United States v. Wood

• Court: Court of Appeals for the Sixth Circuit
• Decided: April 19, 2004
• Docket: 01-2548
• Status: Published

Opinion

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 United States v. Wood, et al. No. 01-2548 ELECTRONIC CITATION: 2004 FED App. 0111P (6th Cir.) File Name: 04a0111p.06 _________________ COUNSEL UNITED STATES COURT OF APPEALS ARGUED: Kip T. Bollin, THOMPSON HINE, Cleveland, FOR THE SIXTH CIRCUIT Ohio, for Appellant. Richard S. Murray, ASSISTANT _________________ UNITED STATES ATTORNEY, Grand Rapids, Michigan, for Appellee. ON BRIEF: Kip T. Bollin, William B. Leahy, UNITED STATES OF AMERICA , X THOMPSON HINE, Cleveland, Ohio, for Appellant. Plaintiff-Appellee, - Richard S. Murray, ASSISTANT UNITED STATES - ATTORNEY, Grand Rapids, Michigan, for Appellee. - No. 01-2548 v. - GILMAN, J., delivered the opinion of the court, in which > DAUGHTREY, J., joined. GWIN, D. J. (pp. 23-41), , delivered a separate opinion concurring in part and dissenting EDWIN DAVID WOOD , II, - Defendant-Appellant. - in part. N _________________

Appeal from the United States District Court OPINION for the Western District of Michigan at Grand Rapids. _________________ No. 99-00132—Gordon J. Quist, District Judge. RONALD LEE GILMAN, Circuit Judge. In August 1999, Edwin David Wood, II was indicted on 22 counts of wire Argued: October 22, 2003 fraud, mail fraud, and money laundering. These charges arose out of two loan transactions that Wood arranged in 1994. Decided and Filed: April 19, 2004 Wood pleaded not guilty. After a jury found Wood guilty on 21 of the 22 counts, the district court sentenced him to 168 Before: DAUGHTREY and GILMAN, Circuit Judges; months of imprisonment and ordered him to pay GWIN, District Judge.* approximately $570,000 in restitution. Wood appeals, arguing that (1) certain jury instructions were erroneous, (2) venue in the Western District of Michigan was improper with regard to five of the seven mail fraud charges, (3) the district court’s restitution order was excessive, and (4) the government failed to produce sufficient evidence concerning one of the loan transactions to support his conviction. For the reasons set forth below, we AFFIRM Wood’s conviction and sentence on all counts other than the mail fraud charges in * The Ho norable James S. Gwin, United States District Judge for the Counts 17-21, REVERSE Wood’s conviction on these latter Northern District of Ohio, sitting by designation.

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counts for lack of proper venue, and, accordingly, REMAND purchase all or any part of the pledged shares at such for resentencing. sale. I. BACKGROUND First Financial utilized a technique called “selling short against the box” to fund the loans. (For a detailed description The charges against Wood arise out of two loan agreements of short-against-the-box transactions, see Edward D. executed by him in 1994. Wood orchestrated these Kleinbard, Risky and Riskless Positions in Securities, TAXES, transactions from the Metropolitan Correctional Center December 1993, at 788). Neither in the Agreement nor in any (MCC) in Chicago, a federal prison, between June 15 and other communication with prospective borrowers did First October 6 of 1994. While at the MCC, Wood worked Financial disclose the use of short-against-the-box through First Financial Acceptance Company, Inc., which had transactions to fund the requested loans. offices in Battle Creek, Michigan. First Financial personnel did not disclose to the potential borrowers that Wood was in The first loan transaction at issue was with Robert Graham. prison as a convicted felon. Graham wanted to retire a debt with the $230,000 that he intended to borrow from First Financial. He pledged 70,000 To attract customers, First Financial advertised in shares of Sonic Environmental Systems stock as collateral. publications such as the New York Times, the Wall Street Graham received a loan commitment from First Financial for Journal, and Investors Business Daily, offering to lend up to the $230,000 in June of 1994, but he did not receive any of 90% of the value of any eligible stock that the prospective the loan proceeds until November of that year. At that time, borrower owned. These ads generated a large number of Graham received approximately $31,000. First Financial telephone inquiries. Wood kept track of these inquiries by made no other disbursements on its $230,000 commitment. calling First Financial from prison and then having First Financial personnel connect him to the prospective borrower Meanwhile, on September 13 and 14 of 1994, a broker through call forwarding. Interested callers were sent a acting on Wood’s instructions sold short 35,000 shares of package of documents compiled by Wood. These documents Graham’s Sonic Environmental Systems stock for $173,191. included a Security and Pledge Agreement, which provided The sale of Graham’s stock was supposed to be a short- in pertinent part as follows: against-the-box sale, but because the broker was unable to borrow 35,000 shares of Sonic Environmental Systems stock Lender [First Financial] shall hold the pledged shares as in the open market, a short-against-the-box transaction could security for the repayment of the loan and shall not not be executed. Instead, the short position was closed by encumber the shares except in accordance with the selling the 35,000 shares on the open market in October of provisions of this Agreement. . . . In the event that 1994. Pledgor defaults in the performance of any of the terms of this Agreement, . . . Lender may, upon five (5) days Graham was not told that half of his collateral had been advance written notice to Pledgor, sent by certified mail, sold when he attempted to get his stock back in late 1994. and without liability for any diminution in price which First Financial returned the remaining 35,000 shares of may have occurred, sell all of the pledged shares in such Graham’s collateral to him in January of 1995. Graham later manner and for such price as Lender may determine, at sold the stock and paid the approximately $31,000 balance any bona fide public sale, and Lender shall be free to No. 01-2548 United States v. Wood, et al. 5 6 United States v. Wood, et al. No. 01-2548

due on his loan. He never received the rest of his collateral was later sentenced to 168 months of imprisonment and back. ordered to pay $570,025.83 in restitution. The district court entered judgment on October 26, 2001. This timely appeal The second transaction at issue in this case arises from a followed. loan First Financial made to Gordon Miller and his mother, Ruth Miller. Ruth Miller pledged 8,167 shares of her II. ANALYSIS Comerica Bank stock as collateral for the loan, and Gordon Miller received approximately $200,000 in loan proceeds in A. Jury instructions September of 1994. First Financial sold Ruth Miller’s 8,167 shares of stock short against the box two days after closing on Wood claims that the district court erred in instructing the the Millers’ loan. It received approximately $227,000 from jury that short sales against the box encumber the stock the sale. The government presented evidence at trial that, at pledged as collateral. He maintains that, as a matter of law, Wood’s direction, First Financial closed its short position in such sales do not encumber the stock, thus making the court’s Comerica by delivering Ruth Miller’s stock in December of instructions to the jury erroneous. Wood concludes that the 1994 to the broker who provided the shares sold short. jury “was charged in a manner that allowed them to convict Although the stock was thus disposed of by First Financial him on insufficient grounds – for legal conduct.” within three months of closing the loan transaction, Gordon Miller continued to make loan payments through June of Because Wood did not object to the jury instructions at 1996. Ruth Miller never recovered her collateral from First trial, we review the instructions under the “plain error” Financial. standard, considering whether “the instructions, when taken as a whole, were so clearly wrong as to produce a grave In August of 1999, a federal grand jury returned a 22-count miscarriage of justice.” United States v. Sanderson, 966 F.2d indictment that charged Wood with 7 counts of wire fraud in 184, 187 (6th Cir. 1992). Plain error is a stringent standard. violation of 18 U.S.C. § 1343, 7 counts of mail fraud in See United States v. Cox, 957 F.2d 264, 267 (6th Cir. 1992). violation of 18 U.S.C. § 1341, 3 counts of money laundering This court in Cox noted that the Supreme Court and numerous in violation of 18 U.S.C. § 1956(a)(1)(A)(i), 2 counts of federal courts caution that the plain error doctrine should be money laundering in violation of 18 U.S.C. applied only “in exceptional circumstances, and solely to § 1956(a)(1)(B)(i), and 3 counts of engaging in monetary avoid a miscarriage of justice. Recourse may be had to the transactions with proceeds of a specified unlawful activity in doctrine only on appeal from a trial infected with error so violation of 18 U.S.C. § 1957. Arguing that the district court ‘plain’ the trial judge and prosecutor were derelict in lacked venue to try certain mail fraud charges, Wood sought countenancing it.” Id. (quotation marks omitted). dismissal of most of the mail fraud counts before trial, at the close of the government’s case, and at the close of all of the Wood claims that the following instruction was erroneous: evidence. The district court denied all of these motions. Wood also moved for acquittal under Rule 29 of the Federal The government has alleged, in part, that Defendant Rules of Criminal Procedure at the end of the government’s Wood engaged in a scheme or plan to obtain money or case and at the close of all the evidence. The district court property by means of false or fraudulent pretenses, denied these motions as well. After an eight-day trial in April representations, or promises and, more particularly, that of 2001, a jury convicted Wood on 21 of the 22 counts. He No. 01-2548 United States v. Wood, et al. 7 8 United States v. Wood, et al. No. 01-2548

