United States v. García-Pastrana

United States Court of Appeals

For the First Circuit

No. 07-1044

UNITED STATES OF AMERICA

Appellee,

v.

ELBA GARCÍA-PASTRANA,

Defendant, Appellant.

No. 07-1094

UNITED STATES OF AMERICA,

Appellee,

v.

HÉCTOR RENÉ LUGO-RÍOS,

Defendant, Appellant.

No. 07-1095

UNITED STATES OF AMERICA,

Appellee,

v.

JUAN RAMOS-HERNÁNDEZ,

Defendant, Appellant.

No. 07-1096

UNITED STATES OF AMERICA,

Appellee,

v.

FELIPE ROMÁN-LOZADA,

Defendant, Appellant.

No. 07-1097

UNITED STATES OF AMERICA,

Appellee,

v.

JUAN ROLDÁN-VEGA,

Defendant, Appellant.

No. 07-1098

UNITED STATES OF AMERICA,

Appellee,

v.

ANDRÉS CARRASQUILLO-COLÓN,

Defendant, Appellant.

No. 07-1177

UNITED STATES OF AMERICA,

Appellee,

v.

ENRIQUE VÁZQUEZ-PRÉSTAMO,

Defendant, Appellant.

No. 07-1232

UNITED STATES OF AMERICA,

Appellee,

v.

FRANCISCO MARTÍNEZ-IRIZARRY,

Defendant, Appellant.

No. 07-1501

UNITED STATES OF AMERICA,

Appellee,

v.

JORGE L. URBINA-ACEVEDO,

Defendant, Appellant.

- 2 -

No. 07-1557

UNITED STATES OF AMERICA,

Appellee,

v.

JESÚS CARABALLO-ORTIZ,

Defendant, Appellant.

No. 07-1558

UNITED STATES OF AMERICA,

Appellee,

v.

LUIS ANDINO-DELBREY,

Defendant, Appellant.

APPEALS FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. José A. Fusté, U.S. District Judge]

Before

Torruella, Circuit Judge,

Leval,* Senior Circuit Judge,

and Lipez, Circuit Judge.

Linda Backiel, with whom José R. Aguayo Caussade and Víctor P.

Miranda Corrada, were on joint brief for appellants Ramos, Román,

and Roldán.

Rafael F. Castro-Lang, was on brief for appellants García and

Vázquez.

Anita Hill-Adames, for appellant Lugo.

Laura Maldonado-Rodríguez, with whom Lydia Lizarribar and

Francisco Dolz-Sánchez, were on joint brief for appellants Urbina,

Caraballo, and Andino.

Lydia Lizarribar, with whom Laura Maldonado-Rodríguez and

* Of the Second Circuit, sitting by designation.

- 3 -

Francisco Dolz-Sánchez, were on joint brief for appellants Urbina,

Caraballo, and Andino.

Carlos E. Montañez, for appellant Carrasquillo.

Miguel E. Miranda-Gutiérrez, for appellant Martínez.

Joseph F. Palmer, with whom Stephan E. Oestreicher, Jr.,

Attorney, Appellate Section, Criminal Division, U.S. Department of

Justice, Rosa E. Rodríguez-Vélez, United States Attorney, District

of Puerto Rico, and José A. Ruiz-Santiago, Assistant United States

Attorney, District of Puerto Rico, were on brief for appellee.

October 20, 2009

- 4 -

TORRUELLA, Circuit Judge. This consolidated appeal

concerns a scheme to embezzle and launder funds for a union health

plan. The eleven defendants-appellants were employees of the

Puerto Rico Aqueducts and Sewer Authority (the Autoridad de

Acueductos y Alcantarillados de Puerto Rico, hereinafter the "AAA")

and officials of the Unión Independiente Auténtica de Empleados de

la AAA (hereinafter the "Union"). Each defendant was convicted

after a jury trial of embezzling and laundering funds designated

for a health plan administered by the Union. The appeal raises

numerous issues concerning the sufficiency of the evidence, the

jury instructions, trial procedure, and sentencing. After careful

consideration, we affirm in part, reverse in part, and remand for

further proceedings.

I. Background. . . . . . . . . . . . . . . . . . . . . . . . -7-

A. Dramatis Personae.. . . . . . . . . . . . . . . . . -7-

B. 1998 to 2001 Conduct. . . . . . . . . . . . . . . -12-

C. 2002 to 2003 Conduct. . . . . . . . . . . . . . . -18-

D. 2004 to 2006 Conduct. . . . . . . . . . . . . . . -23-

E. The Proceedings.. . . . . . . . . . . . . . . . . -26-

II. Discussion.. . . . . . . . . . . . . . . . . . . . . . -28-

A. Sufficiency of Evidence.. . . . . . . . . . . . . -28-

1. The Embezzlement Convictions.. . . . . . . -29-

a. "funds . . . of a health care benefit

program". . . . . . . . . . . . . . . -30-

-5-

b. "without authority".. . . . . . . . . -47-

c. "knowingly and willfully".. . . . . . -51-

2. The Money Laundering Convictions.. . . . . -57-

B. Jury Instructions.. . . . . . . . . . . . . . . . -61-

1. Embezzlement Instruction.. . . . . . . . . -63-

a. instruction that AAA's contributions

belonged to Health Plan.. . . . . . . -63-

b. commingling instruction.. . . . . . . -65-

c. "legal principles" instruction. . . . -67-

2. Money Laundering Instruction.. . . . . . . -71-

3. Good Faith Instruction.. . . . . . . . . . -73-

4. Rejection of Tax Evasion Instruction.. . . -74-

C. Trial Procedure.. . . . . . . . . . . . . . . . . -76-

1. Mid-Trial Severance Challenge. . . . . . . -76-

2. Misstatement in Closing Argument.. . . . . -78-

3. Post-Trial Threats and Harassment. . . . . -81-

D. Sentencing. . . . . . . . . . . . . . . . . . . . -83-

1. Loss Calculation Enhancement.. . . . . . . -83-

2. Lugo Enhancements. . . . . . . . . . . . . -86-

a. sophisticated means.. . . . . . . . . -87-

b. $1,000,000 in gross receipts from a

"financial institution[]".. . . . . . -87-

c. "organizer or leader".. . . . . . . . -88-

3. Substantive Reasonableness.. . . . . . . . -89-

III. Conclusion .. . . . . . . . . . . . . . . . . . . . . -90-

-6-

I. Background

The following facts are based on the evidence presented

at trial.

A. Dramatis Personae

There are eleven appellant-defendants in this

consolidated appeal (together, the "Defendants"). They are:

(1) Héctor René Lugo-Ríos ("Lugo")

(2) Andrés Carrasquillo-Colón ("Carrasquillo")

(3) Elba García-Pastrana ("García")

(4) Felipe Román-Lozada ("Román")

(5) Jesús Caraballo-Ortiz ("Caraballo")

(6) Luis Andino-Delbrey ("Andino")

(7) Francisco Martínez-Irizarry ("Martínez")

(8) Juan Ramos-Hernández ("Ramos")

(9) Enrique Vázquez-Préstamo ("Vázquez")

(10) Jorge L. Urbina-Acevedo ("Urbina")

(11) Juan Roldán-Vega ("Roldán")

The Defendants were non-management, "regular" employees of AAA, a

public utility company providing water and sewer services to Puerto

Rico's residents. Each defendant was also a member of the Union,

which represented AAA's non-management employees. Management

employees of AAA were members of a different union, called

Hermandad Independiente Empleados Profesionales de la AAA

("HIEPPA").

-7-

At all times relevant to this appeal, the Union had

approximately 4,500 total members, and each member paid $7 per

month in membership dues. The Union had other funds. Apart from

the health plan contributions at issue in this appeal, the Union

also received (1) monthly contributions to "a temporary disability

insurance" program known as the "SINOT and Uniform Benefits

program" (hereinafter "SINOT");1 (2) monthly contributions to an

employee savings and retirement program; and (3) money received by

the Union for renting out a parking lot.

The Union's composition, activities, and finances were

governed by two documents: (1) a constitution and (2) a collective

bargaining agreement with the AAA.2 The Union's constitution

established a Central Executive Committee ("CEC") responsible for

the Union's finances and day-to-day administration. The CEC

consisted of a president, vice president, executive secretary, and

treasurer, as well as a single representative from each of the

Union's seven local chapters. At all times relevant to this

appeal, Lugo, Carrasquillo, García, and Román served as the

president, vice president, executive secretary, and treasurer,

1

At trial, José Nieves, AAA's Labor Relations manager labor,

testified that SINOT was a Spanish acronym for "temporary

disability insurance, occupational insurance."

2

The collective bargaining agreement relevant to this appeal was

in effect from 1998 until 2003. Afterwards, and as discussed

below, the Union went on strike after negotiations broke down on a

new collective bargaining agreement.

-8-

respectively, of the CEC (together, the "Top Four Defendants"). At

all times relevant to this appeal, Caraballo, Andino, Martínez,

Ramos, Vázquez, Urbina, and Roldán were presidents of the Union's

seven local chapters (together, the "Chapter Presidents").

The Union did not provide a salary for CEC officers.

Instead, the officers were paid under a labor leave with pay

provision in the collective bargaining agreement. Under that

"labor leave" provision, also referred to as a "labor license," the

AAA paid the officers their full salaries, but excused the officers

from their AAA jobs to work full time for the Union.3

Under the collective-bargaining agreement, the AAA agreed

to contribute a fixed amount per month to a "health insurance plan"

for every Union member.4 At all times relevant to this appeal, the

monthly contributions ranged from $232 to $355 per member.

