Simmons, 737 F.3d 319, 328-329
(4th Cir. 2013). Plausibly, this same argument could have been made on appeal in Smith’s case,
which was taken after Santos, but before the Fourth Circuit’s decision in Simmons.4 In order to
determine whether this claim has any validity, the Court would need to dive into the record to
determine the facts underlying the money laundering count, and determine whether the payments
supporting that count were “essential expenses” of the MDH scam, in which case the conviction
would presumably merge, or whether payments were simply disposition of profits, in which case
the conviction would not merge. Simmons, 737 F.3d at 327-329. The Court would then need to
examine counsel’s decision not to present this argument, to determine, notwithstanding that the
Fourth Circuit later ruled favorably on a similar issue, whether the decision not to raise the issue
on appeal was reasonable at the time, ignoring the benefit of hindsight. Strickland, 466 U.S.
at 689.
However, Smith has suffered no prejudice here, so the Court need not undertake this
extensive and involved inquiry. Id. at 697 (“a court need not determine whether counsel’s
performance was deficient before examining the prejudice suffered by the defendant as a result
of the alleged deficiencies”). As Smith himself acknowledges, establishing prejudice means
4
The government argues that because Smith’s conviction was for money laundering conspiracy, which “does
require proof of the execution of the object of the conspiracy, the analysis and reasoning applied in Simmons is not
controlling.” ECF No. 726 at 9. The government may be correct, but it does not offer any further rationale beyond
this somewhat confusing explanation.
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establishing that, as a result of counsel’s errors, a defendant has to spend one additional day in
jail. ECF No. 701-2 at 4 (citing Glover v. United States, 531 U.S. 198 (2001)). Smith was
sentenced to 70 months on each of the 17 counts of which he was convicted. ECF No. 486.
These 17 sentences all run concurrently. Id. at 2. The upshot is that vacating the one conviction
on the money laundering count would have no effect on Smith’s situation; he would not spend a
single additional day in jail. Because he has failed to show prejudice, Smith’s ineffective
assistance of counsel claim fails.
CERTIFICATE OF APPEALABILITY
A certificate of appealability will only issue if Smith has made a “substantial showing of
the denial of a constitutional right.” 28 U.S.C. § 2253(c); Hardy, 227 Fed App’x. at 273. A
petitioner “satisfies this standard by demonstrating that reasonable jurists would find that any
assessment of the constitutional claims by the district court is debatable or wrong and that any
dispositive procedural ruling by the district court is likewise debatable.” United States v. Riley,
322 Fed. Appx. 296, 297 (4th Cir. 2009). The Court has assessed Smith’s claims. He has failed
to raise a cognizable § 2255 claim in which a reasonable jurist could find merit, and thus no
certificate of appealability shall issue.
CONCLUSION
For the aforementioned reasons, Smith’s petition will be denied and no certificate of
appealability shall issue. A separate Order follows.
June 4, 2015
/s/
Roger W. Titus
United States District Judge
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