a short sale against the box encumbers the securities in Moreover, the jury instructions as a whole detailed the the box. elements of the alleged crimes and did not imply that a short sale against the box was inherently a fraudulent transaction. The government concedes that this portion of the district We therefore conclude that the jury instructions were not “so court’s instruction suggests that a short sale against the box is clearly wrong as to produce a grave miscarriage of justice.” a fraudulent transaction in and of itself. What followed this United States v. Sanderson, 966 F.2d 184, 187 (6th Cir. portion of the instruction, however, is significant in 1992). determining whether the instruction as a whole was erroneous. The court continued: B. Venue A short sale is made by selling a security that the seller Wood claims that because the government did not prove by does not own. This is different from a short sale against a preponderance of the evidence that the checks forming the the box. A short sale is “against the box” to the extent basis of the mail fraud charges in Counts 17 through 21 were that the separate account contemporaneously owns or has sent from, received in, or moved through the Western District the right to obtain at no added cost securities identical to of Michigan, venue in that district was improper. those sold. The owner of the account is considered the Accordingly, Wood urges this court to reverse his convictions owner of the shares deposited “in the box.” on these counts. The shares can be returned in one of two ways: 1. By delivering the shares held “in the box” – or in the Counts 17 through 21 allege that Wood, on five separate account; or occasions, “did cause to be deposited, sent and delivered by 2. By purchasing in the market identical shares. If the mail . . . from Battle Creek, Michigan, to Ruth Miller in market value is higher than the amount received in the Birmingham, Michigan, [checks] purporting to be Mrs. short sale, then the account owner must come up with Miller’s dividend check from her Comerica stock being used more money than he received from the short sale. . . . If as collateral for the First Financial loan to her son.” Before the market value of the short sale goes down, then the trial, Wood moved unsuccessfully for the dismissal of Counts account owner must come up with less money than he 17 through 21. At the end of the government’s case and again received from the short sale. . . . [I]f the account owner at the close of all evidence, Wood moved, pursuant to Rule 29 is required to deliver the shares “in the box” to a third of the Federal Rules of Criminal Procedure, to dismiss Counts person, like Mrs. Miller, for example, after she has repaid 17 through 21 because of improper venue. The district court her loan, he has to do two things: denied these motions. Count 16 was also part of the Rule 29 a. Deliver the equivalent shares to the third person - motions, but Wood does not include that count in his that’s Mrs. Miller – and argument on appeal. b. Cover with cash or shares the shares that were in the box so that the broker is not at risk on the money paid to Both the United States Constitution and Rule 18 of the the account holder at the time of the original short sale. Federal Rules of Criminal Procedure provide that a person can be tried for a crime only where that crime was committed. This instruction, when read in its entirety, explained how United States v. Cabrales, 524 U.S. 1, 6-7 (1998). The the short sale against the box had to be covered so that the Constitution requires that all criminal trials “shall be held in collateral could be returned once the loan was repaid. the State where the said Crimes shall have been committed.” No. 01-2548 United States v. Wood, et al. 9 10 United States v. Wood, et al. No. 01-2548

U.S. CONST . art. III, § 2, cl. 3. A similar guarantee is found prosecuted in any district in which such offense was in the Sixth Amendment: “In all criminal prosecutions, the begun, continued, or completed. accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime Any offense involving the use of the mails, transportation shall have been committed.” U.S. CONST . amend. VI. Rule in interstate or foreign commerce, or the importation of 18 of the Federal Rules of Criminal Procedure likewise an object or person into the United States is a continuing provides that “[u]nless a statute or these rules permit offense and, except as otherwise expressly provided by otherwise, the government must prosecute an offense in a enactment of Congress, may be inquired of and district where the offense was committed.” prosecuted in any district from, through, or into which such commerce, mail matter, or imported object or “[T]he locus delecti [of the crime charged] must be person moves. determined from the nature of the crime alleged and the location of the act or acts constituting it.” Cabrales, 524 U.S. The substantive offense of mail fraud, on the other hand, is at 6-7. In determining the “locus delecti” of a crime, the defined by the following portion of the federal mail fraud Supreme Court directs us to “initially identify the conduct statute: constituting the offense (the nature of the crime) and then discern the location of the commission of the criminal acts.” Whoever having devised or intending to devise any United States v. Rodriguez-Moreno, 526 U.S. 275, 279 scheme or artifice to defraud . . . for the purpose of (1999). Venue is therefore appropriate only in the district executing such scheme or artifice or attempting so to do, where the conduct comprising the essential elements of the places in any post office or authorized depository for offense occurred. The government must prove that venue was mail matter, any matter or thing whatever to be sent or proper as to each count charged. United States v. Crozier, delivered by the Postal Service, or deposits or causes to 259 F.3d 503, 519 (6th Cir. 2001). Because venue is an be deposited any matter or thing whatever to be sent or essential aspect of the government’s case, “[i]f the delivered by any private or commercial interstate carrier, government does not establish venue and the defendant or takes or receives therefrom, any such matter or thing, objects at trial, then an appellate court must reverse the or knowingly causes to be delivered by mail or such conviction.” United States v. Scaife, 749 F.2d 338, 346 (6th carrier according to the direction thereon, or at the place Cir. 1984). at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be For venue purposes, this court has held that mail fraud is fined under this title or imprisoned not more than 20 a continuing offense governed by 18 U.S.C. § 3237(a). years, or both. United States v. Holt, Nos. 89-6070, 89-6092, 1990 WL 37613, at *1-2 (6th Cir. April 3, 1990) (unpublished opinion). 18 U.S.C. § 1341. Section 3237 reads in pertinent part as follows: Appropriate venue under the mail fraud statute is far from (a) Except as otherwise expressly provided by enactment clear in the present case because the government did not of Congress, any offense against the United States begun allege that the checks at issue in mail fraud Counts 19-21 in one district and completed in another, or committed in were either mailed from or received in the Western District of more than one district, may be inquired of and Michigan. Rather, the government argues that venue in the No. 01-2548 United States v. Wood, et al. 11 12 United States v. Wood, et al. No. 01-2548