3

The provision states:

The [AAA] shall grant the Union full leave with pay to

the members of the executive central committee of the

Union . . . . The Union shall reimburse said salaries

including fringe benefits.

4

The provision states:

The [AAA] agrees to contribute to the health insurance

plan the following amounts for each Union member employee

so that the employee, his spouse and dependent children

under the age of 19 or, if they continue on as full-time

students, up to the age of 23, may enjoy the following

services: A) A family health insurance plan that includes

hospitalization, surgery, and dispensary services B) a

medicine payment plan, C) a dental plan, D) major

medical, and E) eyeglasses.

-9-

Until 1993, the Union used the AAA's contributions to

administer a health plan called Plan de Salud UIA (the "Old Health

Plan"). The Old Health Plan was not incorporated as a "health

service organization" and thus was not subject to the jurisdiction

of Puerto Rico's Office of the Insurance Commissioner (the "OIC").

In late 1993, the CEC incorporated the Union-operated

plan as a health service organization, Plan de Salud UIA (the

"Health Plan" or "Plan"). Defendants Lugo, Carrasquillo, García,

and Román filed paperwork certifying that the Union would

administer the AAA's medical contributions "in compliance with" and

otherwise be subject to "the Puerto Rico Insurance Code." In

incorporating the Health Plan, the Union complied with provisions

of the collective bargaining agreement that required that "[t]he

Union . . . contract the services of a medical plan that is

authorized by the [OIC]" and that "the medical plan fully compl[y]

with all the requirements imposed by the [OIC]."5

The Health Plan's bylaws provided that the Health Plan

was a "non-profit corporation with the fundamental purpose of

providing health care services to the employees of [the AAA] who

are members of the [Union]." They further stated that "[t]he

principal source of financing of [the Health Plan] shall be the

contributions negotiated by means of the Collective Bargaining

5

These provisions were in the collective bargaining agreement in

effect at the time of the incorporation, and were carried over into

the collective bargaining agreement at issue in this appeal.

-10-

Agreement, to be made by the [AAA]." Under the collective

bargaining agreement, the AAA would disburse each monthly Health

Plan contribution to the Union via a check in the Union's name.6

Although the funds were not directly sent to the Health Plan, the

AAA's monthly checks stated on their face that they were "health

plan contribution[s],"7 and the collective bargaining agreement

further provided that AAA "agree[d] to contribute to the medical

plan the following amounts for each employee." (Emphasis added).

In addition, the collective bargaining agreement did not

specifically provide that the funds belonged to the Union or that

the Union could keep any surplus should it contract with a medical

plan for less than the AAA contribution amount.

The Health Plan's bylaws further established a board of

directors consisting of eleven members, four of whom would serve on

an Executive Committee composed of a president, vice president,

executive secretary, and treasurer, with nearly identical duties to

their Union counterparts. Like the Union's constitution, the

6

Specifically, the bylaws provided that "[t]he [AAA] shall send

directly to the [Union] on or before the fifth (5th) day of each

month the amount corresponding to the number of Union employees

covered monthly by the plan as of the last day of the preceding

month." In addition, José Nieves, the AAA's Labor Relations

manager, testified that the collective bargaining agreement

"established that [the payments] would be paid to Héctor René Lugo

and [the Union]," but that the checks were "identified for health

plan."

7

The checks stated, below the name of the Union as payee,

"Aportación Plan Médico," which was translated at trial as "health

plan contribution."

-11-

Plan's bylaws did not provide the board members with a salary. As

provided by the Puerto Rico Insurance Code, the Plan's board of

directors would be "fiduciarily responsible" for funds received on

behalf of the Plan's subscribers.8

In 1995, after the Health Plan was incorporated, the

eleven defendants and four other individuals met at Union

headquarters to elect a board for the Health Plan. Lugo,

Carrasquillo, García, and Román were chosen for the Executive

Committee; they would serve as president, vice president, executive

secretary, and treasurer, respectively. The other seven defendants

were chosen for the other seven slots; they would serve as Health

Plan "delegates" for their respective Union chapters. Thus, at the

times relevant to this case, all eleven defendants simultaneously

served as members of the Union's CEC and as members of the Health

Plan's board.

B. 1998 to 2001 Conduct

The Top Four Defendants controlled two Union bank

accounts of significance to this appeal: (1) the Infrastructure

Account and (2) the Union Account. The Top Four Defendants, in

8

At trial the statute was translated as "fiduciarily

responsible," although the official translation of the statute

translates the words as "fiducially liable." See P.R. Laws Ann.

tit. 26, § 1907 ("Fiduciary liability[:] Any director, officer or

member of a health service[ ] organization who receives, collects,

disburses or invests funds related to the activities of said

organization, shall be fiducially liable for the funds received

from the subscribers.").

-12-

their capacity as the Plan's executive committee, also controlled

the Health Plan's bank account (the "Plan Account"), which belonged

directly to the Health Plan.

From 1998 through most of 2001, the evidence showed that,

upon receipt of the monthly "medical plan contributions" from the

AAA, Lugo and Román would generally engage in the following

transactions:

1. Lugo and Román would first deposit all

of the AAA's Health Plan contributions

directly into the Plan Account.

2. After the first transfer was complete,

Lugo and Román would then transfer some

of that money from the Plan Account

into the Infrastructure Account.

3. They would then transfer some of the

money from the Infrastructure Account

to the Union Account, which is where

the Union's membership dues were

deposited.

4. Finally, they would pay themselves and

the other Defendants from both the

Infrastructure and Union Accounts, via

regular checks subsequently cashed or

deposited into each of the Defendant's

personal bank accounts.

In 2000, the OIC, using its broad investigatory

authority,9 audited the Health Plan. During the audit of the

9

See P.R. Laws Ann. tit. 26, § 1903a(2) ("The Commissioner may

examine and investigate [those organizations subject to its

jurisdiction] with the purpose of determining their organization

and solvency, as well as their compliance with the provisions of

this Code."); id. § 1918 (setting forth required examinations of

organizations subject to the OIC's oversight).

-13-

transfers from the Plan Account to the Infrastructure Account, the

OIC discovered that the transfers amounted to six percent of the

AAA's monthly contributions, and that the Union was charging the

Plan that amount for "administrative services." Because there was

no contract or other documentation to support the six-percent

payments, the OIC concluded that the Health Plan had violated the

Insurance Code, which required a health service organization to

file a formal request before delegating administrative functions to

another entity.10 Moreover, the OIC requested additional

information concerning the breakdown of the "administrative

services" charged to the Health Plan. Lugo responded in an August

2001 letter that the charge covered such things as "computer

systems," "equipment," "building," and "human resources" needed to

administer and operate the Health Plan. The OIC kept its

investigation open.

During this time, the Health Plan had negative cash flow,

such that, by the latter part of 2001, the Health Plan could not

cover its expenses. Under the collective bargaining agreement, the

AAA agreed to assist the Plan in resolving any "deficit" in its

finances, subject to an audit, so long as it was not caused by

"illegal appropriation, malfeasance, misuse of funds or

10

See P.R. Laws Ann. tit. 26, § 1905(2)(a) ("A health services

organization, before exercising . . . the power to contract

administrative functions . . . shall furnish to the Commissioner

the adequate information to justify the exercise of said powers.").

-14-

negligence."11 Upon learning of the Health Plan debt, AAA reviewed

records provided by the Health Plan to confirm the impairment, but

did not conduct a full third party audit. The records submitted

for review did not reflect the payments made to the Defendants,

because those payments were made from the Infrastructure and Union

Accounts using money transferred out of the Plan Account. Finding

no problems in the Health Plan books provided by the Defendants, on

September 9, 2001, the AAA provided the Health Plan a check for

$2,781,146 payable to the Union. The Defendants deposited the

money in the Union Account. In the weeks that followed, the

Defendants wrote four separate checks from the Union Account to the

Health Plan. The checks totaled around $2.5M, less than the

approximately $2.7M paid by the AAA to the Union to cover the

11

The collective bargaining agreement provides:

The stipulation between [the Union] and the AAA dated

October 1, 1991 (requiring that in the event of an

operational deficit in the plan due to causes not

attributable to illegal appropriation, malfeasance,

misuse of funds or negligence of the plan manager), the

parties shall meet to analyze and resolve the deficits

(shall continue in effect with that review, except for

the change of the fiscal year to natural year as required

by [the Union]).

-15-

Health Plan's impairment.12 The difference remained in the Union

Account.

Throughout the 1998 to 2001 period, the AAA's monthly

medical contributions were $232 per Union member. With few

exceptions, the Defendants deposited the full $232 into the Health

Plan's account prior to reallocating the money into other

accounts.13

Also during this time, the Defendants personally received

a substantial portion of the funds contained in the Infrastructure

and Union Accounts as compared to the Union's total income.

12

The checks were:

1. September 14, 2001 - $496,157.05

2. September 26, 2001 - $555,535.65

3. October 2, 2001 - $261,000.00

4. October 3, 2001 - $1,142,199.25

The checks totaled $2,454,891.95.

13

Late in 2001, however, the Defendants directly deposited more

than $3M of the contributions into the Union Account without first

depositing the funds into the Plan Account.

At the same time, the Defendants began making frequent transfers

from the Union Account to the so-called Cultural Trips Account,

which also belonged to the Union. For the next several years,

García would receive regular payments from the Cultural Trips

Account. All told, she received $209,379 from the account during

the period when it contained diverted Health Plan funds. Like the

payments she received from the Infrastructure and Union Accounts,

she did not report any of the Cultural Trips payments in her tax

returns.

