United States v. Suba

Opinion

PUBLISH

IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _______________

No. 95-9408 _______________

D. C. Docket Nos. CR195-011-03 CR195-011-06 CR195-011-02

UNITED STATES OF AMERICA, Plaintiff-Appellee,

VERSUS

DAVID W. SUBA, MANAGED RISK SERVICES., DENNIS J. KELLY,

Defendants-Appellants.

____________________________________________

Appeals from the United States District Court for the Southern District of Georgia _____________________________________________ (January 9, 1998)

Before BARKETT, Circuit Judge, HILL, Senior Circuit Judge, and HOWARD*, Senior District Judge.

________________ *Honorable Alex T. Howard, Jr., Senior U. S. District Judge for the Southern District of Alabama, sitting by designation. HILL, Senior Circuit Judge:

Jointly tried and convicted by a jury in a complex Medicare fraud scheme,

Appellants Dennis J. Kelly, David W. Suba, and Managed Risk Services, Inc.

(Managed Risk) appeal their convictions and sentences on a number of grounds,

including insufficiency of the evidence, trial court error in denying Kelly’s requested

jury charges and motion for a new trial, and sentencing, restitution, and forfeiture

errors.1 We reverse Kelly’s conviction only as to Counts 131 and 132 for insufficient

evidence and remand his case for re-sentencing in accordance with this opinion. In

all other respects, we affirm Kelly’s conviction and the convictions and sentences of

Suba and Managed Risk.

I. PROCEDURAL BACKGROUND

Together, Kelly, Suba, and Managed Risk were convicted of one count of

conspiracy to defraud the United States and to commit offenses against the United

States, in violation of 18 U.S.C. § 371 (Count 1); forty-five counts of mail fraud, in

violation of 18 U.S.C. § 1341 (Counts 36-78, 100-111); and twenty-seven counts of

1 We discuss the sufficiency of the evidence issue at Part V infra. All other issues are without merit and affirmed without discussion. See 11th Cir. R. 36-1 [Appellants’ trial may not have been perfect, but it was fair. See United States v. Ashworth, 836 F.2d 260, 268 (6th Cir. 1988) citing United States v. Hajal, 555 F.2d 558, 569 (6th Cir. 1977)(where “we have yet to review a perfect jury trial.”)].

2 money laundering, in violation of 18 U.S.C. § 1956 (Counts 79-105). Separately,

Kelly was convicted of four additional counts of mail fraud (Counts 112-115); six

counts of embezzlement from an employee benefit fund, in violation of 18 U.S.C. §

664 (Counts 116-121); eleven additional counts of money laundering (Counts 106-

109, 122-123, 125-128, 132); one count of bank fraud, in violation of 18 U.S.C. §

1344 (Count 131); and nineteen counts of making false statements, in violation of 18

U.S.C. § 1001 (Counts 11-26, 30-32).2 Kelly was sentenced to 151 months'

imprisonment followed by three years' supervised release. He was ordered to pay a

$75,000 fine, $710,118 in restitution, and to forfeit $934,856.02 under a consent order

for criminal forfeiture, 18 U.S.C. § 982 (Count 133). The jury found Suba guilty of

all counts charged. He was sentenced to ninety-seven months' imprisonment followed

by three years' supervised release. Managed Risk was found guilty of all counts

charged. It was placed on five years' probation and ordered to pay a $250,000 fine.

Suba and Managed Risk were ordered to pay $710,118 in restitution and to forfeit

$390,000 pursuant to the consent order. Both Kelly and Suba are currently

incarcerated.

II. FACTUAL BACKGROUND

A. Factual Diagram

2 Kelly was found not guilty on counts 33-35, 124, 129, and 130.

3 The underlying facts of this case are complex and have been reconstructed from

numerous and sometimes tedious paper trails throughout the record. At first, the

scheme appears sophisticated. In fact, however, it is really quite simple. Home health

care agencies are licensed by Medicare.3 Medicare is administered by the United

States Department of Health and Human Services (HHS). HHS contracts with

insurance companies (fiscal intermediaries) to distribute Medicare funds.4 The fiscal

intermediary pays the Medicare funding to providers of medical care, in this case,

home health care agencies. Medicare covers the reasonable cost of direct patient care

and reasonable and necessary overhead expenses.5 Appellants allegedly established

3 The Medicare program, Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq. (the Medicare Act), was established in 1965 as a federally funded health care insurance program for the elderly and disabled. The Medicare program is divided into two distinct parts: Medicare Part A (Hospital Insurance for the Aged and Disabled) covers services furnished by hospitals, home health care agencies, hospices, and skilled nursing facilities for inpatient hospital care, inpatient care in a skilled nursing facility following hospital stay, home health care, and hospice care. Medicare Part B (Supplementary Medical Insurance for the Aged and Disabled) covers physician services, outpatient hospital care and a range of other noninstitutional services, such as ambulance services, durable medical equipment, diagnostic laboratory tests and X-rays. 4 Fiscal intermediaries and carriers are government contractors who administer payments to health care providers. 42 U.S.C. §§ 1395h, 1395u. Fiscal intermediaries handle claims covered under Medicare’s Part A program; carriers handle claims covered under Part B. Once treatment is administered, Medicare, through its fiscal intermediaries and carriers, determines the rates and amounts of payments to providers, and reimburses the patient. Id.