Western District of Michigan was appropriate because the scheme. The place where the scheme is conceived or put in offices of First Financial, located in the Western District of motion is immaterial, it is the place of mailing or delivery by Michigan, were used at every step of the scheme to defraud. mail.”); United States v. Mikell, 163 F. Supp. 2d at 728 (holding that venue was inappropriate “for a prosecution As a starting point, we note that in discussing the mail under § 1314 in a district where the mail matter did not move fraud statute, court decisions have focused on the use of the from, through, or into, but where an aspect of the scheme to mails. The Ninth Circuit, for example, has stated that the defraud was devised and executed”). mail fraud statute protects the instrumentality of communication “making the use of the mails . . . as part of a The third case is United States v. Olen, 183 F. Supp. 212 fraudulent scheme an independent offense quite separate from (S.D.N.Y. 1960), which, although not a mail fraud case, any other potentially illegal conduct.” United States v. discusses the general venue statute for continuing crimes, 18 Garlick, 240 F.3d 789 (9th Cir. 2001) (emphasis in original). U.S.C. § 3237(a). In Olen, the district court granted the See also United States v. Monostra, 125 F.3d 183, 187 (3d defendant’s request to transfer venue in a securities fraud case Cir. 2001) (comparing the mail and wire fraud statute to the to the Southern District of Alabama where the scheme to bank fraud statute and commenting that “the mail and wire defraud was located, even though the mailings in furtherance fraud statutes do not penalize the victimization of specific of that scheme occurred in the Southern District of New York. persons; rather, they are directed at the instrumentalities of Id. at 218. The district court focused on the second paragraph fraud.”) (emphasis added) (citations and quotations marks of § 3237(a) that prescribes venue for mail fraud omitted). prosecutions, even though mail fraud was not charged, yet ignored the first paragraph of § 3237(a) that appears to justify This concentration upon the use of the mails makes sense, the court’s decision. We frankly find Olen’s reasoning given that the use of the mails is what establishes federal unpersuasive as it relates to the present case. jurisdiction in these cases. Although “the use of the mails need not be an essential element of the [fraudulent] scheme,” Also relevant to our inquiry are two Supreme Court Schmuck v. United States, 489 U.S. 705, 710 (1989), such use decisions, neither of which involved the mail fraud statute, is essential to federal jurisdiction, United States v. Mikell, 163 but both of which resolved venue challenges in a criminal F. Supp. 2d 720, 729 (E.D. Mich. 2001). Without the use of case. One is United States v. Cabrales, 524 U.S. 1 (1998), the mails, after all, the fraudulent scheme would be only a where the government prosecuted Cabrales in Missouri for state-law offense. illegal financial transactions in Florida. The Supreme Court held that venue in Missouri was inappropriate, despite the fact We have found only three cases that have directly that the source of the funds was from drug trafficking in that addressed a situation comparable to the present case where state, reasoning in part that the money laundering statutes the “base” location for the fraudulent scheme was in a proscribed “only the financial transactions (acts located different district than the place of the mailings. Two of these entirely in Florida), not the anterior criminal conduct that cases rejected the government’s expansive view of mail fraud yielded the funds allegedly laundered.” Id. at 7. venue. See Kreuter v. United States, 218 F.2d 532, 534 (5th Cir. 1955) (“[T]he gravamen of the offense is the use of the The other relevant decision is United States v. Rodriguez- mails. Therefore, [defendant] could be tried where he caused Moreno, 526 U.S. 275 (1999), where a drug distributor and a letter to be either mailed or delivered in furtherance of the his henchmen kidnaped another drug dealer in Texas and held No. 01-2548 United States v. Wood, et al. 13 14 United States v. Wood, et al. No. 01-2548

him captive as they traveled through several states, including *1-2 (6th Cir. April 3, 1990) (unpublished opinion) (holding New Jersey. Rodriguez was tried in New Jersey “for using or that 18 U.S.C. § 3237 governs venue in mail fraud cases); carrying a firearm during and in relation to any crime of United States v. Reitmeyer, 356 F.3d 1313 (10th Cir. 2004) violence.” Id. at 276 (citation and quotation marks omitted). (discussing venue in mail fraud cases and noting that The Supreme Court rejected Rodriguez’s claim that venue “Congress specifically stated ‘any offense involving the use was appropriate only in Maryland, where the gun was actually of the mails . . . is a continuing offense’ for venue possessed. It reasoned that kidnaping is a continuing offense, purposes.”); United States v. Loe, 248 F.3d 449, 465 (5th Cir. causing venue to lie in any district where the offense “was 2001) (“As a ‘continuing offense,’ mail fraud may be begun, continued, or completed” as provided in the first prosecuted in ‘any district in which such offense was begun, paragraph of 18 U.S.C. § 3237(a). Id. at 282. Aside from the continued, or completed.”). fact that neither Cabrales nor Rodriguez involved the mail fraud statute, they point in different directions as to the The dissent questions whether the offense of mail fraud is appropriate resolution of the case before us. an “offense involving use of the mails . . . .” 18 U.S.C. § 3237(a). (Dissenting Op. 30) To the contrary, we believe In the present case, the fraudulent scheme was not that the question virtually answers itself. If the plain meaning separable from the mailings, which is the very reason why of language is to be given any efficacy at all, how can the Cabrales is not directly on point. If it were, then the venue offense of mail fraud not be an “offense involving the use of issue would not be an open question for us to resolve. But the mails . . . .”? We find this court’s application of § 3237(a) Rodriguez is not directly on point either, because the decision to the offense of mail fraud in Holt, as well as the Fifth and relied solely upon the first paragraph of 18 U.S.C. § 3237(a), Tenth Circuits’ discussion of the issue, more persuasive and which provides, in pertinent part, that “any offense against the in line with common sense that the contrary Second Circuit United States begun in one district and completed in another, decision in United States v. Brennan, 183 F.3d 139 (2d Cir. or committed in more than one district, may be inquired of 1999), that is relied upon so heavily by the dissent. and prosecuted in any district in which such offense was Consistent with this court’s previous decision in Holt, as well begun, continued, or completed.” We are concerned here, as Reitmeyer and Loe, we believe that § 3237(a) is the however, with the second paragraph of § 3237(a), which controlling statute on venue for mail fraud cases. specifically deals with any offense involving the use of the mails: “Any offense involving the use of the mails . . . may be A plain reading of the text thus leads us to the conclusion inquired of and prosecuted in any district from, through, or that venue in a mail fraud case is limited to districts where the into which such . . . mail matter . . . moves.” mail is deposited, received, or moves through, even if the fraud’s core was elsewhere. Whether or not Congress could The dissent focuses in part on a “plain reading of the text” constitutionally provide otherwise is not before us, because to support its conclusion that venue for mail fraud may be the present language of § 3237(a) is determinative. based on the situs of the scheme to defraud. (Dissenting Op. 41) But the “text” that the dissent focuses on is § 1341, The dissent also focuses in part on fairness to the which creates the substantive offense of mail fraud, not defendant. (Dissenting Op. 40) We find this argument § 3237(a), which deals specifically with the proper venue for puzzling in light of the fact that the government is the party “any offense involving the use of the mails.” See United pressing for venue where the core of the fraudulent scheme States v. Holt, Nos. 89-6070, 89-6092, 1990 WL 37613, at took place, not Wood. If public policy supports No. 01-2548 United States v. Wood, et al. 15 16 United States v. Wood, et al. No. 01-2548

accommodating the accused by promoting “fairness,” then it Columbus, Ohio, who occasionally worked for Wood. The should support Wood’s desire to limit venue to where the checks are dated May 31, 1995, and August 28, 1995. mailings took place. The dissent’s expansive interpretation Johnson testified that she traveled to Michigan “quite a bit” that would impose a different venue on Wood thus appears during “March, April, May, through probably late 1995 . . . .” contrary to public policy as expressed in § 3237(a). She noted that the bank account from which the two checks were drawn was a Battle Creek account and that any checks Finally, we note the dissent’s concern that “[b]y applying written when she was frequently traveling to Michigan “were § 3237(a) to mail fraud, the majority could permit the probably all written while we were visiting the offices in government to hale a defendant into court in distant Battle Creek.” Based upon this testimony, the government jurisdictions having virtually no relation to the underlying argues that it proved that venue is proper as to Counts 17 and crime.” (Dissenting Op. 34) We would first observe that this 18 by a preponderance of the evidence. is not what happened in the case before us, nor is the dissent’s concern consistent with Department of Justice Policy. United Wood counters that the undisputed evidence at trial showed States Department of Justice, United States Attorneys’ that the checks were sent to Ruth Miller in Birmingham, Manual 9-43.300 (1997) (“Department of Justice policy Michigan, which is located in the Eastern District of opposes mail fraud venue based solely on the mail matter Michigan. He also points out that the evidence at trial passing through a jurisdiction.”). Second, the dissent’s showed that the checkbook for the Battle Creek account on “parade of horribles” is really a challenge to § 3237(a) itself, which the checks were drawn was kept in Ohio and that the because the statute allows all “continuing offense[s]” to be dividend checks were generally sent from Columbus. prosecuted “in any district from, through, or into which such Moreover, Wood was in federal custody in Chicago during commerce, mail matter, or imported object or person moves.” the relevant time period and was therefore not personally (Emphasis added.) We would note in this regard that the sending or receiving mail in the Western District of Michigan. dissent’s concern was evidently not shared by the Supreme Court in Rodriguez, because the Court expressly held that the Johnson’s testimony that any checks written while she was defendant could be prosecuted under § 3237(a) for the illegal traveling in Michigan were “probably all written while we possession of a firearm in New Jersey, through which he were visiting the offices in Battle Creek” does not answer the traveled on his kidnaping odyssey, even though the gun was question at hand. In the first place, she had no specific actually possessed only in Maryland. United States v. recollection that the particular two checks in question were in Rodriguez-Moreno, 526 U.S. 275, (1999). fact written while she was in Michigan. Nor was she asked if, after writing any checks in Battle Creek, she then mailed them We now turn our attention to the mail fraud charged in from Battle Creek. Under these ambiguous circumstances, Counts 17 and 18. Unlike Counts 19-21 discussed above, we conclude that the government failed to prove by a where the government based venue solely on the existence of preponderance of the evidence that Johnson actually mailed a fraudulent scheme with a significant nexus to the Western the two checks at issue from the Western District of District of Michigan, the government argues that it proved by Michigan. This precludes a finding that venue was proper a preponderance of the evidence that the checks involved in with respect to Counts 17 and 18. We therefore reverse Counts 17 and 18 were actually mailed from Battle Creek, Wood’s conviction on these counts, as well as on Counts 19- which is located within the district. Counts 17 and 18 refer to 21, and remand for resentencing. checks signed by Jacqueline Johnson, an attorney based in No. 01-2548 United States v. Wood, et al. 17 18 United States v. Wood, et al. No. 01-2548