-16-

Year Total Total Payments Combined Total Income as

Payments to Defendants Total Paid Reported on

to from to Union Balance

Defendants Infrastructure Defendants Sheet (not

from Union Account from Both including Health

Account Accounts Plan

contributions)14

1998 $319,742 $346,345 $666,087 $746,804

1999 $405,256 $352,285 $757,541 $690,357

2000 $348,910 $402,784 $751,694 $835,469

In total, from 1998 through 2001 the Defendants received $3 million

from the Infrastructure and Union Accounts, with an average of

about $70,000 per Defendant per year. The amounts dwarf the amount

reported by the Defendants on their annual income tax statement for

those years, ranging from $25,609 (Urbina, 1999) to $46,048

(García, 2001). Moreover, despite receiving these payments, the

Defendants were not listed on the Health Plan's payroll or the

Plan's tax returns.

Throughout this time period, García, in her role as

executive secretary, certified to the OIC that all of the members

of the Health Plan's board, which consisted of the eleven

Defendants, fully discussed the full gamut of the Plan's business

on a frequent basis.15

14

As discussed in more detail below, the balance sheets did not

reflect all funds available to the Union, such as the SINOT

contributions, but it did comprise the income the Union reported

that it received.

15

The 1999 certification, for example, states:

I certify that the Board of Directors of the UIA's Health

-17-

C. 2002 to 2003 Conduct

The landscape altered dramatically in the beginning of

2002.

In early 2002, the OIC continued its investigation into

the "administrative services" the Defendants charged the Health

Plan. In January 2002, Lugo sent the OIC a letter attaching what

he claimed was the "contract" under which the Defendants provided

such administrative services for the Health Plan. The contract had

only been signed a week earlier by Lugo and José Sánchez

Gastaltierri ("Sánchez"), the Health Plan's administrator. Sánchez

would later testify at trial that García had given him the contract

to sign, and he had signed it that same day or the day afterward

without analyzing it. He further testified that he only signed it

because he "understood that to be a requirement" of his job as a

"consultant" to Lugo and the Health Plan.

Still in early 2002, a "me-too" clause in the collective

bargaining agreement required AAA to contribute the same amount of

funds for health care for Union members as for members of HIEPPA.

Accordingly, beginning in February 2002, the AAA began to

contribute $355 monthly to the Health Plan for each Union member.

Plan, Inc., has not officially met during the last two

years. However, all of its members discuss and analyze

the diversity of administrative issues of their

incumbency on a daily basis. The reason for this being

that the premiums of the UIA Health Plan, Inc. are paid

entirely by the employer ([AAA]) and are subject to the

negotiation of the Collective Bargaining Agreement.

-18-

Also beginning in February 2002, the Defendants opened a

new banking account, known as the Welfare Account, which did not

appear in either the Union's or the Health Plan's records.16 The

opening of the Welfare Account came hot on the heels of a Report of

Examination issued by the OIC on December 17, 2001, which found

that the Health Plan violated the Insurance Code17 by charging the

AAA a higher rate than was approved by the OIC.18 In fact, the

Health Plan had not sought approval for its rate since 1994, when

the OIC approved a rate of $222 per subscriber.

Thus, purportedly to avoid any fines for charging

unapproved rates,19 the Defendants went against their prior practice

and began to deposit the full $355 per member contribution into the

Welfare Account, and later would transfer a substantial portion of

the contribution into the Health Plan. The remaining amount would

16

In fact, Rubén Luciano Guzmán ("Luciano"), the Health Plan's

accountant, testified at trial that the Welfare Account effectively

belonged to the Union because he never had access to it.

17

See P.R. Laws Ann. tit. 26, § 1908(2)(a) ("Every health services

organization shall register the rates to be used in any health care

plan with the Commissioner before applying them in Puerto Rico.").

18

After challenging the finding, the Defendants would later be

fined for the violation in August 2003.

19

Luciano would testify at trial that Carrasquillo told him that

he opened the Welfare Account because the OIC had fined them for

sending the Plan a "surplus" above $222 and that he wanted "to

avoid further fines." Luciano further testified that he did not

believe Carrasquillo because, to avoid fines, the Defendants either

would have discontinued using unapproved rates or would have asked

for a rate increase.

-19-

be transferred through different Union-controlled accounts to pay

the Defendants and to finance Union activities. In 2002, the AAA's

$355 monthly contributions per member totaled more than $20.3

million. However, only $16.3 million of that amount ultimately

reached the Health Plan.

The Health Plan subsequently faced another impairment.

This time, the Defendants decided that, to cover the debt, the

Health Plan would seek a series of loans from the Union, which

would require the Plan to obtain OIC approval of the loans. The

Plan sent the OIC the requisite paperwork, which was certified by

García and Román. Luciano testified that, at the time the loans

were made, he "did not believe that the [U]nion had that kind of

money to lend . . . out," given how minimal its income was in

comparison with the Plan's. He further testified that when he

aired his concerns, he was later fired, he believed in part because

of these "differences." The OIC ultimately approved the loans

based on the Defendants' representations.

The Union made four loans to the Health Plan in 2002 and

2003, totaling about $3.9 million. The Defendants disbursed each

of the four loan checks from the Union Account into the Plan

Account. However, shortly after writing each loan check the

Defendants would write another check in the same amount from the

Welfare Account to the Union Account, sometimes on the same day (as

shown below):

-20-

4/16/02 Union Account º Health Plan $600,057

4/30/02 Welfare Account º Union Account $600,057

4/9/03 Union Account º Health Plan $1,790,000

4/9/03 Welfare Account º Union Account $1,790,000

8/21/03 Union Account º Health Plan $183,245

8/21/03 Welfare Account º Union Account $183,245

9/11/03 Union Account º Health Plan $1,391,630

9/11/03 Welfare Account º Union Account $1,391,630

Because the Welfare Account was funded with money intended for the

Health Plan, essentially the Union was loaning the Health Plan its

own funds. The OIC would later discover that the Health Plan was

loaning itself its own money and order the loans annulled.

In 2003, the Defendants opened yet another Union bank

account, the Administration Account. They deposited into that

account the remaining funds from the Old Health Plan, funds that

had never been transferred to the new Plan when it was first

incorporated. As with the Infrastructure and Union Accounts, the

Defendants also diverted funds to themselves from the

Administration Account.

Throughout the course of 2002 and 2003, the Defendants,

particularly Lugo, Carasquillo, and García, remained in contact

with the OIC concerning the purported administrative services

contract. Aurea López, the OIC's chief investigator, testified at

length concerning irregularities in the contract, including but not

limited to: (1) the Health Plan, rather than seek approval from the

-21-

OIC before delegating functions to the Union, submitted an already-

executed contract; (2) the contract lacked any specificity; (3) the

Defendants' responses to OIC questions concerning what the contract

covered were vague; (3) Lugo's attempt to clarify the contract in

one instance actually added terms (such as property damage

insurance) that were not in the contract; (4) the Union was

overcharging the Plan, paying more than $2.2 million more than fair

market value for the services the Union provided; (5) neither the

Union nor the Plan passed a corporate resolution authorizing the

contract; and (6) the contract stated that Sánchez had "complete

authority" to sign it on the Plan's behalf, when there was no

evidence that he had such authority.

From 2002 through 2003, the Defendants paid themselves a

total of more than $1,700,000 from the Infrastructure, Union, and

Administration Accounts. Again, none of the Defendants reported

this income in their tax returns, despite the fact that the income

overwhelmed the amount of money they actually reported. Moreover,

the Health Plan's tax returns, which again Lugo signed, did not

list the Defendants on the payroll. Finally, from 2002 through

2003, the Defendants were purportedly meeting regularly "every

day," eating lunch together in the Union's cafeteria (and charging

the meals to the Infrastructure Account to boot).

-22-

D. 2004 to 2006 Conduct

In January 2004, the OIC formally rejected the purported

administrative services contract that had been submitted by the

Union, concluding that it "substantially affect[ed] the financial

situation" of the Health Plan. The OIC cited contractual

irregularities and lack of control it allowed the Health Plan over

its own finances as reasons for disallowing the arrangement. The

OIC also requested information from Carrasquillo about the

Infrastructure and Union Accounts, such as who was paid from them,

how much, and for what services. Carrasquillo was less than

forthcoming. He responded that the Defendants were paid from the

Infrastructure Account for spending "50 to 60 percent of the[ir]

time" on Health Plan matters, and that he could provide further

details but the books were behind. As for the Union Account,

Carrasquillo stated that any inquiry into it was "not appropriate"

and "unrelated" to the Health Plan. Despite the OIC's rejection of

the contract, the Defendants continued to transfer the Plan's funds

as though the contract was still in effect.20

In May 2004, the OIC made public much of what it had

learned about the Health Plan during its investigation. The

Defendants were subsequently ordered to transfer the $7.4M that

20

In April 2004, Román retired as Union treasurer and was replaced

by Víctor Cornier ("Cornier"). Román proceeded to receive $30,000

from the Infrastructure, Union, and Administrative Accounts as an

"[e]xtraordinary bonus for [his] years of service," although the

maximum bonus authorized by the constitution was $1,000.

-23-

remained in the Welfare Account to the Health Plan. After learning

of the OIC's findings, the AAA stopped making monthly contributions

to the Union for Health Plan purposes, and instead began to deposit

contribution payments directly into the Plan Account. In August

2004, the AAA stopped contributing to the Health Plan entirely. It

also ceased paying the Defendants under the labor leave provisions

of the collective bargaining agreement.