5 Insuring fiscal responsibility, curtailing health care costs, and eliminating the over- utilization of health care services are fundamental aims of the Medicare program. S.Rep.No. 404, 89th Cong., 1st Sess. 1965, reprinted in 1965 U.S.C.C.A.N. 1943. The Medicare program reflects a congressional judgment that the federal government should not readily reimburse a health care provider when its services have not been utilized properly. Monmouth Medical Center v. Harris, 646 F.2d 74, 76 (3d Cir. 1981). There could be nothing clearer in the plain meaning of the

4 certain overhead expenses, appearing genuine, but in fact, neither reasonable or

necessary. These expenses were reimbursed by Medicare. The reimbursed funds

allegedly found their way into Appellants’ pockets.6

The following is a pictorial diagram7 of the interrelationships of the participants

in the sequence of events leading up to the indictment:

[Medicare Act] . . . Congress did not intend to have Medicare funds used to subsidize Medicare fraud. Good Luck Nursing Home, Inc. v. Harris, 636 F.2d 572, 578 (D.C. Cir. 1980). 6 Understanding how the Appellants committed Medicare fraud, and how that fraud relates to charges of false statements, money laundering, mail fraud and embezzlement from an employee benefit fund is critical in an analysis of the sufficiency of the evidence. 7 This diagram was prepared by counsel for the United States as Government Exhibit (GX) 1161G and attached to its brief. It should be viewed with that in mind. We believe it is helpful in understanding the factual background of this case.

5 B. The Medicare Conspirators Charged8

8 The 133-count indictment was originally returned against six defendants: Jeannette G. Garrison, Healthmaster, Inc. (Healthmaster), and Master Health Plan, Inc. (Master Health), as well as Appellants. Prior to trial, Garrison entered a guilty plea to the conspiracy count and nine counts of making false statements. The submission of false cost reports to Healthmaster’s fiscal

6 1. Healthmaster, Garrison & Master Health

Healthmaster, Inc. (Healthmaster) was a large, yet privately owned, home health

care company based in Augusta, Georgia.9 Jeanette G. Garrison was its chief

executive officer and sole shareholder.10 Healthmaster provided in-home nursing care

for eligible persons with illnesses and disabilities. Approximately 92% of

Healthmaster’s revenues were derived from providing in-home nursing care to

Medicare eligible patients. The balance was reimbursed by Medicaid and private

insurance.

Medicare guidelines provide reimbursement to Healthmaster for costs of direct

patient care and reasonable and necessary overhead expenses.11 Reimbursements

intermediary formed the basis for her guilty plea. In return, she received a prison sentence and charges against Healthmaster and Master Health were dismissed. Garrison testified for the government at trial. The appeal of her sentence is currently pending before this court. 9 Healthmaster operated in five states with twenty-two divisions in 125 separate locations. It is estimated that 3,000 employees made two million home visits per year. Healthmaster had approximate gross annual revenue of $100 million. 10 Garrison also was the sole shareholder of Preferred Care Companies (Preferred Care or PCC), a holding company owning Healthmaster Pharmaceutical and Equipment Company, Inc. (Healthmaster Pharmaceutical), a durable medical equipment sales company, and Healthmaster Home Care of Georgia, Inc. (Healthmaster Home Care), a provider of home visitation services, other than skilled nursing). Both Healthmaster Pharmaceutical and Healthmaster Home Care were non- Medicare reimbursed companies. 11 The Medicare Act provides a controlling standard against which all coverage determinations must be measured under Part A: “Notwithstanding any other provision of this sub- chapter, no payment may be made . . . for any expenses incurred for items or services which . . . are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” 42 U.S.C. § 1395(a)(1)(A).

7 claimed by Healthmaster were submitted on cost reports to Aetna Life and Casualty

Insurance Company (Aetna), the fiscal intermediary for HHS, who apparently did not

discover any improper submissions. The cost reports required Healthmaster to declare

whether or not its business transactions, such as purchasing supplies or services, were

conducted with companies to whom it was “related.”12 Master Health Plan, Inc.

(Master Health), Garrison’s health maintenance organization (HMO), as a wholly

owned subsidiary of Healthmaster, was a related company under Medicare guidelines.

2. Kelly, Suba & Managed Risk

Kelly was a certified public accountant and chief financial officer and vice-

president of Healthmaster, second in command to Garrison. Kelly was also the trustee

for Healthmaster’s self-insured worker’s compensation trust fund. In 1990, upon

Kelly’s recommendation, Garrison hired Suba as Healthmaster’s insurance risk

manager to reduce the worker’s compensation claims and injuries of Healthmaster’s

three thousand employees.

12 An organization is “related” to the healthcare provider through common ownership which “exists if an individual or individuals possess significant ownership or equity in the provider and the institution or organization serving the provider.” 42 C.F.R. § 413.17(b)(2). In general, Medicare will reimburse a home health care agency for only the cost of the supplies or services received from the related company. See 42 C.F.R. § 413.17(c); United States v. Calhoon, 97 F.3d 518, 525 (11th Cir. 1996), cert. denied 118 S.Ct. 44 (1997)(involving the reimbursement by Medicare of royalty fees paid to a hospital’s related company).

8 That same year, Kelly and Suba formed their own company, Managed Risk,

ostensibly to provide risk management for self-insured worker’s compensation and

health insurance funds. Suba owned twenty-four percent of Managed Risk and served

as its president. Mrs. Kelly owned twenty-four percent. Majority ownership (fifty-

two percent) was owned by two trusts controlled by Garrison and Kelly for the benefit

of the Garrison children. Managed Risk operated out of Healthmaster’s Augusta

corporate offices yet it maintained a mailing (post office box) address in Atlanta.

Business cards for Managed Risk listed an Atlanta answering service telephone

number as its business number. Healthmaster was Managed Risk’s primary client.

C. The Components of the Conspiracy

1. The Conspiracy Itself (Count 1)

The indictment charged that Garrison, Kelly, Suba, Healthmaster, Master Health

and Managed Risk conspired together to defraud the United States through its

Medicare program by fraudulently obtaining Medicare reimbursement for many

different categories of items. Garrison was charged with Healthmaster’s submission

of cost reports that fraudulently sought reimbursement for her political contributions;

for the wages of Healthmaster ghost employees (actually working at non-Medicare

reimbursed companies); and for many of her own personal expenses. Garrison

pleaded guilty to conspiracy and nine counts of making false statements. See note 8

9 supra. Count 1 of the indictment also charged Appellants with non-disclosure of

related companies; with fraudulently obtaining workers compensation insurance

premiums payable to Managed Risk from Preferred Care companies and fraudulently

distributed to Managed Risk shareholders; with embezzling money from an employee

benefit plan; and with concealing the source of the fraudulently obtained funds.