C. Restitution needs of the defendant’s dependents, shall be on the defendant. Wood also claims that the district court erred in imposing restitution as a penalty for the Graham and Miller loan Although he failed to complete his personal financial transactions. The district court ordered Wood to pay statement, Wood’s presentencce report reflects that “[f]rom $125,000 in restitution to Graham and approximately April 1996 to the present [the date of the presentence report], $445,000 in restitution to the Millers. We review de novo . . . he received $20,000 a year.” Wood’s failure to cooperate whether a restitution order is permitted under the law. United and to complete his personal financial statement undercuts his States v. Dunigan, 163 F.3d 979, 981 (6th Cir. 1999). If it is, argument that the district court should have taken his then the amount of restitution ordered is reviewed under the financial situation into account at sentencing. “abuse of discretion” standard. Id. Because Wood did not object to the restitution awards at sentencing, however, we The district court appears, however, to have had some will not set aside the district court’s determination unless it awareness of Wood’s financial situation, even without constitutes plain error. United States v. Bondurant, 39 F.3d Wood’s personal financial statement. After ordering Wood 665, 668 (6th Cir. 1994). to pay approximately $570,000 in restitution and a $5,000 fine, the court waived the fine because it found that Wood The district court had authority under 18 U.S.C. § 3663 to “[did] not have the ability to pay a fine, because he can’t even order Wood to pay restitution. This statute provides in pay restitution probably. But he doesn’t have the financial pertinent part as follows: wherewithal to pay both certainly. So I’ll reverse myself and waive the fine in this case.” Thus the district court apparently (B)(i) The court, in determining whether to order had some understanding of Wood’s financial situation. restitution under this section, shall consider — (I) the amount of the loss sustained by each victim as a result of This court has taken a clear position against restitution the offense; and (II) the financial resources of the orders in amounts “that a defendant cannot possibly pay,” defendant, the financial needs and earnings ability of the reasoning that such restitution orders threaten “respect for defendant and the defendant’s dependents, and such other judicial orders generally and provide[] the defendant with less factors as the court deems appropriate. incentive to seek remunerative, rehabilitative, and non- criminal employment.” United States v. Dunigan, 163 F.3d Wood argues that the district court failed to consider his 979, 982 (6th Cir. 1999) (quotation marks omitted). In the financial situation as the statute mandates. The government present case, however, the record provides no basis to counters that because Wood refused to complete his personal conclude that the district court definitively knew that Wood financial statement, he did not meet his burden under could not pay the award. Wood bore the responsibility of 18 U.S.C. § 3664(e), which provides in pertinent part as providing the court with details of his financial situation. See follows: United States v. Hall, 71 F.3d 569, 573-74 (6th Cir. 1995) (“The Sixth Circuit has held repeatedly that the district court Any dispute as to the proper amount or type of restitution is not required to make findings on the defendant’s financial shall be resolved by the court by the preponderance of condition.”). We conclude that the district court’s restitution the evidence. . . . The burden of demonstrating the order does not rise to the level of plain error because Wood’s financial resources of the defendant and the financial lack of cooperation belies his argument that the order No. 01-2548 United States v. Wood, et al. 19 20 United States v. Wood, et al. No. 01-2548

“affected the fairness or integrity of the judicial proceeding.” States v. Kincaide, 145 F.3d 771, 781 (6th Cir. 1998) United States v. Koeberlein, 161 F.3d 946, 952 (6th Cir. (employing the Jackson standard of review). 1998). Wood first contends that, because the evidence at trial Wood makes two additional arguments as to why the demonstrated that the Millers defaulted on their loan, First restitution awards were erroneous. He contends that the Financial had the right to sell the Millers’ Comerica stock district court miscalculated the loss sustained by the Millers under the terms of the Agreement. The government counters because it failed to consider the Millers’ receipt and use of that the parties treated the loan as an outstanding debt through loan proceeds that were never repaid. Wood also argues that 1996, yet First Financial had in fact sold Miller’s collateral the court failed to consider that the Millers and Wood had long before it ever claimed that the Millers were in default. settled their claims against each other in a prior civil action. These arguments fail, however, because evidence in the First Financial closed on the Millers’ loan for $200,000 on record shows that the court did take these considerations into September 19, 1994. The government presented evidence at account when ordering the restitution awards. And even if trial that First Financial sold Ruth Miller’s 8,167 shares of the court had not taken these factors into account, we cannot Comerica stock short against the box two days later. say that this would rise to the level of plain error in light of According to the government, Wood directed First Financial Wood’s failure to object to the awards at sentencing. to cover its short position in Comerica stock by delivering Accordingly, we affirm the district court’s restitution awards. Ruth Miller’s stock to a broker, on December 8, 1994. This means that less than three months after the Millers entered D. Sufficiency of the evidence into the loan agreement, First Financial had disposed of their collateral. Wood’s final argument is that, with respect to the Miller transaction, the government failed to present sufficient The earliest default notice First Financial sent to Gordon evidence for a rational trier of fact to convict him on Counts Miller was in the spring of 1995 and the latest was in early 7-11 and 16-22 of the indictment. He contends that (1) the 1996. Gordon Miller made12 payments to First Financial Millers breached their loan agreement, thus giving First between October of 1994 and June of 1996, 10 of which were Financial the right under the Agreement to sell the Millers’ made after Ruth Miller’s stock had been sold in December of stock; (2) there was no sale as alleged in the indictment, only 1994. Viewed in the light most favorable to the government, a “short sale against the box”; and (3) the government failed this proof was sufficient for a jury to find that the Millers to show that Wood was being deceitful when he claimed in a were not in default at the time that First Financial sold their telephone conversation in August of 1996 to have 2,950 collateral. shares of Ruth Miller’s Comerica stock. When reviewing the sufficiency of the evidence to support a criminal conviction, Wood next argues that the district court erred in denying his the “relevant question is whether, after viewing the evidence Rule 29 motion to dismiss Count 8 of the indictment. in the light most favorable to the prosecution, any rational Count 8 alleged wire fraud due to the sale of the Ruth Miller’s trier of fact could have found the essential elements of the 8,167 shares of Comerica stock on September 21, 1994. crime beyond a reasonable doubt.” Jackson v. Virginia, 443 Wood claims that there was no evidence of a “sale” of the U.S. 307, 319 (1979) (emphasis in original); see also United Comerica stock. According to Wood, the sale alleged in the indictment never occurred because Ruth Miller’s Comerica No. 01-2548 United States v. Wood, et al. 21 22 United States v. Wood, et al. No. 01-2548