Shortly thereafter, in September 2004, all eleven

Defendants filed amended tax returns for every year from 1998

through 2003, reporting purported "income" that they had not

reported earlier. In a creative stroke, the Defendants listed the

previously unreported income as "payments received for professions

and commissions" without listing what those "professions" or

"commissions" were.

In October 2004, the Union began a twelve week strike.

While on strike, the Union members, including the Defendants, were

not entitled to any salary or benefits from the AAA. Instead, the

Union itself would pay each member $300 every two weeks for

participating in strike activities, for a maximum of up to $1,800.

During the strike, however, all of the Defendants received payments

from the Infrastructure and Union Accounts. Many of these payments

were treated as reimbursement expenses although the Defendants had

no supporting documentation.

-24-

Including these final payments during the strike, the

Defendants received a total of more than $5.8M from the

Infrastructure, Union, and Administration Accounts from 1998

through 2004. The individual Defendants' totals were as follows:

Lugo $1,757,164

Carrasquillo $948,166

García $540,12721

Román $868,421

Caraballo $287,204

Andino $282,086

Martínez $247,897

Ramos $234,714

Vázquez $247,075

Urbina $194,729

Roldán $203,827

In late October 2004, federal agents executed a search

warrant at the Union's headquarters, which also housed the Health

Plan's offices. Agents seized from Lugo's office nearly $40,000 in

cash, along with ten uncashed checks from the Infrastructure

Account and incomplete Health Plan board meeting minutes.

In 2005, a grand jury issued a subpoena to the Health

Plan's custodian of records, seeking the complete minute book for

the Plan's board meetings. García, the Health Plan's custodian,

declined to produce the book, claiming that it was seized during

the search. In early 2006, just months before trial, García gave

the minute book to her successor as the Health Plan's executive

secretary, Enrique Dávila Vargas ("Dávila"), which later was

21

This excluded the amounts that García had received from the

Cultural Trips Account.

-25-

obtained by the government during trial. The book contained

additional meeting minutes that were not included in the documents

seized by the government.

E. The Proceedings

The Defendants were charged in a 140-count indictment.22

Count 1 charged all Defendants with a conspiracy to violate 18

U.S.C. § 669, which prohibits the embezzlement or misapplication of

funds of a "health care benefit program." Counts 2 through 132

each charged an individual Defendant with receipt of a check from

a Union bank account (e.g., the Infrastructure Account, the Union

Account) that the government alleged constituted substantive

embezzlement of Health Plan funds in violation of § 669.23 Counts

133-39 charged Román and Lugo jointly with misapplication of funds

22

The indictment also contained two forfeiture counts, Counts 141-

42, that were later dismissed by the district court and are not at

issue on appeal.

23

For example, Counts 2-13 charged Lugo with embezzlement of

"assets of the [Health Plan], a health care benefit program, as

defined in Title 18, United States Code, Section 24," and listed

twelve checks, including dates, check numbers, amounts, and the

account the check came from (Infrastructure, Union, or

Administration). The Counts were allocated as follows:

Carrasquillo Counts 14-25

García Counts 26-36

Román Counts 37-48

Caraballo Counts 49-60

Andino Counts 61-72

Martínez Counts 73-84

Ramos Counts 85-96

Vázquez Counts 97-108

Urbina Counts 109-120

Roldán Counts 121-132

-26-

in violation 18 U.S.C. § 669, specifically funds concerning the Old

Health Plan.24 Finally, Count 140 charged all of the Defendants

with a conspiracy to commit money laundering in violation of 18

U.S.C. § 1956(a)(1)(A)(i), § 1956(a)(1)(B)(i), & § 1956(h).

The case proceeded to trial, which commenced on May 2,

2006. At trial, a number of witnesses testified for the

government: Nieves; López; Luciano; Sánchez; Cornier; Dávila;

Jennifer Griffen, an FBI financial analyst who was involved in the

October 2004 search and who testified to the payments to the

Defendants from the Union, Infrastructure, and Administrative

Accounts; Clotilde Díaz ("Díaz"), who ran the Union cafeteria; and

Gerald LaPorte, an expert on ink analysis of documents. The

Defendants countered with, among other things, the testimony of

Lemuel Toledo ("Toledo"), a certified insurance counselor who

testified as to the reasonableness of the rate charged under the

administrative services contract and Manuel Villalón, a tax

attorney and CPA who advised the Defendants.

Of significance to this appeal, the government gave the

minute book it obtained from Dávila to LaPorte to be examined. At

trial, LaPorte testified that the minutes dating from 1995-2003,

including all meetings relating to the Health Plan loans, were

24

Of particular note, Counts 137 and 138 charged Lugo and Román

with misapplying funds from the Old Health Plan (specifically,

checks of $1,000 and $43,063) to purchase a "2003 Jaguar X-Type

. . . for the personal use of defendant Lugo."

-27-

likely not authored on the dates presented. In fact, he testified

that the evidence "strongly support[ed]" the conclusion that the

minutes in question, including the loan minutes, were all created

at the same time, rather than over the course of eight years.

In June 2006, following a seven-week jury trial, all of

the Defendants except Carrasquillo were convicted of all charges

they faced. In September 2006, following a separate three-week

jury trial, Carrasquillo, who was tried separately due to illness,

was likewise convicted of all charges that pertained to him. In

December 2006 and February 2007, the Defendants were sentenced,

with the respective sentences ranging from twelve months and a day

(Caraballo, Andino, and Urbina) to 210 months (Lugo).

The Defendants now appeal.

II. Discussion

A. Sufficiency of Evidence

The Defendants raise a number of issues concerning the

sufficiency of the evidence in support of their convictions. "We

review a sufficiency claim de novo, drawing all reasonable

inferences in favor of the verdict to determine whether a rational

jury could find each element of the crime beyond a reasonable

doubt." United States v. Scott, 564 F.3d 34, 39 (1st Cir. 2009)

(citing United States v. DeCologero, 530 F.3d 36, 65 (1st Cir.

2008)). In reviewing the sufficiency of the evidence, "[w]e do not

'weigh evidence or make credibility judgments.'" United States v.

-28-

Bristol-Mártir, 570 F.3d 29, 38 (1st Cir. 2009) (quoting United

States v. Ofray-Campos, 534 F.3d 1, 31 (1st Cir. 2008)). Moreover,

we "'must uphold any verdict that is supported by a plausible

rendition of the record.'" Id. at 38 (quoting Ofray-Campos, 534

F.3d at 32).

1. The Embezzlement Convictions

The Defendants contend that the evidence is insufficient

to support their convictions for embezzlement. Each was convicted

under Count I of conspiring to embezzle Health Plan funds pursuant

to 18 U.S.C. § 669 and 18 U.S.C. § 371. The Defendants were also

convicted of separate counts of substantive embezzlement under

§ 669 based on payments they received from either the Union,

Infrastructure, or Administrative Accounts.

18 U.S.C. § 669, the basis of the embezzlement

convictions, provides:

Whoever knowingly and willfully embezzles,

steals, or otherwise without authority

converts to the use of any person other than

the rightful owner, or intentionally

misapplies any of the moneys, funds,

securities, premiums, credits, property, or

other assets of a health care benefit program,

shall be fined . . . or imprisoned . . . or

both . . . .

-29-

18 U.S.C. § 669(a). Section 669 "remains largely untested and

unanalyzed." Robert Fabrikant et al., Health Care Fraud § 2.02[5],

at 2-34 (2009).25

a. "funds . . . of a health care benefit

program"

The Defendants first contend that there is insufficient

evidence to establish that the transactions at issue in support of

Counts 2 through 139 involved "funds . . . of a health care benefit

program."26 18 U.S.C. § 669. They argue that, because the

Defendants commingled Health Plan funds with other funds within the

custody of the Union, there is insufficient evidence to establish

that the Defendants embezzled Health Plan funds as opposed to other

Union funds.

A first reason for rejecting this contention is that the

defendants effectively admitted in their testimony and their

arguments to the jury that the moneys they took were essentially

payments to them by the Health Plan for services they rendered to

25

Lugo separately argues that 18 U.S.C. § 669 is "void for

vagueness" since it "d[oes] not make . . . reasonably clear that

the compensation [he] received" was prohibited. Lugo claims that

the Union's constitution, its collective bargaining agreement, and

the Plan's bylaws all failed to give him "fair warning" that he

could not take the payments that he did. His claim, however, is

better understood as a sufficiency claim as to whether his conduct

was "knowing and willing." We discuss that sufficiency claim in

more detail below.

26

The Defendants, in supplemental briefing, concede that their

argument as to the character of the funds does not apply to Count

1, the conspiracy to embezzle count, and Count 140, the money

laundering count.

-30-

it. It was the Defendants' position throughout trial that as

officials of the Health Plan, they rendered numerous administrative

and executive services to it for which they were entitled to

compensation, and that moneys which are the basis of the

allegations of the embezzlement were not embezzled at all but were

rather taken by them as the Health Plan's proper compensation to

them for the services they rendered. Their contention that there

was insufficient evidence to prove that the funds were Health Plan

moneys is contradicted by their own assertions that these were

Health Plan moneys.

Even without these admissions, we would reject the

Defendants' contention. As a threshold matter, the parties dispute

what § 669 requires the government to show in order to prove that

the purportedly embezzled funds were "funds . . . of a health care

benefit plan."27 The language of the statute does not provide any

guidance, and the few cases that have concerned convictions under

27

The Defendants do not dispute that the Health Plan is a "health

care benefit program" under § 669, which is defined broadly as:

[A]ny public or private plan or contract, affecting

commerce, under which any medical benefit, item, or

service is provided to any individual, and includes any

individual or entity who is providing a medical benefit,

item, or service for which payment may be made under the

plan or contract.