2. The Preferred Care (PCC) Allegations (Counts 36-109)

The Preferred Care allegations are touted to be the centerpiece of the Government’s

case. The allegations originate with Healthmaster’s application for state (Georgia)

approval of its self-insured worker’s compensation program. Initially Healthmaster’s

application was rejected on the grounds of insufficient funds necessary to satisfy the

State of Georgia’s required two-to-one asset-to-liability ratio. Thereafter, to

supplement its assets, Healthmaster listed as its workers’ compensation program

affiliate, the Preferred Care Companies (Preferred Care or PCC), a Garrison-owned

holding company, and reapplied for self-insurance. See note 10 supra. Now armed

with adequate assets to ensure payment of claims, the State of Georgia granted

Healthmaster’s re-application to self-insure, upon the condition that it post a $500,000

bond. Healthmaster posted the bond. Kelly was the principal signatory on the second

application. The re-application pledged to pay workers’ compensation claims out

from an irrevocable trust funded upon an actuarial basis (the Augusta WC account

10 described below).

The Government alleges that Kelly, Suba and Managed Risk abused

Healthmaster’s affiliation with Preferred Care by illegally converting (for their own

use) premiums intended for the benefit of Preferred Care employees. By so doing,

Medicare was also defrauded. The scheme was accomplished, the Government

contends, as follows: Kelly established a trust account at the Trust Company Bank in

Augusta (the Augusta WC account).13 Healthmaster administered its self-insured

workers’ compensation program through the Augusta WC account. From May 1990,

through March 1993, Preferred Care was billed for and paid $1,420,237 in workers’

compensation premiums. However, the Preferred Care checks were not mailed to or

deposited in the Augusta WC account as pledged. Instead, the Preferred Care checks

were mailed to Managed Risk’s Atlanta post office box. Elizabeth Siegler, a

Preferred Care employee, testified that she signed and mailed twelve premium checks

to the Managed Risk Atlanta post office box (Counts 67-78); her predecessor, Debra

Chance, testified that she signed the check used to buy the bond (Count 36) and thirty

other premiums checks (Counts 37-66), all made payable to Managed Risk and mailed

13 The Augusta WC account funded a separate small claims account to pay employees’ claims up to $25,000. Kelly and Suba established another account at the Midland Bank Trust Corporation in the Cayman Islands to provide coverage for claims greater than $25,000, up to $250,000. Commercial insurance coverage was obtained for Healthmaster employee claims above $250,000.

11 to the Atlanta post office box. The checks were endorsed and deposited into Managed

Risk bank accounts in Atlanta and Marietta (Georgia), by Suba on dates after their

issuance. Kelly and Suba applied the first $140,000 towards the purchase of the bond

(Count 36). The funds were then distributed to Managed Risk shareholders (Mrs.

Kelly, Suba, and the Garrison children’s trusts). Between November 1990, and April

1993, Managed Risk distributed $1,719,000 (including the $1,420,237 in Preferred

Care premiums) to its shareholders via twenty-seven checks signed by Suba. Mrs.

Kelly received $640,000; Suba received $390,000; and the Garrison children’s trusts

each received $344,500. In the meantime, four things allegedly occurred: (1)

Healthmaster properly deposited its workers’ compensation premium checks into the

Augusta WC account; (2) Medicare reimbursed Healthmaster for the checks; (3)

Preferred Care employees made claims of $225,000 for their compensable injuries out

of the Augusta WC account; and (4) Preferred Care employees were paid from the

Augusta WC account, comprised of Medicare-reimbursed funds. The net result of this

shell game, the Government contends, is that non-Medicare Preferred Care employees

received $225,000 in Medicare-reimbursed funds.

(a) Mail Fraud (Counts 36-78)

The Government contends that Kelly and Suba committed mail fraud by using

the United States mails to carry out their Medicare fraud scheme. As described above,

12 in accordance with a schedule prepared by Kelly, a Preferred Care employee signed

and mailed twelve workers’ compensation premium checks (Counts 67-78) to

Managed Risk at its Atlanta post office box. Another Preferred Care employee signed

the check used to buy the $500,000 Healthmaster bond required by the state (Count

36) and thirty premium checks (Counts 37-66). All checks were mailed to Atlanta or

Marietta from Augusta, made payable to Managed Risk, and endorsed and deposited

by Suba in Atlanta and Marietta.

(b) Money Laundering (Counts 79-105)

The indictment further charged Appellants with money laundering on the basis

that the money in the Augusta WC account used to satisfy the $225,000 in claims

consisted solely of Healthmaster premiums, reimbursed by Medicare. Thus,

Government contends, Medicare funds were illegally used to satisfy (non-

reimbursable) Preferred Care claims. In addition, the Preferred Care premiums were

illegally converted by Managed Risk shareholders.

(c) Money Laundering (Counts 106-109) by Kelly Only

The Government alleged that Kelly further laundered the proceeds converted

and distributed to Mrs. Kelly by investing these proceeds in stock and land.

3. The Health Insurance Fund Allegations (Counts 112-123; 125-128)

The Health Insurance Fund allegations arise out of a trust account (the Greenville

13 account) established by Healthmaster at the Carolina First Bank in Greenville, South

Carolina for the benefit of its self-insured employee health and disability plan and

administered by HDR, an independent third party administrator. Kelly was trustee of

the Greenville account. He apparently determined the monthly $200,000 to $300,000

(in Medicare reimbursable) premiums paid into the Greenville account by

Healthmaster.

(a) Mail Fraud (Counts 112-115) by Kelly Only

The Government alleged that Kelly, over a two-year period, disbursed $1,587,775

from the Greenville account for his own benefit and that of Master Health. He is

alleged to have accomplished this scheme as follows: Kelly established another bank

account in Augusta (the Augusta II account). He used false representations of being

able to obtain a “higher yield” to induce HDR to mail Greenville account funds to

him, which he deposited in the Augusta II account ($700,000; $500,000; $258,775;

and $129,000). Kelly never returned the money to the Greenville account and

improperly characterized two of the checks on Healthmaster’s Annual Return, IRS

Form 5500, as paid claims, rather than loans, transfers or investments.

