United States v. Carpenter

736 F.3d 619, 2013 WL 6153701, 2013 U.S. App. LEXIS 23678
CourtCourt of Appeals for the First Circuit
DecidedNovember 25, 2013
Docket20-1051
StatusPublished
Cited by12 cases

This text of 736 F.3d 619 (United States v. Carpenter) is published on Counsel Stack Legal Research, covering Court of Appeals for the First Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Carpenter, 736 F.3d 619, 2013 WL 6153701, 2013 U.S. App. LEXIS 23678 (1st Cir. 2013).

Opinion

LYNCH, Chief Judge.

The question in this case is whether comments in the government’s closing argument at a second criminal trial were improper and whether they accordingly warranted a new trial, as the district court held. See United States v. Carpenter, 808 F.Supp.2d 366, 380-85 (D.Mass.2011).

*622 Defendant Daniel Carpenter has now been tried twice on charges of "wire fraud and mail fraud. Both times, the jury returned a conviction. After the first trial in 2005, the district court upset the conviction and ordered a new trial on the grounds that the government’s closing argument was improper and may have tainted the jury’s verdict. See United States v. Carpenter, 405 F.Supp.2d 85, 101-03 (D.Mass. 2005). We upheld that decision by a divided panel. See United States v. Carpenter, 494 F.3d 13, 29 (1st Cir.2007).

The case was retried in 2008 and the government made a different closing argument. The jury again convicted. The district court again granted a new trial, finding that the different closing argument led the jury to convict on an improper basis. See Carpenter, 808 F.Supp.2d at 385-86. Because the government’s comments in its closing argument at the second trial were not improper, we reverse, reinstate the jury’s verdict of conviction, and remand for sentencing.

I.

A. Background

During the late 1990s, Carpenter ran a business, Benistar, 1 which specialized in conducting “ § 1031 exchanges” for investment property owners. Section 1031 exchanges take their name from a provision of the federal tax code, 26 U.S.C. § 1031, which allows an owner of investment property to defer paying capital gains taxes upon the sale of the property if the property is “exchanged” for property “of like kind.” The funds from the initial sale may be held temporarily in cash form with no tax penalty as long as they are used to purchase new property within 180 days and as long as the investor designates the replacement property within 45 days. See 26 U.S.C. § 1031(a)(3). Under federal regulations, the exchangor may not take possession of the funds before purchasing the new property. See 26 C.F.R. § 1.1031(k)-l(a). As a result, exchangors typically rely on “qualified intermediaries” to hold and invest the funds until the exchange is completed.

B. Benistar's Marketing Materials

Benistar offered its services as a qualified intermediary, managing the proceeds from an exchangor’s initial sale until the § 1031 exchange was completed. In advertising itself to potential exchangors, Benistar provided a set of marketing materials, including a PowerPoint slide show, a set of “Frequently Asked Questions about 1031 Property Exchange,” an article on § 1031 exchanges authored by Benistar’s principal marketer and published in the New England Real Estate Journal, and other information. When exchangors decided to work with Benistar, they would also receive a set of forms setting out the terms of the accounts they would hold with Benistar.

Carpenter did not directly solicit ex-changors, nor did he create the marketing materials. However, he did review all of the marketing materials and approved their use. 2 He also executed for Benistar *623 many of the contracts the exchangors entered with the company.

On the government’s theory of prosecution, the marketing materials effectively promised at multiple points that exchan-gors’ funds would be kept safe and secure. One of the PowerPoint slides, for example, was entitled “Choosing an Intermediary” and listed several factors that clients should consider. The fourth factor was labeled “Security of Funds” and stated that exchangors should “[a]sk about the security of your funds, and find out what guarantees are offered.” The next slide went on to state: “Merrill Lynch Private Bank is used for all our escrow accounts. This provides a 3% — 6% interest on the escrow.”

Likewise, the “Frequently Asked Questions” document included a question asking “What will the intermediary do with my money?” The answer provided:

[Benistar] has a long-standing reputation for trustworthiness, and is ... the largest 419 trust plan administrator in the nation.
Benistar has accounts with major banking and investment firms, such as Merrill Lynch.... Escrow accounts are restricted to paying out funds only for a subsequent closing, or to return funds to the original property owner.

A similar set of “IRC § 1031 Property Exchanges: Frequently Asked Questions” on Benistar’s website listed the question, “Can I Trust [Benistar] with My Money?” The answer explained:

[W]e protect your assets:
• We have accounts with major banking and investment firms — accounts under our sole control, as required for these exchanges....
• Our accounts are restricted to paying out funds only for a subsequent closing, or to return funds to the original property owner.
• We distribute funds only at your written request.

Several other components of the promotional materials bore out similar themes.

Exchangors using Benistar as an intermediary were given the choice to have their money invested during the pendency of their exchanges for either a 3% or 6% annualized return. After sending in their funds from the initial sale, exchangors received a confirmation letter stating: “We have received $_1 of sales proceeds, which we are holding for your benefit. These funds are accruing interest at %_” The second blank would be filled in with either 3% or 6%. The 3% choice, which was selected for the majority of the funds in the case, was initially called a “Merrill Lynch Ready Asset Money Market Account” in several of the documents, including the account selection form and the Escrow Agreement that exchangors signed, until Merrill Lynch suspended Carpenter’s trading priveleges and he opened new accounts at PaineWebber.

The government alleges that these materials, taken together, led exchangors to believe that their funds would be invested in “safe,” interest-bearing “escrow” accounts guaranteeing a 3% or 6% return, when in fact their funds were not kept in safe investments.

C. Carpenter’s Trading Strategy and Losses

In reality, Carpenter used the exchan-gors’ funds to trade in risky assets, including stock options. Carpenter primarily sold “put” options, which allow the option- *624 holder to sell shares of

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Bluebook (online)
736 F.3d 619, 2013 WL 6153701, 2013 U.S. App. LEXIS 23678, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-carpenter-ca1-2013.