18 U.S.C. § 24(b) (defining a "health care benefit program" for

purposes of § 669). The definition applies with equal force to the

Old Health Plan, and thus to the misapplication counts (Counts 133-

39) involving those funds. Accordingly, we reject Lugo and Román's

contention otherwise.

-31-

§ 669 have not addressed the government's burden in proving that

embezzled funds are "funds . . . of a health care benefit program."

See, e.g., United States v. Whited, 311 F.3d 259 (3d Cir. 2002)

(addressing sufficiency of the indictment, meaning of "health care

benefit program," and Commerce Clause challenges to § 669); United

States v. Jackson, 524 F.3d 532, 534 (4th Cir. 2008), vacated on

other grounds, 129 S. Ct. 1307 (2009) (mentioning, without

discussing, conviction under § 669).

The Defendants point out that, in enacting § 669,

Congress did not adopt the approach of other federal statutes that

relieve the government of proving the character of the funds

embezzled. By way of contrast, the Defendants cite 18 U.S.C.

§ 666, which prohibits the "embezzle[ment]" of funds "owned by, or

. . . under the care, custody, or control of [an] organization,

government, or agency," so long as the organization received "in

any one year period, benefits in excess of $10,000 under a Federal

program." 18 U.S.C. § 666(a) & (b). By its terms, § 666 does not

require the government to prove that the funds purportedly

embezzled are, in fact, those funds provided by the "Federal

program" as opposed to other funds. In fact, the legislative

history of § 666 shows that it was enacted precisely to deal with

the difficulty of proving the "federal character" of funds under

-32-

the general federal fraud statute, 18 U.S.C. § 641.28 See S. Rep.

No. 98-225, at 369 (1985), reprinted in 1984 U.S.C.C.A.N. 3182,

3510 (noting that § 641 required the government to show "that the

property stolen is property of the United States," which was

"impossible" in many cases where "the funds are so commingled that

the federal character of the funds [could] not be shown").

By contrast, the Defendants argue that § 669 provides no

such language. In fact, in enacting § 669 as part of the Health

Insurance Portability and Accountability Act of 1996, ("HIPAA"),

see Pub. L. No. 104-191, 110 Stat. 1936 (1996),29 Congress had the

opportunity to adopt the approach taken by § 666 but chose not to.

Instead, and as the government concedes, § 669 was most likely

28

18 U.S.C. § 641 provides, in pertinent part:

Whoever embezzles, steals, purloins, or knowingly

converts to his use or the use of another, or without

authority, sells, conveys or disposes of any record,

voucher, money, or thing of value of the United States or

of any department or agency thereof, or any property made

or being made under contract for the United States or any

department or agency thereof;

. . .

Shall be fined under this title or imprisoned not more

than ten years, or both; but if the value of such

property in the aggregate, combining amounts from all the

counts for which the defendant is convicted in a single

case, does not exceed the sum of $1,000, he shall be

fined under this title or imprisoned not more than one

year, or both.

29

At least one circuit has noted that Section 669, and HIPAA

generally, were "broad measures Congress enacted in its effort to

'combat waste, fraud, and abuse in health insurance and health care

delivery.'" Whited, 311 F.3d at 268 (citation omitted).

-33-

"modeled after" § 641. See Fabrikant et al., supra, § 3.02[13], at

3-114 to 3-115 (2007) (noting that § 669 was "modeled after 18

U.S.C. Section 641, which makes it a crime to embezzle, steal, or

convert property or a thing of value belonging to the United

States"); see also Diana Douglas, Attorneys Caught in the Web of

Medicare/Medicaid Fraud, 21 J. Legal. Med. 395, 412 (2000)

("Section 669 was patterned after 18 U.S.C. section 641, the

federal theft and embezzlement statute, and serves as a companion

to it.").30 Indeed, although not mirror images of each other, both

set forth the character of the funds as an element of the offense.

We agree with the Defendants' premise that § 641 provides

the closest analogue to § 669. However, we disagree with the

Defendants' conclusion that embezzled dollars cannot serve as the

basis of a conviction under § 669 unless they are proven to have

been the property of a health plan.

Like § 669, the case law interpreting § 641 is sparse,

but courts have generally not required the government to trace the

dollars embezzled to a federal source. In United States v. Gibbs,

for example, the Ninth Circuit addressed a sufficiency challenge to

a § 641 conviction in the context of commingled sources of funding.

704 F.2d 464 (9th Cir. 1983) (per curiam). There, the defendant

founded a corporation to "promote educational opportunities for

30

These secondary sources do not cite any legislative history for

this proposition, nor do the parties cite any.

-34-

American Indians" that "received most of its funds from the federal

government." Id. at 465. The defendant was convicted under § 641

despite the fact that the defendant "commingled federal funds with

nonfederal funds received from state and private sources." Id.

The Ninth Circuit upheld the conviction, which involved

multiple counts of substantive embezzlement where "the amount of

nonfederal funds exceeded the amounts embezzled, [such that] it is

possible that the funds embezzled were entirely nonfederal." Id.

at 465-66 (noting that the defendant was charged "with thirty-four

counts of embezzlement under 18 U.S.C. § 641" and that the "jury

convicted him of twenty of the counts."). In doing so, the court

rejected the defendant's argument that the government failed to

prove "the federal nature of the funds embezzled." Id. at 465.

The court held, in particular, that the evidence was sufficient

because (1) "between 80-86% of the funds in the account from which

[the defendant] embezzled was federal money" and (2) "the federal

government monitored and controlled these funds." Id. at 466. A

number of other courts have adopted the same approach. See, e.g.,

United States v. Evans, 572 F.2d 455, 474 (5th Cir. 1978) (holding

that the evidence sufficient to support a conviction under § 641

where more than 75 percent of the funds in the commingled account

were federal and were "subject to extensive federal controls");

United States v. Scott, 784 F.2d 787, 790-91 (7th Cir. 1986) (per

curiam) (holding evidence was sufficient to support verdict under

-35-

§ 641 where 98% percent of the commingled funds were federal and

"the federal government still maintained supervision and control

over the funds at the point when the funds were stolen.").

Our case law is not to the contrary. Defendants cite

United States v. Elías-Rivera, where we noted that, in the

bankruptcy context, there "is an established presumption that

withdrawals for other than trust purposes from an account in which

trust funds are commingled with nontrust funds are presumed to be

made from nontrust funds." 848 F.2d 16, 19 (1st Cir. 1998). But

in that case, involving a bankruptcy trustee who commingled all of

the estates he supervised in one account, "[t]he prosecution failed

to prove that funds were even missing, much less missing from funds

belonging to the debtors," such that there was a "total lack of

evidence" to "rebut [the] presumption." Id. Elías-Rivera,

therefore, does not speak to the situation here, which concerns

what evidence is sufficient to rebut any such presumption.

Comparing this case to Gibbs and Evans, it is clear that

the funds embezzled were "funds . . . of a health care benefit

program" under § 669. As in those cases, (1) the "health care

benefit program" funds were a substantial portion of the commingled

funds; and (2) the "health care benefit program" exercised

sufficient supervision and control over the funds to preserve their

character.

-36-

As the Gibbs court emphasized, "the government's

supervision and control . . . is the critical factor in determining

the federal character of the funds in a commingled account." 704

F.2d at 466. We conclude that, based on the evidence in this case,

the Health Plan had sufficient supervision and control over the

Health Plan contributions to establish that the funds embezzled

were "funds . . . of a health care benefit program."

As an initial matter, the Defendants argue that the

relevant analogue to "federal supervision and control" in the § 669

context is control by the AAA. But AAA is only the contributor of

the funds. Section 669 protects "funds . . . of a health care

benefit plan," and thus, as in the context of § 641, the relevant

entity for purposes of the "supervision and control" prong is the

protected entity. Moreover, as in Gibbs and Evans, the Health Plan

was both the source of the funds and the protected entity. Once

the Union deposited the funds in the Plan Account, the Health Plan

stood in the same position as the federal government in both

providing its funds to the Union and in being the victim of the

Defendants' embezzlement.

The Defendants further argue that the Health Plan did not

have a sufficient stake in the funds such that the funds failed to

retain their "Health Plan" character once they were diverted out of

the Health Plan Account. In Evans, for example, the court noted

that funds in that case "ha[d] a federal origin and a federal end,

-37-

and during their outstanding circulation they [were] subject to

extensive federal controls. This [was] not the situation in which

the federal monies [were] intended as an outright grant." 572 F.2d

at 474 (emphasis added). In particular, the Evans court noted that

the federal government (in that case the Office of Education) had

a sufficient stake in the funds it provided for a federal program;

"The federal interest . . . is specifically established and

preserved by the provision for termination of the program on a date

certain and the requirement that the proportionate share of the

balance in the special fund be returned to the government." Id. at

472; see also id. at 474 ("It is statutorily contemplated that the

ultimate repayment will be to the federal government.").

The Defendants specifically argue that, unlike in Evans,

the AAA did not have a right to recover any excess funds. But

again the correct analogue is the Health Plan, not the AAA, and the

funds diverted were not meant to be, even by the Defendants' own

admission, "outright grants." Rather, the Defendants contend that

the funds embezzled were for administrative services rendered, and

certainly the Health Plan had a sufficient stake in those funds to

ensure that the Plan received fair value for those services. The

Defendants further argue that the collective bargaining agreement

did not bar the Union from preserving any excess funds from the

Health Plan. Even if that is true (which is doubtful), there were

no excess funds to claim. The Health Plan throughout the time

-38-

period of the embezzlement scheme suffered significant impairments,

such that there were no excess funds that the Union could claim as

its own. Thus, as in Evans, the Health Plan had a right to all

funds diverted by the Defendants.