(b) Embezzlement from an Employee Benefit Plan (Counts 116-118) by Kelly Only

for Master Health’s Benefit

Kelly then, the Government alleged, embezzled $960,583 through three transfers

14 from the Augusta II account funds (composed of Medicare reimbursed funds

transferred from the Greenville account) and used them to purchase a $1 million

certificate of deposit for Master Health (a non-Medicare company) in order for Master

Health to meet new state minimum capitalization requirements for HMOs.

(c) Embezzlement from an Employee Benefit Plan (Counts 119-121) by Kelly Only

for Kelly’s Benefit

Similarly, the Government alleged, Kelly withdrew funds from the Augusta II

account and deposited them into other accounts he controlled: (1) $78,400 payable for

“data processing 91/92" to a “special activity account” established by Kelly for

Employee Benefit Coordinators (EBC)14 ; (2) $116,160 payable to the Managed Risk

advertising account; and (3) one year after EBC dissolved, Kelly wrote a $71,256

check from the August II account and deposited it into the (now defunct) EBC’s

“special activity account.”

(d) Money Laundering (Counts 122-123, 125-128) by Kelly Only

The indictment charges Kelly with money laundering the three checks described

14 EBC was a non-Medicare company established in 1987 by Kelly, Garrison and EBC’s president, Peter Molloy, to market Master Health. Molloy was also vice-president of Healthmaster. He testified that he was unaware of the August II account or the EBC “special activity account.” In fact, Molloy testified that Kelly had opened the EBC account with a signature card on which he signed both his name and Molloy’s name, without Molloy’s knowledge or permission. There is no record of any work, advertising or data processing, performed for the health insurance fund by either EBC or Managed Risk.

15 in (c) above. None of the three checks were reported on his income tax return:

a. The $78,400 Check

On the same day as the transaction discussed in (c) above, Kelly wrote a second

$78,400 check on the EBC account payable to his brother’s company, AMAT

Telecommunications (AMAT), for non-existent data processing services.15 Twelve

days later, Kelly’s brother wrote a $78,400 check from AMAT’s account to Kelly’s

personal “rental account.”

b. The $116,160 Check

Two weeks after Kelly transferred $116,160 from the Greenville account to the

Augusta II account and deposited the funds in Managed Risk’s advertising account,

he moved $100,000 from the advertising account into his personal investment

company, Icarus Investments, as a“loan.” Two weeks after that, Icarus Investments

bought South Carolina real estate for $44,870.

c. The $71,256 Check

After Kelly transferred $71,256 from the Greenville account to the Augusta II

account and deposited it into EBC’s special activity account, he then moved $85,000

from the special activity account to Icarus Investments’ account as a “loan.” One

week later, Kelly transferred the amount remaining from the previous “loan” and

15 Kelly was an officer of AMAT, but AMAT performed no work for EBC.

16 deposited the total [$140,000] into his personal bank account from Icarus Investments.

4. The Sizemore Allegations - Mail Fraud (Counts 110-111)

These counts are based upon an allegedly fraudulent invoice from Managed Risk

to Healthmaster’s Augusta WC account for a $125,000 “additional premium.” The

Government contends that Managed Risk agreed to purchase a $125,000 Trust

Company Bank certificate of deposit for Sizemore Security to use as collateral for a

bond necessary to qualify as a self-insured.16 With supplemented assets, Sizemore

Security would be able to self-insure and Managed Risk would obtain a new client.

Managed Risk reimbursed itself for the certificate of deposit with Medicare-

reimbursed Augusta WC account funds. Documentation was prepared, allegedly

making it appear that the Augusta WC account owed a $125,000 “additional

premium” to Managed Risk. These request documents were mailed to Trust Company

Bank which in turn mailed the requested check to Managed Risk’s Atlanta post office

box. Thus, the Government contends, that Kelly, Suba and Managed Risk defrauded

Medicare and the Augusta WC account by billing the account for a non-existing

premium.

Kelly argues that there is no evidence of a scheme to defraud the (Medicare

16 For its services, Managed Risk charged Sizemore a $4,000 fee and one percent monthly interest.

17 funded) Augusta WC account because he had investment authority over the account,

and, after Sizemore Security repaid the loan for the certificate of deposit, Managed

Risk returned the principal, with interest, to the Augusta WC fund. Suba claims he

had no knowledge of the wording on the invoice and that it was incorrectly reflected

as a “premium” instead of a “loan.”

5. The False Statements of Garrison, Kelly & Healthmaster

(a) The River Valley Allegations (Counts 11-26)

The Government contends that Kelly, from 1989 to 1993, through false statements,

fraudulently obtained $1,765,492 in Medicare funds, when Healthmaster purchased

River Valley, an Albany, Georgia home health care agency, from four Galloway

family members. The scheme was structured as follows: for the sale of River Valley,

each Galloway was to receive a deposit of $100,000 plus $80,000 (per person) per

year for ten years. Healthmaster, however, at Kelly’s direction, completed the sales

transaction by placing the Galloways on Healthmaster’s payroll. They each received

semi-monthly checks totaling $80,000, the amount they were due for the River Valley

sale, as salary expense to Healthmaster yet they performed no work. Salary expenses

were reimbursed by Medicare. There was testimony in the record that Kelly had been

warned by a Healthmaster employee that this scheme would constitute Medicare

fraud.