stock was used as collateral for a short sale of someone else’s attempting to find Miller’s stock, his “beliefs were . . . Comerica stock. “Therefore, the Comerica stock posted by confirmed . . . that the stock was not in existence any more.” the Millers as collateral for the loan from First Financial was In addition to Ruth Miller’s and Michael Herzoff’s testimony, held by First Financial in a brokerage account in a short Gordon Miller testified that his mother’s stock was never against the box transaction.” Wood’s argument may be returned to her. semantically correct, but it is ultimately unpersuasive. This evidence, when viewed in the light most favorable to In response to Wood’s Rule 29 motion, the government the government, supports the allegation that Wood’s argued at trial that “the term ‘sale’ is sufficiently broad to telephone conversation, which is the subject of Count 22, cover a sale short against the box at that time where furthered a scheme to defraud because “[i]t lulled [Miller] Ms. Miller’s stock was the collateral standing behind the loan into believing her collateral was safe . . . when in fact it was and became, in a sense, encumbered to fulfill the obligation completely gone.” Accordingly, we find no error in the to restore the stock where it had been borrowed.” (Emphasis district court’s denial of Wood’s Rule 29 motion with regard added.) The government presented evidence at trial that Ruth to Count 22. Miller’s Comerica stock was in fact disposed of on December 8, 1994, to cover the short position created by the III. CONCLUSION September 21, 1994, transaction. This evidence was sufficient to support Count 8 of the indictment. We therefore For all of the reasons set forth above, we AFFIRM Wood’s find no error in the district court’s denial of Wood’s Rule 29 conviction and sentence on all counts other than the mail motion on Count 8. fraud charges in Counts 17-21, REVERSE Wood’s conviction on these latter counts, and, accordingly, Wood’s final argument concerns the sufficiency of the REMAND for resentencing. evidence supporting the wire fraud charged in Count 22 of the indictment. Count 22 alleged that Wood committed wire fraud during a telephone call when he represented that 2,950 shares of Comerica stock in the account of Keystone Financial, a successor to First Financial, was a portion of Ruth Miller’s stock, when in fact Wood knew that the stock was not hers. Wood argues that the government presented no evidence at trial that the stock did not belong to Ruth Miller. Ruth Miller testified at trial, however, that she became suspicious about her stock’s whereabouts when her dividend checks “were coming very late and they were not directly from Comerica, which had been the practice up until then.” She explained that no one had told her where her stock was being kept and that she attempted to track it down on her own. Miller finally engaged the help of an attorney, Michael Herzoff, to assist her. Herzoff testified at trial that after No. 01-2548 United States v. Wood, et al. 23 24 United States v. Wood, et al. No. 01-2548

______________________________________________ with this finding, although I believe we should reject Wood’s argument for a more fundamental reason–he offered CONCURRING IN PART, DISSENTING IN PART insufficient evidence to support a finding that the Graham and ______________________________________________ Miller transactions were short sales against the box transactions. JAMES S. GWIN, District Judge, CONCURRING, in part and DISSENTING, in part. While agreeing with the well- Long sales of securities occur when the owner of certain stated opinion of my colleagues on other issues, I respectfully stocks sells them, delivers them, and consequently pays taxes dissent regarding their determination that venue did not lie in on the profits. In short sales, an investor borrows stock, the Western District of Michigan under the mail fraud statute, typically from his broker, and sells that stock in the hopes that 18 U.S.C. § 1341. In that district, the defendant, through he can later return the stock the investor had borrowed from collaborators, engaged in a large portion of the fraudulent the broker with stock purchased at a lower price. If the price activities involved with this case. Further, while I concur of the security declines, the investor profits by the difference with the majority opinion’s denial of a motion for acquittal, between the price at which he sold the stock and the price at I offer a somewhat different explanation why Defendant which he later purchases the stock (minus any sales Wood’s transactions were sales or encumbrances and not commissions and margin fees that his broker assesses). Short “short sales against the box.” I begin by offering sales can also help customers avoid taxes. Short sale supplemental reasoning regarding Wood’s claim that he transactions close when the short seller returns an equal engaged in short sales against the box and that such number of shares to the lender. transactions were neither a sale nor an encumbrance of any equities. I then turn to the majority’s finding that, in mail Short sales are risky. The short seller loses when the price fraud prosecutions, venue lies in the district where the of the security rises and the cost of covering the borrowed participants have mailed or delivered or through which securities increases. Because no metaphysical cap exists on materials passed but not within the district that was the focus how high a security price can rise, losses continue to increase of the fraudulent scheme. as the stock borrowed for the short sale gains value. The loss is theoretically unlimited. As a result, “[a] material I. Short Sales Against the Box misrepresentation concerning the risks of a short sale transaction . . . can form the basis of a private suit under SEC On appeal, Defendant Wood argues that, as a matter of law, Rule 10b-5.”1 a short sale against the box is neither a sale nor an encumbrance. First, the defendant argues that the jury Short sales “against the box” differ from short sales by instructions that describe a short sale against a box as a “sale” attempting to reduce the risk associated with borrowing or an “encumbrance” were invalid. Second, the Defendant stocks and agreeing to replace the borrowed stocks. In these argues that the evidence was insufficient to convict him transactions, an investor already owns equities, but borrows because his activities could not be a sale or an encumbrance. (generally through a broker) an equal number of shares of the same class of stock to sell short in the open market. The The majority finds the trial court’s instructions were balanced, neither suggesting nor rejecting that a short sale against the box could be an encumbrance or a sale. I agree 1 3 L A W S EC . R EG . § 14 .22 (4 th Ed .). No. 01-2548 United States v. Wood, et al. 25 26 United States v. Wood, et al. No. 01-2548

investor posts the “long” (owned) shares as collateral. The This argument fails. Most important, the presence of broker then generally holds the shares in a safety deposit collateral to satisfy the short seller’s obligation to return the box–thus the name, “against the box.” The broker uses the borrowed shares distinguishes an “in the box” transaction. shares from the box to complete the short sale only if the Wood showed no evidence that he placed equivalent investor is unable or unwilling to return the borrowed stock. otherwise-unencumbered securities “into the box.” For example, the shorted security, Sonic Environmental Systems, Theoretically, those who invest “against the box” perfectly was very thinly traded and not readily obtainable. In essence, hedge against market risk. If the market price of the stock Wood makes the argument that a transaction is a short sale increases, this increases the value of their long (owned) against the box if funds are available to cover the borrowed shares. Yet, if the market price decreases, this increases the security. If we accepted this argument, any trustee who value of the short (borrowed) shares. While an investor will absconded with securities could characterize any short sale as not profit from a short against the box transaction–since no sale. Even if Wood’s unsupportable argument were losses in the short or long transaction offset any gains in the allowed, he loses for another simple reason. Wood showed other–such transactions can allow investors to liquidate stock no evidence that he dedicated funds to obtain replacement without incurring taxes on the original sale. shares for the Sonic Environmental Systems shares he had shorted. The evidence showed that Wood used the Graham Defendant Wood claims he did not defraud First Financial proceeds to cover the loan to the Millers. In addition, Wood customers because securities taken from customers’ accounts offered no evidence that he maintained unencumbered assets were covered by an “in the box” transaction. With his of any kind that would allow the purchase of cover for the argument, the Defendant turns the idea of a short sales against shorted stock. the box on its head. Most importantly, Wood’s argument fails because he never had any long shares “in the box” to cover Moreover, I am not convinced that it would make a the shares he borrowed in the short sale. Without permission, difference even if Defendant Wood could show the Defendant Wood sold securities that customers had pledged transactions were short sales against the box. Even if his to secure loans the customers had received. At the time he assertions are true, the Government could still convict him for sold the pledged securities, no evidence showed that he fraudulent behavior. placed equivalent securities “in the box,” as required for a short sale against the box. The defendant argues that a short sale “against the box”does not encumber the stock posted or make up a sale as Although he never covered the securities used, Wood tries a matter of law. The defendant cites no authority for his to overcome this problem by arguing that he could have assertion that a short sale against the box can never be a purchased shares to place “in the box” if his customers’ loans “sale” violating the Security and Pledge Agreement. Cf. were repaid: “Once borrowers from First Financial had United States v. Rubin, 449 U.S. 424, 429, 431 (1981) repaid their loans, First Financial had a pool of capital with (expansively interpreting the words “sale” to hold that a which to purchase securities in the open market to close the pledge of stock as collateral for a loan is a “sale”under the short position, which would in turn free the borrower’s Securities Act, even without a default on the loans). pledged securities from ‘the box’ and allow their return to the borrower.” (Def. br. at 12). The defendant goes on to assert that a short sale against the box never amounts to an encumbrance, citing Schreiber v. No. 01-2548 United States v. Wood, et al. 27 28 United States v. Wood, et al. No. 01-2548