The Defendants finally argue that, unlike in Gibbs and

Evans, there was no equivalent to "federal regulation" that

mandated oversight. But there was. As required under Puerto Rico

law, the Defendants were fiduciarily responsible to the Plan and,

thus, required to maintain oversight on how the funds were used.

See P.R. Laws Ann. tit. 26, § 1907 ("Fiduciary liability[:] Any

director, officer or member of a health service[ ] organization who

receives, collects, disburses or invests funds related to the

activities of said organization, shall be fiducially liable for the

funds received from the subscribers."); cf. FDIC v. Sea Pines Co.,

692 F.2d 973, 977 (4th Cir. 1982) (noting that interlocking

directors of two boards have a fiduciary responsibility for assets

of both companies). For all of the above reasons, we conclude that

the Health Plan exercised supervision and control of the funds,

such that they were, in fact, Health Plan funds.

Furthermore, the Health Plan funds were a substantial

portion of the commingled funds that the Defendants embezzled. As

an initial matter, the Defendants argue that the Health Plan

contributions made by AAA did not become "funds . . . of a health

care benefit program" until they were actually deposited in the

-39-

Plan Account. They point to a concession made by the government in

its brief in United States v. Jackson, S. Ct. No. 08-263, where the

government conceded that employer contributions to an ERISA plan

"themselves are not assets of [a] plan until the contributions are

paid to the plan." U.S. Br. at 10 (Jan. 16, 2009); see also

Jackson, 524 F.3d at 543 (holding that "unpaid employer

contributions to the Company and Union Plans constituted 'assets'

of the Plans under 18 U.S.C. § 664," the ERISA theft statute).

The concession, to the extent that it is relevant to this

case,31 does not assist the Defendants. With respect to the

convictions occurring from 1998 to 2001, the evidence conclusively

31

We note that Jackson differs from this case in two material

respects. First, Jackson concerned whether a bare contractual

obligation that had become due could be considered an "asset" for

purposes of the ERISA theft statute. See Jackson, 524 F.3d at 544.

In contrast, the funds here were not just contractual obligations,

but actual checks that, on their face, were made out for the

specific purpose of funding the Health Plan. Thus, at issue here

are not contractual obligations but actual property. Second, the

employer in Jackson owed no fiduciary duty to the beneficiaries of

the unpaid contributions. See id. at 545 (rejecting claim that

unpaid contributions were assets of the Plan because the defendant

employers "were never fiduciaries of the Plan[]"). In contrast,

upon receiving the checks, the Defendants in this case had a

fiduciary duty to the Health Plan insofar as they were

simultaneously on the Plan's board.

We further note that the Defendants' position has absurd

consequences. Indeed, at oral argument, one judge on this panel

noted that, under the Defendants' position, the Defendants could

not be convicted under § 669 if they had never deposited the Health

Plan contributions into the Plan Account at all, and just

immediately deposited the contributions into the Defendants'

personal bank accounts. Defense counsel responded that "it does

not seem that I am arguing that."

-40-

demonstrated that, save for one instance, the Union transferred the

entire monthly Health Plan contributions to the Plan Account.

Thus, there was no question that the funds subsequently diverted

were Health Plan funds. Moreover, although, beginning in 2002, the

Defendants first deposited the Health Plan in the Welfare Account,

a substantial amount of the funds were then deposited into the Plan

Account, such that any subsequent diversion of the funds from that

Account were Health Plan funds.

Turning to the evidence, it conclusively demonstrated

that the Health Plan contributions, in the language from one

defendant's brief, "were the largest regular deposits by far."

Based upon the balance sheets provided by the Union, for the years

1998 through 2000, the Union averaged approximately $757,543 per

year in income, which translates to a monthly gross income of

roughly $63,000 per month. In contrast, during that same time

period, and with a contribution rate of $232 per member, the AAA

contributed well over $1 million per month in Health Plan

contributions during that time period. This percentage alone is

well above the 75 to 80 percent threshold established in § 641

cases.32 Holding the average income of the Union constant, the

disparity between the Union's average monthly income as compared to

32

In fact, as noted in the background section above, from 1998 to

2001 the total amount actually paid to the Defendants was similar

in amount (or exceeded) the total amount of reported income for the

Union.

-41-

the Health Plan contributions was even greater from 2002 to 2004.

During this time period, the rate increased dramatically, such that

the Union was receiving between $1.5 million and $2.3 million in

Health Plan contributions per month from 2002 to 2004.

The Defendants counter by arguing that the balance sheets

failed to include SINOT, retirement, and rental income, which were

also commingled with Health Plan funds.33 However, their resort to

these additional funds is unavailing. Including these amounts, the

evidence showed that the Union contributed approximately $151,041

per month for SINOT and approximately $78,000 per month for the

retirement program, and $4,500 per month in income from renting out

a parking lot. Combined with the Union's income in dues (as

reflected in the average income above), the total amount of non-

Health Plan contribution income averaged approximately $300,000 per

month. This, again, is only a small percentage of the millions per

month the Union was receiving in Health Plan contributions, with

the Health Plan contributions representing approximately 77% ($1

million out of $1.3 million total) of the total amount of

commingled funds based on the lowest Health Plan contribution.

33

Like the Health Plan contributions at issue in this appeal, the

Defendants were similarly constrained in their use of these other

funds. In addition, the funds were similarly not reported in the

Union's balance sheets. In essence, the Defendants argue that

their convictions cannot stand because they were guilty of

embezzling different funds.

-42-

The Defendants further counter by focusing on the

specific accounts from which the Defendants paid themselves.

Although, as a whole, the funds that the Union received in Health

Plan contributions far outweighed the funds that the Union received

from other sources, the Defendants argue that the amount of Health

Plan contributions contained in the accounts vis-a-vis other funds

were not proportionally high enough to support the convictions.

For example, the Defendants point to the testimony of

Jennifer Griffin, who did a "deposit source" analysis of the funds

contained in the Infrastructure Account, as shown in the table

below:

1998: 69% Health Plan

22% SINOT

9% Cultural Trips Account

1999: 74% Health Plan

18% SINOT

8% Cultural Trips Account

2000: 75% Health Plan

16% SINOT

5% Cultural Trips Account

4% Union Account

2001: 47% Health Plan

27% SINOT

15% Union Account

11% Cultural Trips Account

2002: 45% Union Account

36% Health Plan

16% SINOT

3% Cultural Trips Account

2003: 72% Union Account

15% SINOT

8% Cultural Trips Account

-43-

5% Health Plan

2004: 57% Investment Redemptions

32% Union Account

8% Health Plan

3% Welfare Account

Although for the first three years of the scheme 69 percent (1998),

74 percent (1999), and 75 percent (2000) of the funds contained in

the Infrastructure Account were derived from Health Plan funds, the

amounts declined in 2001 to 47 percent, and further declined to 36

percent (2002), 5 percent (2003), and 8 percent (2004). The

Defendants seize on this decline to argue that, on average, the

percentage of Health Plan funds contained in the Infrastructure

Account was approximately 44 percent, below the 75 to 80 percent

threshold articulated in some § 641 cases.

The government counters that the "deposit source"

analysis is somewhat misleading. It notes that, even in those

years where the Infrastructure Account contained a small percentage

of funds directly diverted from the Health Plan, it still received

a significant percentage of funds from the Union Account, which

itself contained funds from the Health Plan. In 2003, for example,

and as shown by the complicated flow charts prepared by Griffin for

trial, $19.4 million of the AAA's Health Plan contributions were

deposited into the Union Account. From there, $14.8 million was

passed into the Plan Account (via the Welfare Account), with $4.1

million remaining in the Union Account. And then from there, an

additional $873,000 was transferred from the Plan Account to the

-44-

Union Account, which resulted in the Union Account containing well

over $5 million of the Health Plan's funds. This exceeded by

several million dollars any other sources of funds contained in the

Union Account. Thus, the large percentage (72 percent) of Union

Account funds contained in the Infrastructure Account itself

contained a large percentage of Health Plan funds, such that,

combined with the 8 percent of Health Plan funds already contained

in the Infrastructure Account, Health Plan funds comprised a

substantial portion of the funds in the Infrastructure Account.

However, the government did not establish at trial the "true" total

percentage of Health Plan funds contained in the Infrastructure

Account.

As the above evidence shows, and in contrast to Gibbs,

this case involves multiple accounts with commingled funds, with

those accounts funneling Health Plan funds into each other. This

scenario presents further opportunities for abuse.34 However, based

on our review of the specific evidence in this case, drawing all

reasonable inferences in favor of the verdict, we conclude that, as

in Gibbs and Evans, Health Plan funds were a substantial portion of

the funds in the commingled accounts.

34

For example, one might funnel small values of embezzled funds

through an account that contains mostly non-embezzled funds, such

that embezzled funds never comprise a substantial portion of that

account. Although we conclude in this case that the Infrastructure

Account did contain mostly Health Plan funds, as a hypothetical

matter, we find it difficult to believe that a defendant could

avoid liability through such a scheme.