18 (b) The Concealment of Related Company Managed Risk Allegations (Counts 30-

32)

The Government charges that Kelly and Suba fraudulently concealed their

ownership in Managed Risk from Healthmaster employees, although Managed Risk

operated on the Augusta premises of Healthmaster, its largest client, and,

Healthmaster paid Managed Risk’s overhead and travel expenses. In addition, Kelly

did not identify Managed Risk as a “related company” on Healthmaster’s cost reports

for 1991, 1992, or 1993. See note 12 supra. Kelly, using Managed Risk as

middleman, established the Augusta WC account, designed after Healthmaster’s

existing self-insured health program. See Part II C. 2. supra. Managed Risk received

fees of $101,844 in 1991 and $114,382 in 1992 for managing Healthmaster’s Augusta

WC and Augusta II accounts.17 In the meantime, Kelly and Suba continued to receive

their Healthmaster salaries. With Managed Risk posing as their middleman, the

Government contends that Kelly and Suba could in essence double-bill Medicare for

work they performed for Healthmaster since Managed Risk fees, like their

Healthmaster salaries, were reimbursed by Medicare as operating expenses.

III. ISSUE ON APPEAL

17 Managed Risk charged Healthmaster an eight percent commission for managing the Augusta WC account. For managing the Augusta II account, Managed Risk received a base fee of $30,000, plus twenty-five percent of savings or minus twenty-five percent of additional costs.

19 The only issue with merit to discuss on appeal is whether there was sufficient

evidence to support the convictions.18 See note 1 supra.

IV. STANDARD OF REVIEW

Sufficiency of the evidence is a question of law that we review de novo. United

States v. Massey, 89 F.3d 1433, 1438 (11th Cir. 1996), cert. denied, 117 S.Ct. 983

(1997). The relevant question for a reviewing court, in judging the sufficiency of the

evidence, is “whether, after viewing the evidence in the light most favorable to the

prosecution, any rational trier of fact could have found the essential elements of the

crime beyond a reasonable doubt.” Jackson v. Virginia, 443 U.S. 307, 319; 99 S.Ct.

2781, 2789 (1979). We resolve all reasonable inferences and credibility evaluations

in favor of the jury’s verdict; we will uphold the jury’s verdict if a reasonable fact

finder could conclude that the evidence establishes the defendants’ guilt beyond a

reasonable doubt. United States v. Starke, 62 F.3d 1374, 1380 (11th Cir. 1995). The

Government need not disprove every hypothesis of innocence, as the jury is free to

choose among reasonable constructions of the evidence. United States v. Waymer, 55

F.3d 564, 570 (11th Cir. 1995). The evidence may be sufficient even though it is not

wholly inconsistent with every conclusion except that of guilt; the jury is free to

18 We do not discuss the boat scheme allegations involving bank fraud and money laundering (Counts 131-132). The Government conceded in its brief at page 32 and at oral argument that there was insufficient evidence to support them as to Kelly.

20 choose among reasonable constructions of the evidence. United States v. Zielie, 734

F.2d 1447, 1458 (11th Cir. 1984).

V. DISCUSSION

A. The Conspiracy (Count 1)19

Kelly argues that the Government failed to prove a single, wrap-around

conspiracy, or, if it proved anything, it proved multiple conspiracies, by impermissibly

piling inference upon inference. He bases his argument on three theories: (1) that

counsel for the Government conceded this issue when he stated in his closing

argument that Suba “wasn’t involved in every one of these subsidiary schemes and

transactions, and there’s no claim that he was;” (2) that Garrison, in her testimony for

the Government, provided no evidence of her involvement in a single conspiracy nor

gave any evidence implicating either Kelly or Suba in a single conspiracy; and (3) that

the Government failed to prove requisite knowledge and criminal intent.

Individually, Suba tries to distance himself from his co-conspirators by claiming

that there was no evidence of his involvement in six of the nine objects of the

conspiracy listed in the indictment. He argues that his alleged involvement in the

Preferred Care scheme (including money laundering) and the non-disclosures of

19 This case reminds one of the prisoner who sued the county when he was hurt during his escape because the county left the jail door open. Apparently, viewing Medicare as a cash cow, the temptation for these co-conspirators was just as great.

21 related companies (including Managed Risk) was entirely separate and distinct from

the other multiple schemes alleged against Kelly and Garrison.

To sustain a conviction for conspiracy to defraud the United States, the

Government must prove the existence of an agreement to achieve an unlawful

objective, the defendant’s knowing and voluntary participation in the conspiracy, and

the commission of an overt act in furtherance of it. United States v. Kammer, 1 F.3d

1161, 1164 (11th Cir. 1993). However, if the proof shows the defendant knew the

essential objective of the conspiracy, it does not matter that he did not know all its

details or played a minor role in the overall scheme. United States v. Walker, 720

F.2d 1527, 1538 (11th Cir. 1983). In addition, “participation in a criminal conspiracy

need not be proved by direct evidence; a common purpose or plan may be inferred

from a development and collocation of circumstances.” United States v. Khoury, 901

F.2d 948, 962 (11th Cir. 1990) (quoting Glasser v. United States, 315 U.S. 60, 62

S.Ct. 457 (1942)). The Government need only produce sufficient evidence that the

defendants conspired to commit a single object. See Griffin v. United States, 502 U.S.

46, 112 S.Ct. 466 (1991); United States v. Stone, 9 F.3d 934, 938-939 (11th Cir. 1993).

To sustain a conspiracy conviction therefore, we must conclude that a reasonable fact

finder could determine that: (1) an agreement existed among two or more persons;

(2) that the defendant[s] knew of the general purpose of the agreement; and (3) that

22 the defendant[s] knowingly and voluntarily participated in the agreement. United

States v. Ramsdale, 61 F.3d 825, 829 (11th Cir. 1995). Variance between allegations

and proof is reversible only when the defendant is actually prejudiced. See United

States v. Coy, 19 F.3d 629, 634 (11th Cir. 1994).

Under these legal principles, the record reflects that the evidence proved an

overarching conspiracy to defraud Medicare. A reasonable juror could justifiably

find, beyond a reasonable doubt, that the Medicare fraud conspiracy alleged was the

Medicare conspiracy proven.20 The record indicates that the district court instructed

the jury to consider the evidence on each offense and each defendant separately. In

addition, the evidence amply demonstrates Kelly’s involvement in any conspiracy that

may have existed. See Khoury, 901 F.2d at 962. It matters not that Suba or Managed

Risk may not have known all the details of the conspiracy or played a lesser role in

the overall scheme. See Walker, 720 F.2d at 1538. We conclude that actual prejudice

as to Kelly, Suba and Managed Risk is absent; hence reversal on this issue is

unwarranted. See Coy, 19 F.3d at 634.

