United States v. Keith Shwayder, Michael G. Swan, and Kevin Orton

312 F.3d 1109, 2002 Daily Journal DAR 13731, 60 Fed. R. Serv. 28, 2002 Cal. Daily Op. Serv. 11727, 2002 U.S. App. LEXIS 24611
CourtCourt of Appeals for the Ninth Circuit
DecidedDecember 5, 2002
Docket01-10156, 01-10176 and 01-10186
StatusPublished
Cited by58 cases

This text of 312 F.3d 1109 (United States v. Keith Shwayder, Michael G. Swan, and Kevin Orton) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth 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. Keith Shwayder, Michael G. Swan, and Kevin Orton, 312 F.3d 1109, 2002 Daily Journal DAR 13731, 60 Fed. R. Serv. 28, 2002 Cal. Daily Op. Serv. 11727, 2002 U.S. App. LEXIS 24611 (9th Cir. 2002).

Opinion

OPINION

BERZON, Circuit Judge:

Keith Shwayder appeals his convictions for racketeering, RICO conspiracy, conspiracy, securities fraud, wire fraud, and money laundering. He argues that he was deprived of his Sixth Amendment right to effective assistance of counsel because his trial counsel had an actual conflict of interest. Although there was such a conflict, Shwayder has not shown that the conflict adversely affected his counsel’s representation.

Shwayder further contends that the prosecution asked his character witnesses guilt-assuming hypothetical questions, in violation of his right to due process. The prosecution’s use of guilt-assuming hypothetical questions did constitute error, but this error did not affect Shwayder’s substantial rights.

Lastly, Shwayder contends that the factual findings used to increase his base offense level for sentencing purposes should have been made by a jury rather than a judge. The law of this circuit is to the contrary.

Because none of these contentions warrants reversal or remand, we affirm Shwayder’s convictions and sentence. 1

I. BACKGROUND

A. The Conspiracy

Keith Shwayder was president of Tele-tek, Inc. (“Teletek”), a telephone sales and installation company listed on the NASDAQ stock exchange. Michael G. Swan contacted Shwayder about the possibility of merging Teletek with United Payphone (“UPAY”), a telephone company in which Swan had a controlling interest.

UPAY, traded on bulletin boards rather than a major stock exchange, was heavily in debt and in need of cash. Unlike bulletin-board-traded stock, NASDAQ-listed stock can be traded in large volumes, thereby generating substantial amounts of cash. Therefore Swan decided to pursue a merger with Teletek, a NASDAQ-listed company.

Shwayder agreed to merge Teletek with UPAY. In February 1992, Swan purchased a controlling interest in Teletek and became the chief executive and chairman of the Board of Directors of Teletek. Once he acquired Teletek, Swan entered into agreements with stockbrokers. Some of the agreements promised the stockbrokers cash payments by Teletek in exchange for promotion of UPAY and Teletek stock to their customers. Teletek would also issue *1113 its stock to the stockbrokers under Securities and Exchange Commission (SEC) Regulation S-8, which permits stock to be issued in exchange for consulting services. None of the stockbrokers receiving such stock provided consulting services for Tel-etek or UPAY. Instead, they principally issued and promoted Teletek stock, thereby generating cash for the companies through increased stock sales that in turn drove up the price of Teletek’s shares. Shwayder signed several documents filed with the SEC representing that these stock issues were for consulting services.

Shwayder remained involved with Tele-tek for about nine months after the merger. He then resigned. At about the time that Shwayder left Teletek, Teletek issued stock to Prinfan, a company owned by Shwayder’s business associate, Neil Fein-stein. According to Shwayder: Feinstein received the stock in exchange for consulting services. Feinstein then loaned money back to Shwayder. Shwayder repaid the loan in part by providing consulting services to Prinfan, and Feinstein forgave the rest. The government’s theory was that the consulting agreement with Feinstein, the stock issued to Prinfan, and the loan to Shwayder were all sham transactions designed to pay Shwayder substantial sums to leave Teletek.

For several years after Shwayder left Teletek, Swan continued paying bribes to induce brokers to sell Teletek stock. Ultimately, the price of Teletek collapsed and the company went bankrupt. Several investors were left with worthless stock or sold their Teletek stock at a significant loss.

Shwayder was named in a 110-count indictment charging him with racketeering in violation of 18 U.S.C. § 1962(c); RICO conspiracy in violation of 18 U.S.C. § 1962(d); conspiracy in violation of 18 U.S.C. § 371; securities fraud in violation of 15 U.S.C. §§ 78j(b), 78ff(a); wire fraud in violation of 18 U.S.C. § 1343; and money laundering in violation of 18 U.S.C. §§ 1956, 1957. The alleged racketeering conspiracy involved the commission of various illegal acts, including: bribing stock promoters and stock brokers to sell shares of UPAY and Teletek; fraudulently issuing shares of stock to entities controlled by the defendants; participating in insider trading; manipulating the volume and price of stocks; filing false financial reports and statements and other public documents; and concealing and laundering the illegal proceeds from the scheme.

B. Retention of Counsel

Before the indictment issued in November 1996, Shwayder sought representation from an attorney, John Schlie, regarding any legal proceedings that might arise out of Teletek’s activities. When Shwayder asked Schlie to represent him, Schlie initially declined because of his prior representation of Swan.

Schlie had represented Swan from October 1994 to May 1995. The representation concerned a grand jury investigation of bribes Swan allegedly paid to stockbrokers who agreed to promote UPAY and Teletek stock. During the course of his representation Schlie had confidential communications with Swan regarding certain bribes that became part of the conduct charged in this case. In response to letters accusing Swan of bribing brokers, Schlie conducted an investigation on Swan’s behalf, met with a prosecutor to discuss a grand jury investigation regarding the bribes, and learned of allegations that Swan had committed perjury during a SEC deposition by lying about bribing brokers. Swan repeatedly told Schlie that he had never bribed brokers.

Following Schlie’s initial refusal, Shway-der persisted in attempting to retain him. Schlie ultimately agreed to represent Shwayder, after he obtained Swan’s per *1114 mission and both Swan and Shwayder signed waivers. Shwayder’s waiver states: “Neither [Schlie] nor I am aware of any real conflicts of interest between my defense and that of Michael Swan.” Swan’s waiver states that Swan “did not, however, authorize the law firm to disclose any information subject to[his] attorney-client privilege.”

C. The Trial

The joint trial of Shwayder, Swan and Kevin Orton, Teletek’s accountant, lasted two months. The three defendants initially entered into a joint defense agreement. Almost 'one month into the trial, Swan pleaded guilty and agreed to testify for the prosecution.

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Bluebook (online)
312 F.3d 1109, 2002 Daily Journal DAR 13731, 60 Fed. R. Serv. 28, 2002 Cal. Daily Op. Serv. 11727, 2002 U.S. App. LEXIS 24611, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-keith-shwayder-michael-g-swan-and-kevin-orton-ca9-2002.