First Fin. Acceptance, 965 F. Supp. 397 (E.D.N.Y. 1997). under the Securities Act, even without a default on the loans. The Schreiber case also involved Defendant Wood. The Extending this holding to conclude that a short sale against Schreiber court found that “the question of encumbrance the box is an encumbrance of the stock would be logical. amounts to whether the defendants could have returned the securities to [plaintiff], at any given time, had [plaintiff] Even if this court were to apply the questionable reasoning repaid the loan in full.” Id. at 400. The Schreiber court of Schreiber, the facts of the Graham loan would still amount opined that short sales against the box do not encumber the to an encumbrance. The Schreiber court says that a defendant stock if the defendant maintained “sufficient equity in the must be prepared to return the securities upon payment of the account” to satisfy margin requirements. Id. This holding loan in full. Yet, Graham did repay his loan and Defendant confuses short sales with short sales against the box. While Wood did not produce his 35,000 shares of Sonic stock that the former transactions depend upon margin requirements, the Graham had posted to secure the loan. later transactions revolve around posted shares, not the availability of other assets that could be used to satisfy the An analysis of the Miller case, under the common obligation to cover the borrowed shares. Furthermore, the definition of margin requirements, also reveals an Eastern District of New York engaged in a unique definition encumbrance. Wood sold the Millers’ Comerica stock on of equity when it considered outstanding payments on December 8, 1994, less than three months after the Millers Defendant Wood’s loan as collateral for the obligation to post pledged the stock to secure the loan to them. Defendant securities. Id. This definition, which Defendant Wood urges Wood did not maintain long shares of Comerica stock “in the the Court to adopt in the present case, is not persuasive. box” nor did he post margin requirements. By the end of December 1994, all that remained in that brokerage account Typically, to engage in a short sale, one must maintain a was $1,117. Because the price of stock can increase margin account related to the market value of the borrowed dramatically, the only way to insure an economically feasible stock. Until Schreiber, speculative future earnings have never purchase of stock to close a short sale is by posting margin been considered part of posted equity for purposes of requirements before-the-fact. This court would need to fulfilling margin requirements. Essentially, the Schreiber engage in pure fantasy to pretend that Wood did not court redefines securities law with its anomalous view of an encumber the Miller stock–that Defendant Wood could “encumbrance.” As a result, commentators have criticized magically come up with identical shares when the Millers Schreiber as Aflagrantly wrong.@ See, e.g., Kenneth C. repaid the loan. That the Comerica stock tripled in value by Kettering, Repledge and Pre-Default Sale of Securities May 1996 and Wood failed to produce replacement Comerica Collateral under Revised Article 9, 74 CHICAGO -KENT L. stock drives this point home. REV . 1109, n. 13 (1999) (“Schreiber seems flagrantly wrong and is explicable only on the supposition that the court had Ultimately, Defendant Wood argues that by considering a little patience with the suit because the secured party was in short sale against the box as an unlawful sale or encumbrance, fact solvent.”). the lower court allowed the jury to find that these types of transactions are illegal. Nevertheless, the jury instructions Moreover, Schreiber breaks from the momentum of never say that a short sale against the box is per se an illegal Supreme Court precedent. Recall that, in United States v. transaction. The jury instructions explain that the jury cannot Rubin, 449 U.S. 424, 429, 431 (1981), the Supreme Court convict the Defendant apart from fraudulent behavior. held that a pledge of stock as collateral for a loan is a “sale” Nothing in the jury instructions says that engaging in a short No. 01-2548 United States v. Wood, et al. 29 30 United States v. Wood, et al. No. 01-2548

sale against the box, by itself, is fraudulent behavior. Rather, these rules, the prosecution shall be had in a district in which the Grand Jury charged Defendant Wood with knowingly the offense was committed.”); 18 U.S.C. § 3237, infra. Read deceiving investors about the status of their stock. The jury as a whole, these provisions manifest a strong constitutional convicted the Defendant of fraud, not for engaging in short policy disfavoring trials removed from the situs of the alleged sales against the box, assuming we could so characterize his criminal activity. transactions. Summarizing, Wood fails to show that he ever posted covering shares for the stock that he sold short. A. Applicability of 18 U.S.C. § 3237(a) Additionally, he fails to offer evidence that he had the resources to provide covering shares for the stock that he sold The general venue provisions for continuing offenses are short. Having failed to give any evidence that his short sale found at 18 U.S.C. § 3237. Section 3237(a) reads, in relevant of the pledged securities was covered, he cannot argue that part, “Any offense involving use of the mails . . . is a there was no sale or encumbrance of the securities that Miller continuing offense and . . . may be . . . prosecuted in any and Graham had pledged to secure their loans. district from, through, or into which such . . . mail matter . . . moves.” The majority states that mail fraud is such a II. Venue continuing offense. After referencing that provision, the majority finds that venue exists where mail related to the In a criminal case, the question of venue has not only fraud “is deposited, received, or moves through, even if the pragmatic, but also constitutional implications. Article III fraud’s core was elsewhere.” Majority opinion at ¶ 28. I requires that “[t]he Trial of all Crimes . . . shall be held in the cannot agree. State where the said Crimes shall have been committed.” U.S. CONST . art. III § 2 cl. 3. The Sixth Amendment takes Section 3237 has a limited application. The Supreme Court this requirement a step further by requiring that the trial take has long noted that § 3237 is inapplicable to statutes which place in the same district as that in which the crime was contain their own specific venue provisions. See Travis v. allegedly committed. U.S. CONST . amend. VI. (“In all United States, 364 U.S. 631, 636-37 (1961) (“[V]enue should criminal prosecutions, the accused shall enjoy the right to . . . not be made to depend upon the chance use of the mails, trial, by an impartial jury of the State and district wherein the when Congress has so carefully indicated the locus of the crime shall have been committed[.]”).2 Various federal crimes.”); see also United States v. Brennan, 183 F.3d 139, statutes further define these provisions. See, e.g., Fed. R. 147 (2d Cir. 1999). Furthermore, the second paragraph of Crim. P. 18 (“Except as otherwise permitted by statute or by § 3237(a) broadly refers to offenses involving the “use of the mails.” Thus, any statutes which do not so broadly criminalize acts involving the “use of the mails” are not likely 2 covered under § 3237. See infra. Technica lly, the Sixth Amendment addresses only “vicinage” (the place from which jurors are to be selected) rather than ven ue. See United In United States v. Brennan, 183 F.3d 139, the Second States v. Brennan, 183 F.3d 139, 144 n.5 (2d Cir. 1999) (citing Charles Circuit spoke to the applicability of § 3237 to the mail fraud Alan W right, Federal Practice and Procedure: Criminal 2d § 301, at 190 (1982)). This distinction is meaningless, however, “because the statute. In Brennan, the government argued that venue was requirement that the jury be chosen from the state and district where the appropriate under § 3237(a) because mail had moved through crime was committed presupposes that the jury will sit where it is the Eastern District of New York. The Second Circuit chosen.” Id. (quoting United States v. Passodelis, 615 F.2d 975 , 977 n.3 (3d Cir. 1980)). No. 01-2548 United States v. Wood, et al. 31 32 United States v. Wood, et al. No. 01-2548

rejected this argument and found that § 3237(a) does not act of “us[ing] the mails.” Rather than make a defendant establish venue in mail fraud cases: like Brennan subject to prosecution in any district through which a mail truck carrying his mail happened to Defendants maintain . . . that § 3237(a) does not apply to drive (or perhaps even in any district over which an mail fraud prosecutions. Their argument rests on the airplane carrying the mail happened to fly, or in which it contention that the mail fraud statute does not proscribe happened to make an interim stop), we think Congress's conduct involving “the use of the mails” within the more particularized and careful phrasing in the mail fraud meaning of § 3237(a). We agree. Though perhaps statute takes it outside the scope of § 3237(a) and is best surprising, this conclusion is strongly supported by read less expansively. consideration of the history and purpose of § 3237(a) and the constitutional protection of defendants' venue rights. Id. at 147 (brackets in original). This well-reasoned decision also is consistent with dicta from the Third Circuit. See Id. at 146. United States v. Turley, 891 F.2d 57, 60 (3d Cir. 1989) (acknowledging and approving government concession that Examining the legislative history of § 3237(a), the Second “18 U.S.C. § 3237 . . . is not applicable to mail fraud.”). Circuit found that this venue provision was enacted in response to the Supreme Court’s opinion in United States v. A close comparison of the text of § 3237(a) with that of the Johnson, 323 U.S. 273 (1944), where the Court articulated a mail fraud statute, 18 U.S.C. § 1341, compels this conclusion. rule favoring restrictive construction of venue provisions. In Recall that § 3237(a) applies to crimes involving “use of the Johnson, the defendant had been charged with an offense mails.” As the Brennan court noted, “[t]here are today many involving “use [of] the mails or any instrumentality of . . . statutes that expressly prohibit ‘use of the mails’ in interstate commerce.” Finding there was insufficient venue connection with various activities for various purposes.” 183 under the continuing violation provision of the first paragraph F.3d at 147.3 Mail fraud, however, “specif[ies] that a crime of § 3237(a), the Court overturned the conviction. In is committed by the particular acts of depositing or receiving response to the Court’s ruling in Johnson, Congress expanded mail, or causing it to be delivered, rather than by the more § 3237(a) by adding a second paragraph expanding general and ongoing act of ‘us[ing] the mails.’” Id. (second continuing violations to include “the use of the mails.” brackets in original). Had Congress intended to include mail Brennan, 183 F.3d at 146. fraud as a “continuing offense” under § 3237(a), it would Against this backdrop, the Second Circuit in Brennan held that mail fraud is not a continuing violation and, 3 The Brennan court cited the following code sec tions: consequently, that § 3237 is inapplicable to the mail fraud 18 U.S.C. §§ 43(a)(1) (animal enterprise terrorism); 514(a)(3) statute: (false or fictitious instruments or obligations; 844(e) (threats or false statements concerning explosive materials); 1461 (ob scene [W]e agree with defendants that § 3237(a) is best read as or crime-inciting matter); 17 17(b) (miscellane ous no nmailable matter); 1735(a)(1)(sexually oriented advertisements; 1738(a) not applying to statutes, like the mail fraud statute, that (private identification documents without disclaimer); 1952(a) specify that a crime is committed by the particular acts of (various unlawful activities); 21 01 (inciting, and other activity depositing or receiving mail, or causing it to be connected to, riots); 2332b (b)(1)(A ) (acts of terrorism delivered, rather than by the more general and ongoing transce nding national bounda ries). 183 F.3d at 147. No. 01-2548 United States v. Wood, et al. 33 34 United States v. Wood, et al. No. 01-2548