B. The Preferred Care (PCC) Allegations (Counts 36-109)

1. Mail Fraud (Counts 36-78)

20 Notwithstanding, the district court gave an appropriate instruction on multiple conspiracies and the jury is presumed to have followed it. See United States v. Stone, 9 F.3d 934, 938-39 (11th Cir. 1993).

23 Kelly contends that the evidence does not support his Preferred Care mail fraud

convictions for three reasons: (1) that he and Suba were “under no duty or obligation”

to pay Preferred Care claims with Preferred Care money, hence, no crime was

committed; (2) that Preferred Care premiums included $568,000 in other (general

liability or commercial) insurance payments, a matter not alleged as mail fraud in the

indictment; and (3) that, while conceding that the last twelve premium checks were

mailed (Counts 67-78) (Kelly’s assistant testified that she mailed them), he disputes

evidence that the remaining were mailed earlier (Counts 36-66).

Suba claims that the evidence does not support his Preferred Care mail fraud

convictions because he had no fraudulent intent and that Preferred Care, as Garrison’s

alter ego, was not a “victim” for 18 U.S.C. § 1341 purposes. There was no evidence

Suba claims that, as Healthmaster’s “risk manager,” he knew that Healthmaster’s

insurance premiums were being reimbursed by Medicare or that he played any part in

the Medicare reimbursement process itself, as others were responsible for preparing

Healthmaster’s cost reports submitted to Aetna.21

The Government argues that a reasonable juror could find that Kelly, Suba, and

Managed Risk used the United States mails to defraud Medicare when Preferred Care

21 There is evidence in the record that Healthmaster’s vice-president, Mike Haddle, prepared the cost reports with information supplied by others. Suba claims that “his name never came up” in this context as one of the information suppliers.

24 mailed checks totaling $1,420,237 to Managed Risk’s Atlanta post office box. When

a Preferred Care employee made a legitimate workers’ compensation claim, Kelly and

Suba covered up its house of cards, the Government contends, by paying the claim

from the Augusta WC fund comprised of Medicare money. Meanwhile, the

$1,420,237 was converted and distributed by Suba to himself, Mrs. Kelly and the

Garrison children’s trusts. If the claims were not paid, the Government argues, the

Managed Risk shareholders would not have been able to keep pocketing the Preferred

Care premiums and their house of cards would have folded.

The mail fraud statute prohibits devising a “scheme or artifice to defraud, or for

obtaining money or property by means of false or fraudulent pretenses,” which is

furthered by use of the mails. 18 U.S.C. § 1341; see also United States v. Funt, 896

F.2d 1288, 1292 (11th Cir. 1990). To prove mail fraud, the Government must show

that the defendant (1) intentionally participated in a scheme to defraud and (2) used

the mails to execute the fraudulent scheme. See United States v. Hooshmand, 931

F.2d 725, 731 (11th Cir. 1991). The Government need not produce direct proof of

scienter in a mail fraud case, however; circumstantial evidence of criminal intent can

suffice. United States v. Hawkins, 905 F.2d 1489, 1496 (11th Cir. 1990). The

Government must establish only that the fraudulent scheme existed; conviction for

mail fraud “need not rest on the success of the fraudulent scheme.” United States v.

25 Wingate, 997 F.2d 1429, 1433 (11th Cir. 1993). Guilty knowledge can rarely be

established by direct evidence, especially in respect to fraud crimes which, by their

very nature, often yield little in the way of direct proof. See United States v.

DesMarais, 938 F.2d 347, 352 (1st Cir. 1991).

In this case we conclude that the mails were used and the United States was

defrauded at the conclusion of the following sequence of events: (1) Healthmaster

(reimbursable) premiums were deposited into the trust fund; (2) Preferred Care (non-

reimbursable) premiums were not paid into the trust fund, although Appellants had an

apparent fiduciary obligation to do so, but were siphoned off via the mails to Managed

Risk shareholders; (3) Preferred Care employees made $225,000 in claims which were

paid by the trust; (4) the money in the trust used to pay the non-reimbursable claims

was comprised of Medicare reimbursed money. 18 U.S.C. § 1341.

We have examined the record as to the mailing of each of the forty-three checks

charged in the indictment. We conclude that direct testimonial evidence of mailing

exists as to Counts 67-78, and strong circumstantial evidence of mailing exists as to

Counts 36-66. See Waymer, 55 F.3d at 570-571. As to Kelly, his arguments that no

crime was committed because he had “no duty” to deposit the Preferred Care

premiums in the trust fund, and, that the Preferred Care premiums contained general

liability or commercial insurance are without merit. As to Suba, we find that there is

26 ample circumstantial evidence to support the idea that he knew exactly what was

going on. Although he claims he “was only a risk manager for Healthmaster,” he also

managed and owned part of Managed Risk. Suba knew and participated in using, as

Managed Risk’s business address, that of an Atlanta post office, while operating

Managed Risk on Healthmaster’s Augusta premises. Strong circumstantial evidence

is that the Preferred Care checks were addressed to this Atlanta post office box. Suba

endorsed and deposited the Preferred Care checks in Atlanta or Marietta banks, other

strong circumstantial evidence of mailing. Suba signed the twenty-seven checks

distributing Preferred Care money to the Managed Risk shareholders, including a

hefty $390,000 profit to himself.22

The jury could reasonably infer Suba’s guilty knowledge and participation in the

scheme to defraud Medicare from the whole of the evidence presented and strong

circumstantial evidence that the checks were mailed. Given the widespread nature of

the Medicare fraud from these Preferred Care counts and the large amount of extra

revenue generated to Suba and Kelly personally, only a conscious course of calculated

ignorance could have kept Suba from knowing the truth. In fact, we think that Suba

played more than a minor role in this operation. It is clear that he had more

understanding of the underlying unlawful act than he cares to admit and that he was

22 A substantial dividend rate of return for a shareholder making only a $10,000 investment.

27 a knowing and willing participant in the conspiracy to defraud Medicare through this

house of cards.