-45-

First, we stress again that the disparity between the

Health Plan contributions as compared to the Union's other sources

of funds was staggering. The Union received in the realm of 70 to

80 percent of its funds from Health Plan contributions, as compared

to all other sources (including funds, such as SINOT and the funds

for the retirement program, that the Union was not permitted to use

as income). Moreover, and as the evidence showed, the Health Plan

funds were commingled among the accounts from which the Defendants

paid themselves, such that a rational juror could conclude that, at

any given time, the Accounts contained Health Plan funds. That

alone is sufficient under Gibbs to establish the "substantial

portion" prong.

Second, we note that the 75 to 80 percent level discussed

in Gibbs and Evans is not a threshold. Indeed, the Seventh Circuit

upheld a conviction under § 641 where as little as 50 percent of

the commingled funds were federal. See United States v. Mitchell,

625 F.2d 158, 161 (7th Cir. 1980) (concerning theft of check from

Aid to Families with Dependent Children account containing 50

percent federal funds). Thus, almost all of the years for the

Infrastructure Account contained a sufficient portion of Health

Plan funds. For all of these reasons, we conclude that, as in

Gibbs and Evans, the evidence is sufficient to show that the Health

Plan funds were a substantial portion of the funds embezzled from

the commingled sources.

-46-

Based on the above, we conclude that the evidence was

sufficient in this case to permit a rational jury to convict the

Defendants for each of the substantive embezzlement counts.

b. "without authority"

Defendants next contend that there was insufficient

evidence to prove that they were "without authority" to receive the

Health Plan funds. The Defendants argue that they were entitled to

additional compensation for the work they performed on behalf of

the Health Plan, and that this compensation was authorized by the

collective bargaining agreement, the constitution, the Plan bylaws,

and "historical practice."

We conclude that the evidence was sufficient in this case

to establish that the Defendants acted "without authority." We

stress at the outset that the issue is not whether the Defendants

were anywhere explicitly prohibited from receiving payments from

the Health Plan for services rendered; rather, the issue is whether

they lacked the authority to do so. See United States v. Hammond,

201 F.3d 346, 349 (5th Cir. 1999) (per curiam) (although union

president did not "break any law or union rule" in spending

political funds, court affirmed conviction because a "rational

juror" could conclude that expenditure was unauthorized). And, in

this case, the Defendants lacked such authority.

The Defendants first point to the purported

"administrative services" contract they provided to OIC, but that

-47-

is a nonstarter. The evidence at trial showed that the contract

was replete with irregularities, overcharged for services, was

created after the fact, was ultimately rejected by the OIC, and the

government provided evidence that the minutes supporting the

contract were forged. The Defendants claimed that the OIC

"mistakenly" rejected the contract "on the assumption that [the

Defendants] could not receive such compensation because they were

paid labor license." Even if true (which it is not, as detailed in

the OIC rejection letter), the contract was nonetheless rejected,

and cannot authorize the Defendants' actions in this case.

The Defendants further point to a number of provisions in

the Health Plan bylaws, the constitution, and the collective

bargaining agreement that would permit compensation or at least not

prohibit it. For example:

* The Health Plan bylaws establish the authority of

the board of directors to "set[] salaries of

officials";

* The constitution states that "the [CEC] will fix

the representative expenses and the bonuses of

the Union's Officers";

* The collective bargaining agreement puts Lugo in

charge of "managing and directing the rendering

of services."

These provisions, if exercised, may have provided authority for the

Defendants' compensation. But there was no evidence, such as a

formal resolution, meeting minutes, or any other documentation that

-48-

showed that the Defendants exercised those provisions. Thus, these

provisions cannot supply the necessary authority for their actions.

The Defendant next argue that, as a matter of practice,

they received compensation for the services they provided for the

Health Plan. They point to the testimony of Rubén Luciano, who

testified that, under the Old Health Plan, "there was always

compensation paid to the Board of Directors." But this purported

historical practice lacks any formal resolution or other

authorization. Moreover, unlike the Old Health Plan, the Health

Plan was subject to Puerto Rico's Insurance Code, and under the

Code the Health Plan was required to seek approval from the OIC,

and to "furnish to the Commissioner the adequate information to

justify the" delegation of administrative services to the

Defendants. See P.R. Laws Ann. tit. 26, § 1905(2)(a). The

evidence showed that the Defendants failed to do so in this case,

and thus they cannot resort to their historical practice as a

source of authority.

Finally, the Defendants challenge testimony given by

Aurea López, the OIC's chief investigator into the Union's scheme,

concerning the Defendants' labor license.35 At trial, López

testified to the following:

35

The Defendants do not present this challenge as a separate basis

for reversal, but as part and parcel of their claim that the

evidence establishing their lack of authority was insufficient."

-49-

The reason for excluding those enjoying Union

leave is that the position held by the

Commissioner of Insurance is that those

persons were already being compensated by AAA

so that they could offer services to the

Union. So we understood that it was also not

correct that the [Health Plan] be charged for

services that these people rendered to the

[Health Plan].

The Defendants claim that López provided unqualified opinion

testimony to the effect that the labor license prohibited the

Defendants from receiving additional compensation for their work on

the Health Plan. See Fed. R. Evid. 702 (permitting opinion

testimony if "(1) the testimony is based upon sufficient facts or

data, (2) the testimony is the product of reliable principles and

methods, and (3) the witness has applied the principles and methods

reliably to the facts of the case"). The Defendants point out that

López was not established as an expert on the Union's activities to

opine on the labor license. The government argues that, when read

in context, López was only giving testimony on historical fact as

to the OIC's conclusion that the Defendants' six percent charges

for services were unreasonable in light of prevailing market rates.

We need not decide the issue, because any error in

admitting the testimony was harmless, because it would not have

"affected the outcome of the trial." United States v. Dunbar, 553

F.3d 48, 59 (1st Cir. 2009)("'The essential inquiry in harmless

error review is whether the improperly admitted evidence likely

affected the outcome of the trial.'" (quoting United States v. Tom,

-50-

330 F.3d 83, 95 (1st Cir. 2003)). As noted above, there was no

evidence of any authorization for the payments the Defendants

received. The Defendants claim prejudice because, they argue, the

government relied upon López's testimony at trial in support of its

theory that the Union's labor license precluded compensation for

Health Plan work, and even cited it in their closing. However, the

government argued below, as here, that no provision in the

constitution, collective bargaining agreement, the Health Plan by-

laws, or any other document provided authority for the payments.

Moreover, no mention was made of López's testimony in the

government's closing. Thus, for all of the above reasons, the

evidence was sufficient to permit a rational jury to conclude

beyond a reasonable doubt that the Defendants acted without

authority.

c. "knowingly and willfully"

The Defendants finally argue with respect to the

embezzlement convictions that the government had not met their

burden to prove that the Defendants acted with the requisite

criminal intent to be convicted of embezzlement.

To establish an individual defendant's willing and

knowing participation in a conspiracy as in this case, the

government "need not prove that [he] knew all the details . . . or

participated in all of the objectives . . . of the conspiracy."

United States v. Brandon, 17 F.3d 409, 428 (1st Cir. 1994). The

-51-

prosecution need only "show knowledge of the basic agreement," with

"an intent to commit the underlying substantive offense." Id. The

requisite knowledge and intent can be proven through

"circumstantial evidence, including inferences from . . . acts

committed by the defendant that furthered the conspiracy's

purposes." Id.

With respect to the Top Four Defendants, the evidence of

their knowledge and willfulness with respect to the embezzlement

convictions was more than sufficient. They all essentially argue

that their actions were done in good faith. However, the evidence

conclusively contradicts this assertion.

We start with Lugo and Román. Among other things, the

evidence showed that Lugo and Román, as president and treasurer of

both the Union and the Health Plan, had signing authority over all

of the bank accounts at issue in this case, and thus signed all of

the checks and other documents authorizing the transfer of funds to

and from various bank accounts. Lugo and Román also signed off on

regular checks made out to themselves and the other Defendants

which were deposited into personal accounts. Their consenting

signatures are also on Health Plan tax returns that omitted these

payments.

Lugo and Román were also instrumental in the creation of

the administrative services contract, under which the Union leaders

paid themselves a six percent of Health Plan funds for

-52-

administering the Health Plan. They also provided vague and

misleading responses about the specifics of the contract during the

course of the OIC's investigation. The administration contract was

ultimately found to be invalid by the OIC after it was discovered

that the fees the Union charged were substantially above market

rates and concerns about the legitimacy of the arrangement were

uncovered. Despite being informed of this decision, Lugo and Román

continued issuing personal payments from Union controlled funds,

which further showed their intent. Cf. Young, 955 F.2d at 103-04

(evidence sufficient to show intent to embezzle where defendant's

"falsification" to a government agency "reveal[ed] a consciousness

of guilt" (quotation omitted)). Thus, through all of these

actions, both Lugo and Román displayed knowledge and willfulness

with respect to the embezzlement scheme in this case.

The same is largely true of the actions of Carrasquillo.

Even though he lacked signing authority, Carrasquillo controlled

the Union and Health Plan accounts after Román's retirement in

April 2004. He was also consistently obstructive when the OIC made

inquiries into the administrative services contract. These facts

would permit a reasonable jury to conclude that Carrasquillo was

knowingly involved in an embezzlement scheme.

García, like Lugo and Carrasquillo, also played a

significant role in the implementation of the administrative

service contract. Although she insists that she was cooperative

-53-

with the OIC in her investigation, which she asserts is proof that

she did not have the intent to embezzle, her role in creating the

administrative contract itself (and providing the forged minutes to

support the contract) provides substantial evidence of her intent.