have defined mail fraud as involving “use of the mails.” Its constitutional policy.4 By applying § 3237(a) to mail fraud, refusal to do so, especially considered in light of the the majority could permit the government to hale a defendant numerous statutes invoking “use of the mails,” is a into court in distant jurisdictions having virtually no relation compelling reason not to apply § 3237(a) to mail fraud. to the underlying crime. To illustrate, consider a defendant who initiated a Ponzi scheme by mailing letters from Furthermore, § 3237 is inapplicable to statutes which Cleveland soliciting “investments” to residents of California. contain their own venue provisions. See Travis, 364 U.S. at Suppose further that the U.S. Postal Service routs mail from 636-37 (1961). Section 1341 specifically defines the locus of Cleveland to California through a postal center in Kansas mail fraud prosecutions as the situs of “scheme or artifice to City. The defendant could potentially be forced to stand trial defraud,” or the location where the defendant “places”, in Kansas City despite the fact that his mail fraud concerned “causes to be deposited”, or “takes or receives” an item for nary a Missourian.5 This example shows how Government delivery through the Postal Service. 18 U.S.C. § 1341. These could use this expansive interpretation of venue to increase provisions expressly contemplate the acts which trigger venue the burden of defending a case in federal court. and preempt the more general venue provisions contained in § 3237(a). See id. at 147. The majority argues that using § 3237 does not expand Wood’s vulnerability to suit in far-away jurisdictions. Based on these considerations, the United States Although true in this case, the majority’s holding greatly Department of Justice policy opines that § 3237 is expands the number of locations other defendants may be inapplicable to the mail fraud statute: “The locus for mail summoned to. Indeed, future defendants will likely be fraud prosecutions is specifically set forth in section 1341; summoned to trial in a distant jurisdiction merely because the since Congress has ‘otherwise expressly provided [the situs postal system happened to route a piece of mail though that for venue],’ section 3237 is inapplicable to mail fraud.” location. As I see it, this outcome plainly violates the United States Department of Justice, Criminal Resource constitutional policy, expressed in Article III and the Sixth Manual 966 (1997). Moreover, the majority’s holding that a prosecutor can 4 establish venue in any district that the mail moves through is The Supreme Court’s opinion in United States v. Johnson reflects the imp ortance of this p olicy: extremely expansive, and invites conflict with the Questions of venue in crim inal case s, therefore, are not merely Constitution’s guarantee that trials be held at the location of matters of formal legal procedure. They raise deep issues of the crime. The Sixth Amendment’s requirement that public policy in the light of which legislation must be construed. defendants be tried in the district where their alleged crimes If an enactme nt of Congress equally permits the underlying spirit took place reveals a policy against enhancing the already- of the constitutional concern for trial in the vicinage to be respected rather than to b e disrespected, co nstruction shou ld go onerous burdens of trial by establishing venue in a far-off in the direction of constitutional policy even though not locale. The majority’s reasoning impairs this important com manded by it. 323 U.S. 273 , 276 , (194 4).

5 As the Second Circuit recognized in Brennan, this might be the case even if the mail did not travel through the Kansas City distribution center, but merely traveled in an airplane that crossed over Missouri airspace en route to California. See Brennan, 183 F.3d at 147. No. 01-2548 United States v. Wood, et al. 35 36 United States v. Wood, et al. No. 01-2548

Amendment, against exacerbating the burdens of trial by appropriateness of venue in the present matter.7 The Eastern establishing venue in far-away locations.6 District of Michigan, in Mikell, notes that the Sixth Circuit never before has decided the matter: “This issue is a novel B. Appropriateness of Venue Where the Scheme Was one, especially in light of the Supreme Court decision in Hatched Rodriguez-Moreno.” 163 F. Supp. 2d 720, 728 (reversed on other grounds). Further, in Brennan the Second Circuit –the At the outset of this discussion, I wish to highlight that this only other Circuit to decide (albeit in passing) whether venue case presents an unusual factual setting for discussing venue under § 1341 can be based on the scheme to under the mail fraud statute. Typically, the district where a defraud–described the lack of clarity in this area of the law: defendant set up and carried the scheme to defraud also is the “We cannot tell whether the reasoning of [the Supreme Court place from which mail was sent or received. Thus, most in] Rodriguez-Moreno would make venue appropriate for a federal courts have never addressed whether venue under prosecution under § 1341 not only in districts where mail § 1341 is also appropriate where the defendant carried out the matter was sent or received in furtherance of a fraud [sic] scheme to defraud, in the rare circumstances that a mailing is scheme, but also in any district where any aspect of the not easily traceable to that area. Only a handful of district ‘scheme or artifice to defraud,’ 18 U.S.C. § 1341, was courts have dealt directly with the matter and they have not practiced.” 183 F.3d 139, 145 (2d Cir. 1999) (emphasis come to any consensus. Compare United States v. Mikell, added). 163 F. Supp. 2d 720, 728 (E.D. Mich. 2001) (holding that venue was proper in any district through which the mail Given that this ruling sets precedent regarding the scope of moved), with United States v. Olen, 183 F. Supp. 212, 218 venue under § 1341, we should look to the text of the statute, (S.D.N.Y. 1960) (holding that venue was proper in the district the legislative history, the Supreme Court’s mandates for how where the defendants initially devised their fraudulent scheme). As district courts take opposing sides on the issue, the only thing that is clear is that the law is unclear. 7 The Sixth Circuit has not previously addressed the applicability of § 3237(a) to the mail fraud statute in a p ublished op inion. T he ma jority Thus, no binding precedent exists from the Sixth Circuit cites to the unpublished opinion of United States v. Ho lt, Nos. 89-6070, Court of Appeals (or any other circuit) addressing the 89-6092, 899 F.2d 15, 1 990 W L 37 613 (6th C ir. Apr. 3, 19 90). In the Sixth Circuit, unpublished decisions “carry no precedential weight [and] have no binding effect on anyone other than the parties to the ac tion.” 6 Sheets v. Moo re, 97 F .3d 1 64, 1 67 (6th Cir. 199 6). The majority aptly notes that the current policy of the United Stated The majo rity also cites Kreuter v. United States, 218 F.2d 532 (5th Department of Justice (“DOJ”) “opposes mail fraud ve nue based solely Cir. 195 5) for the pro position that ve nue would not be appropriate at the on the mail matter p assing through a jurisdiction.” United States locus of the scheme to defraud apart from a mailing. The dicta o f Kreuter Attorney’s Manual 9-43.300 (1997). However, such a policy does not states: “The place where the schem e is conceived or put in motion is resolve the dissent’s concerns that defendants may be tried in a distant imma terial”to venue . Id. at 534. However, this case more narrowly holds district based on the tenuous connection that a piece of mail passed that venue is appropriate at the place of a ma iling or delivery by mail, though this location. § 3 237 (a). First, the DO J po licy is based on the even if the scheme to defraud did not occur in that jurisdiction. I do not presumption that § 3237 is inapp licable to mail fraud – a presumption dispute this finding, indicating the deposit of mail establishes venue under which this court contradicts. See Criminal Resource Manual at 966. § 134 1. W hat is at dispute here is whether a trial for mail fraud cannot Second, the DOJ policy is not binding law. Indeed, the policy does not take place at the locus of the scheme to defraud without a mailing. The even presume to bind the United States Attorneys as it “opposes” such an Fifth Circuit does not address this point in Kreuter and the dicta in app lication o f the law but does not “proh ibit” it. Kreuter canno t amount to a F ifth Circuit holding on the matter. No. 01-2548 United States v. Wood, et al. 37 38 United States v. Wood, et al. No. 01-2548