The same is true for Kelly, who, second only to Garrison, held the reins of

corporate control as chief financial officer of Healthmaster and had hands-on

involvement in the operation of the business. Our review of the record persuades us

that there was sufficient evidence to support both Kelly’s and Suba’s convictions on

these counts. See United States v. O’Brien, 14 F.3d 703, 708 (1st Cir. 1994)(where

extensive circumstantial evidence “formed a river of proof” supporting a jury’s

conviction of an ambulance service owner on 420 counts relating to Medicare fraud).

2. Money Laundering (Counts 79-109)

Kelly concedes that the financial transactions alleged in the money laundering

counts occurred. He claims that money laundering did not occur because the financial

transactions did not involve the proceeds of mail fraud.23 Suba does not address this

issue in his briefs other than in a sentencing context.

23 Kelly also claims that (1) his financial transactions had no affect upon interstate commerce; and (2) that his conviction for money laundering cannot be upheld because those counts involved more money ($1.7 million) than the mail fraud counts ($1.4 million). Both of these arguments are meritless. First, there is evidence that his transactions had an effect upon interstate commerce. See 18 U.S.C. § 1956(6) (defining financial institutions as one specified in 31 U.S.C. § 5312(a)(2), including a wide range of institutions, as the district court instructed the jury). Second, the law in this circuit is clear that “where funds involved in the transaction are derived from a commingled account of which only a part comes from ‘specified unlawful activities,’” money laundering convictions can be upheld. See United States v. Cancelliere, 69 F.3d 1116, 1120 (11th Cir. 1995).

28 The Government contends that a reasonable juror could find that Kelly and Suba

laundered the mail fraud Preferred Care premiums by first depositing them in

Managed Risk account and then distributing them to its shareholders. As evidence of

Kelly’s criminal intent, the Government points to his manipulation of the Garrison

children’s trust distribution deposits. Kelly forged the trustee’s name on the signature

card (of an account of which the trustee had no knowledge) and then forged the

trustee’s endorsement on the checks, also without his knowledge or permission.

Laundering continued when Suba and Kelly deposited their distributions into their

personal bank accounts. Kelly engaged in further money laundering by investing with

two brokerage houses and purchasing South Carolina real estate.

In order to prove the crime of money laundering, the Government must prove that

Kelly and Suba “conduct[ed] . . . a financial transaction which in fact involve[d] the

proceeds of specified unlawful activity . . . .” See 18 U.S.C. § 1956; United States v.

Cancelliere, 69 F.3d 1116, 1119 (11th Cir. 1995). We think the evidence is clear that

a reasonable juror could find that the Government sustained its burden of proving

beyond a reasonable doubt that Kelly and Suba laundered the Preferred Care

premiums at issue in the mail fraud counts by depositing them into Managed Risk

accounts and distributing them to themselves as shareholders. Kelly’s unlawful

activity went two steps further when he forged the trustee’s signature and

29 endorsements and invested the proceeds in securities and real estate. Neither were

these money laundering transactions “open and notorious” as Kelly contends. See

United States v. Dobbs, 63 F.3d 391 (5th Cir. 1995). We find no error regarding this

issue.

C. The Health Insurance Fund Allegations (Counts 112-123, 125-128)

1. Mail Fraud (Counts 112-115)

Kelly contends that the Government failed to prove mail fraud because it failed to

prove that he knowingly and willfully embezzled from the Greenville account. He

claims that there is no evidence that HDR transferred the funds from the Greenville

account to the Augusta II account based his false statement that he could obtain a

“better yield” elsewhere, or that his statement was material in influencing HDR’s

decision to comply with his request.

The Government argues that mail fraud was committed when Kelly requested that

HDR issue four (Medicare-reimbursed) Greenville account checks and mail them to

him for deposit in the Augusta II account, creating a $1,587,775 “slush fund.” It

claims that Kelly’s “better yield” statement was relevant because it falsely implied that

he planned to use the money to benefit the trust fund when in fact he used it to benefit

himself and Master Health.

To prove Kelly violated the mail fraud statute, the Government must show that he

30 intentionally participated in a scheme to defraud and used the United States mails to

carry out that scheme or artifice. 18 U.S.C. § 1341; see Waymer, 55 F.3d at 568.

And, although proof of specific intent to defraud is necessary, id., “circumstantial

evidence of criminal intent can suffice.” United States v. Cox, 995 F.2d 1041, 1045

(11th Cir. 1993). See also Part V.B.1 supra.

Viewing the evidence in the light most favorable to the Government and resolving

all reasonable inferences and credibility evaluations in favor of the jury’s verdict, we

agree. See Massey, 89 F.3d at 1438. The Government need not produce direct proof

of scienter in a mail fraud case, circumstantial evidence will suffice. See Hawkins,

905 F.2d at 1496. Kelly’s false statement constituted circumstantial evidence of

criminal intent. Id.; see Cox, 995 F.2d at 1045. We think the record is clear that a

reasonable juror could conclude that Kelly committed mail fraud when he caused the

Greenville account Medicare funds to be mailed to and deposited in the Augusta II

account.

2. Embezzlement from an employee benefit plan (Counts 116-121)

Kelly contends that there is no evidence to prove that he acted willfully or knew

that his use of the money in the Augusta II account violated any legal duty. He claims

that the embezzlement conviction should be set aside because the Government failed

to prove the requisite criminal intent. The Government claims that the evidence easily

31 demonstrated that Kelly embezzled $1,587,775 from the Greenville account, through

the Augusta II account, both for his own use and for the benefit of Master Health.

A charge of embezzlement from an employee benefit fund requires that the

Government prove that Kelly is a person who “embezzles, steals, or unlawfully and

wilfully abstracts orconverts to his own use or to the use of another, any moneys,

funds, securities, premiums, credits, property, or other assets of any employee welfare

benefit plan . . . .”24 18 U.S.C. § 664. Section 664 requires a showing of fraudulent

intent to sustain a conviction. See United States v. Andreen, 628 F.2d 1236 (9th Cir.

1980). In United States v. Snyder, 668 F.2d 686 (2d Cir. 1982), the Second Circuit

recognized that “[t]he only real question . . . was whether [the defendant] took [the

funds] with the requisite criminal intent. Id. at 690.

We conclude that the evidence was sufficient to sustain a conviction for violating

section 664 beyond a reasonable doubt. A reasonable jury could have found that

Kelly possessed the specific criminal intent necessary to satisfy the statute and that he

embezzled Medicare money from an employee benefit plan for his own use and that

of Master Health. He used the funds to purchase a $1 million certificate of deposit for

24 “The legislative history of Section 664 clearly indicates that its intended purpose was to preserve welfare funds for the protection of those entitled to their benefits.” United States v. Santiago, 528 F.2d 1130, 1133 (2d Cir. 1976) citing, H.R.Rep. No. 87-998 (1961), reprinted in 1962 U.S.C.C.A.N. 1532. This important public policy purpose is the underlying momentum for the enactment of section 664. United States v. Somerstein, 971 F.Supp. 736, 748 (E.D.N.Y. 1997).

32 Master Health which had been unable to meet Georgia’s new capitalization

requirements and took three checks ($116,160; $78,400; $71,256) for his own benefit.

Kelly’s argument that there was no evidence that these funds wouldn’t someday be

returned to the Augusta II account is without merit. See United States v. Wuagneux,

683 F.2d 1343, 1359 (11th Cir. 1982)(citations omitted)(where the possibility that

funds will be recovered does not preclude criminal liability). We find no error on this

3. Money Laundering (Counts 122-123, 125-128)

Kelly contends that since he should be acquitted on the mail fraud and

embezzlement counts, he is therefore entitled to a judgment of acquittal on the money

laundering counts. The Government points to the record and to the fact that Kelly did

not report the three checks on his income tax return.

In order to prove that Kelly laundered money in connection with the mail fraud

and embezzlement counts, the Government is required to show that the property

involved in a financial transaction represented proceeds of some form of unlawful

activity, 18 U.S.C. § 1956 (a)(1); that Kelly conducted or attempted to conduct such

financial transaction with the intent to evade income taxes, 18 U.S.C. § 1956

(a)(1)(A)(ii); knowing that the transaction was designed in whole or in part to conceal

or disguise the nature, location, source, ownership, or control of those proceeds. 18

33 U.S.C. §1956 (a)(1)(B)(i).

As Kelly did not report these three checks on his income tax return, the jury’s

conclusion that Kelly laundered these Medicare monies is supported by a reasonable

construction of the evidence.

D. The Sizemore Security Mail Fraud Allegations (Counts 110-111)

Suba claims that he was not involved in wording the invoice for the $125,000

certificate of deposit for Sizemore Security as an “additional premium” instead of a

“loan” but that Kelly’s initials and jottings were on the invoice and the request form.

Kelly claims that no fraud was proven because the loan was repaid.

The Government claims that the evidence clearly indicates Kelly’s intent to

defraud when he mailed a “request for $125,000 check”/invoice from the Augusta

WC fund to the Trust Company Bank. Trust Company Bank in turn mailed a

$125,000 check to Managed Risk and Managed Risk used these funds for its purchase

of a $125,000 certificate of deposit for Sizemore Security. Repayment was made only

after the investigation was ending, three months before the indictment was issued.

Repayment in the face of litigation does not show a lack of fraudulent intent.

United States v. Sirang, 70 F.3d 588, 595 (11th Cir. 1995). Trust Company Bank

mailed the Augusta WC check comprised of Medicare funds to Managed Risk’s

Atlanta post office box over which Kelly and Suba had control. The jury was entitled

34 to conclude that Kelly and Suba used the United States mails to manipulate Medicare

funds in the Augusta WC account for the benefit of themselves and their company.

There is no error on this issue.

E. The False Statement Allegations - (River Valley (Counts 11-26) and the

Concealment of Related Company Managed Risk Allegations (Counts 30-32))

Kelly contends that the Government failed to prove the essential elements of these

counts based upon alleged “false statements” in the cost reports, i.e., treating the

money paid to the Galloways for the purchase of River Valley as a salary expense, and

failing to disclose that Healthmaster and Managed Risk were related companies on

1991, 1992, and 1993 cost reports. He bases his contention on the premise that he did

not prepare the cost reports and that “[i]t is beyond dispute that the Medicare

regulations are a complicated morass of compliance rules.”

The Government counters that Kelly, himself, is a certified public accountant, was

chief financial officer and second-in-command of Healthmaster and that he was

warned by a Healthmaster employee that the River Valley scheme would constitute

Medicare fraud because Medicare would in essence be illegally reimbursing

Healthmaster for the cost of its purchase of River Valley. In addition, the evidence

clearly shows that Kelly concealed the relationship between Healthmaster and

Managed Risk by using an Atlanta post office box address and an Atlanta answering

35 service telephone number.

In order to prove that Kelly made false statements in violation of 18 U.S.C. § 1001,

the Government need only show that Kelly knowingly and willfully concealed a

material fact by any trick, scheme, or device, or made or used a false document

knowing that it contained any false, fictitious, or fraudulent statement or entry. 18

U.S.C. § 1001. A reasonable jury could conclude from the substantial evidence

presented on these counts that Kelly violated the false statements statute.

VI. CONCLUSION

Based upon the foregoing, the convictions and sentences of Suba and Managed

Risk are affirmed. As to Kelly, except as to Counts 131 and 132 which are reversed,

his conviction is also affirmed. We remand for Kelly’s resentencing on Counts 131

and 132 in accordance with this opinion.

AFFIRMED IN PART; REVERSED IN PART; REMANDED FOR

RESENTENCING AS TO KELLY.