to interpret the statutory text in such situations, and public First of all, the text of the statute establishes that venue is policy concerns. I fear that the majority adopts a frame of appropriate in the district encompassing the situs of the analysis that ignores great inconsistencies and practical scheme to defraud. Applying the standard established in difficulties created by its approach. Rodriguez-Moreno, the scheme to defraud is the more essential conduct element in mail fraud. As the statute reads, In United States v. Rodriguez-Moreno, 526 U.S. 275 the mailings themselves are illegal only to the extent that they (1999), the Supreme Court addressed how to decide where further an ongoing fraudulent scheme. See, e.g., United venue lies. To decide whether venue is appropriate “a court States v. Griffith, 17 F.3d 865, 874 (6th Cir.1994). In this must initially identify the conduct making up the offense (the sense, the mailing is merely a jurisdictional “hook,” nature of the crime) and then discern the location of the secondary in importance to the substantive scheme. commission of the criminal acts.” Id. at 279. The Supreme Court has said that the “locus delicti [of the charged offense] Additionally, the mail fraud statute’s legislative history must be determined from the nature of the crime alleged and supports the conclusion that the fraud, and not the mailing, is the location of the act or acts constituting it.” United States the central conduct of the mail fraud offense. The legislative v. Cabrales, 524 U.S. 1, 6-7 (1998) (quoting United States v. history that exists establishes that, when enacting the mail Anderson, 328 U.S. 699, 703 (1946)). The Rodriguez- fraud statute, Congress primarily concerned itself with the Moreno Court recognized that essential conduct elements may alleviation of fraud, not the protection of the mails. In 1948, be “embedded in a prepositional phrase and not expressed in Congress passed the current mail fraud statute, codified in verbs,” and asserted that verbs are not “the sole consideration part at 18 U.S.C. § 1341. The modern statute stems from a in identifying conduct that constitutes an offense.” Id. at 280. predecessor statute, originally enacted in 1872 as part of the A study of the mail fraud statute will clarify the essential recodification of the postal laws. The legislative history for conduct elements of the statue. the mail fraud statute is sparse. However, in 1870 the sponsor of the original statute noted that the mail fraud component The mail fraud statute describes the central acts forbidden: was intended “to prevent the frauds which are mostly gotten “Whoever, having devised or intending to devise any scheme up in the large cities . . . by thieves, forgers, and rapscallions or artifice to defraud . . . places, . . . deposits, or causes to be generally, for the purpose of deceiving and fleecing the deposited . . . or knowingly causes to be delivered [mail innocent people in the country.” McNally v. United States, matter]. . . shall be fined under this title or imprisoned not 483 U.S. 350, 356 (1987) (quoting Remarks of Rep. John more than 20 years. . . .” 18 U.S.C. § 1341. The mail fraud Franklin Farnsworth, Cong. Globe, 41st Cong., 3d Sess. 35 statute therefore involves (1) a scheme to defraud and (2) a (1870) (emphasis added)).8 Commentators who have studied deposit or a delivery of mail. The majority asserts that venue the legislative history of the mail fraud statute also have is proper where mail is placed, deposited, travels through or described the purpose of the statute as seeking to eliminate is delivered through the postal system. The majority does not pay heed to the critical phrase of § 1341–“[w]hoever, having devised or intending to devise any scheme or artifice to 8 defraud.” The ultimate dispute is one of textual These remarks were made during the debate on H.R. 229 5, the interpretation. recodification legislation introduced during the 41st Congress. The recodification bill was not passed by the 41st Congress, but was reintroduced and passed by the 42d Congress with the antifraud section intact. Act of June 8, 1872, ch. 335, §§ 149 and 301, 17 Stat. 302 and 323. No. 01-2548 United States v. Wood, et al. 39 40 United States v. Wood, et al. No. 01-2548

fraud: “There existed a perceived need for federal intervention After considering the conduct making up the offense of to dispel widespread fraud.” Jed S. Rakoff, The Federal Mail mail fraud, it is difficult to find justification for holding Fraud Statute (Part I), 18 DUQ . L. REV . 771 (1980) (emphasis Wood’s trial in the Southern District of Ohio or the Eastern added). District of Michigan. At best, the only connections with those places are the incidental mailing of less important documents. Third, contemporary case law supports the view that the The fraud’s core centered in the Western District of Michigan scheme to defraud comprises the integral part of mail fraud. and most of the evidence and connections lay there. It is For example, the Supreme Court has minimized the notable that the “independent value in trial at the place of importance of mailings in establishing a mail fraud offense: offense” is that “this may be where the witnesses will be located.” Charles Alan Wright, Federal Practice and “To be part of the execution of the fraud, however, the Procedure: Criminal § 301(3d ed. 2000). Most of the use of the mails need not be an essential element of the witnesses and evidence are found near the situs of the scheme. It is sufficient for the mailing to be ‘incident to fraudulent scheme–the obvious location for a fair trial. an essential part of the scheme,’ or ‘a step in [the] plot.’” Further, the majority’s holding implicates judicial economy Schmuck v. United States, 489 U.S. 705, 710-11 (1989) and fairness to the defendant. It is unnecessarily duplicitous (internal citations omitted). The Sixth Circuit also has if federal prosecutors pursue–and judges must try–separate downplayed the importance of mailings in establishing cases for each location where defendants sent or received mail fraud, noting that a legal mailing will violate the mail. Four decades ago, the Second Circuit noted that federal mail fraud statute if it furthers a fraudulent modern policy concerns may merit an expansion of venue scheme. United States v. Hopkins, 357 F.2d 14, 17 (6th under the mail fraud statute. Such concerns are even more Cir. 1966). pressing today: Indeed, the Southern District of New York also has [W]e cannot ignore the fact that the venue rule for mail explained that the mailing is merely the hook to federal fraud cases was developed many decades ago, when jurisdiction, while the fraud is the essence of the offense: more restricted notions of the limits of federal power prevailed than exist today. Were the issue of the It is [ ] true . . . that the “gist” of a mail fraud case is the appropriate place of trial in such cases to arise [de] novo mailing. This statement, however, is true only in the in 1960, it is by no means clear that trial would not be sense that until a use of the mail occurs, no federal permitted at the place where the fraudulent scheme was jurisdiction exists. The evil to be combated, of course, is developed as well as at the place where the mailing has the fraud and I have no doubt that Congress could its impact. constitutionally provide for trial of a mail fraud case in the district where the scheme was hatched even though United States v. Cashin, 281 F.2d 669, 674 (2d Cir. 1960); all mailings took place in another district. see also Wright, supra, § 303, at 323 (“A similar principle should apply as to use of the mails to defraud. . . . [I]t can be Olen, 183 F. Supp. at 218. For these reasons, the scheme to fairly argued that the place where the scheme to use the mails defraud, not the protection of the mails, is the central to defraud was devised is also a proper venue.”). prohibited activity of fraudulent mailing under § 1341. No. 01-2548 United States v. Wood, et al. 41

I would therefore find that venue exists where the fraudulent conduct is centered, where items of mail are deposited, where they are received, and where they are caused to be delivered. In this case, the Western District of Michigan is where the scheme was centered, where Wood sent out advertising to national publications soliciting customers, sent out packets of information in response to inquiries from potential customers, took telephone messages and offer excuses why Defendant could not answer a customer’s call, prepared loan documents; disbursed loan proceeds, accepted the stock offered as collateral, directed the distribution of the proceeds from the sale of the stock, and sent letters to traders concerned about the fate of their collateral. In summation, when considering the mail fraud statute in light of legislative history, a plain reading of the text, the Supreme Court’s mandates for textual interpretation, and public policy, venue for mail fraud may be based on the situs of the scheme to defraud. III. Conclusion To summarize, I respectfully dissent from the majority’s conclusion that venue was improper as to the mail fraud counts. While I agree with all of the other legal conclusions of this Court, I have provided supplemental reasoning regarding why Defendant Wood’s transactions are not protected under the rubric of “short sales against the box.”