Most importantly, none of the Top Four Defendants

included any of the income they received as compensation from the

Health Plan in their tax returns and, when confronted with evidence

of their scheme, promptly reported the income, literally within

days of each other. That alone is significant evidence of their

knowledge and willfulness. See United States v. Fusaro, 708 F.2d

17, 21 (1st Cir. 1983) ("Fusaro's active participation in so many

aspects of the scheme as well as his attempts to cover up the

scheme as it unraveled, likewise, provides the basis for the

inference that he acted with the requisite intent and knowledge.").

The Top Four Defendants each argue that their failure to

file taxes on their Health Plan income is evidence of tax evasion,

but not of embezzlement. However, as noted below, the jurors were

instructed that "the case that is before us . . . has nothing to do

with tax evasion," and jurors are presumed to follow instructions.

See United States v. Bradshaw, 281 F.3d 278, 285 (1st Cir. 2002)

("[I]t is routinely presumed that jurors will follow curative

instructions . . . ."). In any event, the Defendants conveniently

only failed to report their Health Plan income, thus permitting a

-54-

rational jury to conclude that the Defendants were not simply

engaging in tax evasion.

The issue is much closer with respect to the Chapter

President Defendants. As noted below, the evidence was

insufficient to support their convictions for money laundering

because minutes establishing their knowledge turned out to be

forged. Moreover, unlike the Top Four Defendants, the Chapter

Presidents had no authority over any of the Union-controlled

accounts.

The government does not dispute that the Chapter

President Defendants' role in the crime was more limited than that

of the other Defendants, but argues that the evidence was still

sufficient to establish their intent. The government primarily

argues that the Defendants were willfully blind to the scheme, and

points out that the district court in this case provided a willful

blindness instruction.36 The government points out that, despite

the forged minutes, García certified to the OIC that "all . . .

members" of the Health Plan's board of directors "discuss[ed] and

analyze[d] the diversity of administrative issues of their

incumbency on a daily basis." The government also points out that

Clotilde Díaz, who ran the Union's cafeteria, testified that "all"

36

It is unclear whether the Defendants challenged the willful

blindness instruction as a separate ground for reversal. To the

extent that they did, any such error was harmless because, as

discussed below, the evidence was sufficient to support their

direct knowledge of the scheme.

-55-

the Defendants would have lunch together "every day whenever they

were there." The government finally points out that the Health

Plan's bylaws required the Defendants to "manage[]" the Plan and

"oversee[] the faithful compliance with the laws and regulations

applicable to the operation of" the Health Plan, such that the jury

could infer that the Chapter President Defendants knew that there

was nothing that authorized them to receive payments.

The Chapter President Defendants respond by pointing out

that García's certification is far from credible. Moreover, Díaz's

testimony, to the extent that it can be interpreted to mean that

the Defendants ate lunch "every day," was belied by the lunch

tickets presented at trial, which only showed that they met with

the Top Four Defendants infrequently, if at all.

The evidence in support of willful blindness is sparse,

at best. Willful blindness requires evidence that the Chapter

Defendants were "trying to deliberately avoid knowledge" of the

scheme, see United States v. Azubike, 564 F.3d 59, 68 (1st Cir.

2009), and the government can only muster a few meetings with the

Top Four Defendants and some duties on the part of the Chapter

President Defendants to manage the Health Plan. None of these

actions conclusively show the Chapter President Defendants

"deliberately avoid[ing]" knowledge of the embezzlement.

However, like the Top Four Defendants, the Chapter

President Defendants failed to report the income they received from

-56-

the Health Plan in their tax returns, even though the purported

Health Plan income was far greater than the other income they

reported. More importantly, and also like the Top Four Defendants,

they all proceeded to report their payments simultaneously at a

time when the OIC was discovering the extent of the scheme. This,

along with the other evidence, was sufficient for the jury to

conclude by proof beyond a reasonable doubt the element of criminal

intent. The Chapter President Defendants argue that they did not

know that they had to report the payments and, at worst, only

engaged in tax evasion. Although that is one view of their

actions, the jury was permitted to conclude that the confluence of

events here established their knowledge and willfulness by proof

beyond a reasonable doubt. See United States v. Dwinells, 508 F.3d

63, 74 (1st Cir. 2007) ("When the record is fairly susceptible of

two competing scenarios, the choice between those scenarios

ordinarily is for the jury.").

2. The Money Laundering Convictions

Defendants also challenge the sufficiency of the evidence

in support of their money laundering convictions under 18 U.S.C.

§§ 1956(a)(1)(A)(i), (a)(1)(B)(i), & (h). 18 U.S.C. § 1956

provides, in relevant part:

[w]hoever, knowing that the property involved

in a financial transaction represents the

proceeds of some form of unlawful activity,

conducts or attempts to conduct such a

financial transaction which in fact involves

the proceeds of specified unlawful activity[,]

-57-

. . . knowing that the transaction is designed

in whole or in part . . . to conceal or

disguise the nature, the location, the source,

the ownership, or the control of the proceeds

of the specified unlawful activity[,] . . .

shall be sentenced to a fine . . . or

imprisonment . . . or both.

18 U.S.C. § 1956(a)(1)(B)(i); see also United States v.

Cruzado-Laureano, 404 F.3d 470, 483 (1st Cir. 2005) (discussing

elements of money laundering).

As an initial matter, the government concedes that the

money laundering convictions of the Chapter President Defendants --

Caraballo, Andino, Martínez, Ramos, Vázquez, Urbina, and Roldán --

must be reversed for insufficient evidence, as a result of the

expert testimony that the meeting minutes, upon which their

knowledge of the money laundering scheme was based, were forgeries.

Thus, we only address the claims of the Top Four Defendants.

To recap, the money laundering convictions were based on

loans provided to the Health Plan by the Union through the Welfare

Account. Because the Welfare Account (which did not appear in

either the Union or Health Plan books) consisted solely of Health

Plan contributions, the Health Plan, in effect, was loaning money

to itself. These "fake" loans were an attempt to launder the Plan

funds for use by the Defendants, since the money paid back to the

Union by the Health Plan, in the government's words, "would look

like fulfillment of a legitimate loan obligation," plus interest to

boot. To further conceal the scheme, Lugo, Román, and García

-58-

submitted paperwork to the OIC authorizing the Health Plan's

administrator to seek the loans in question. The paperwork

represented that the Union would be lending Union funds, which was

not the case, as transaction records show that the money came from

the Welfare Account. When Luciano, the Health Plan's accountant,

pointed out the misrepresentation, he was fired. Moreover, the

government's documents expert, LaPorte, testified that the Health

Plan's minute book was doctored to reflect meetings that were never

held.

Román and Lugo argue that their convictions should be set

aside in light of United States v. Santos, 128 S. Ct. 2020 (2008),

where a plurality concluded that the term "proceeds" under

§ 1956(a)(1) means "profits" rather than "receipts." See id. at

2031. There is some question whether Santos applies to this case.

Santos concerned money laundering convictions based on payments to

winners and employees of an illegal gambling operation, and

applying the money laundering statute to such essential steps of

the gambling operation raised a significant merger problem. Id.

2026. Such a merger problem is not present here, where the "fake

loan" scheme was in addition to the Defendants' embezzlement

scheme, was not essential to it, and was concocted after the

embezzlement scheme was in effect. Moreover, there is some

question as to the holding of Santos, since Justice Stevens, the

fifth and deciding vote, suggested in concurrence that the holding

-59-

may vary by offense and the legislative history. See id. at 2032-

33; see also United States v. Kratt, No. 08-5831, 2009 WL 2767152,

at *4 (6th Cir. Sept. 2, 2009) (interpreting Santos to apply when

application of § 1956 "creates a merger problem that leads to a

radical increase in the statutory maximum sentence and only when

nothing in the legislative history suggests that Congress intended

such an increase"). But even if Santos applied, the transactions

at issue clearly concerned the "profits" of the embezzlement

scheme, given the large amounts of Health Plan funds diverted and

the minimal expenses to do it. See Santos, 128 S. Ct. at 2029

(stating that "to establish the proceeds element under the

'profits' interpretation, the prosecution needs to show only that

a single instance of specified unlawful activity was profitable and

gave rise to the money involved in a charged transaction").

Román and Lugo, along with the remaining Top Four

Defendants Carrasquillo and García, also argue that they did not

embezzle Health Plan funds at all, let alone engage in money

laundering. For the reasons discussed above, we reject the claim.

Lugo and Román separately argue that only a "bumbling bunch of

conspirators would conspire to hide proceeds of an activity they

knew to be illegal by writing themselves checks and cashing them in

their own names." But that is no defense. See United States v.

Majors, 196 F.3d 1206, 1214 (11th Cir. 1999) ("Moving money through

a large number of accounts" may suffice to prove money laundering

-60-

even where the defendant "withdr[aws] [funds from accounts] in his

own name") (citations omitted); United States v. Sutera, 933 F.2d

641, 648 (8th Cir. 1991) ("[T]he money laundering statute does not

require the jury to find that [the defendant] did a good job

laundering the proceeds."). Carrasquillo argues that he opened the

Welfare Account to avoid fines for depositing unapproved rates.

His actions betray this excuse, as Carrasquillo could have simply

asked for an approved rate, the Defendants continued to use

unapproved rates after establishment of the Welfare Account, and

the Union was fined anyway. Thus, a rational jury could have

concluded beyond a reasonable doubt that Carrasquillo created this

excuse to conceal the loan scheme. We thus conclude that the

evidence was more than sufficient to support the money laundering

convictions with respect to the Top Four Defendants.

B. Jury Instructions

Defendants also challenge several jury instructions

provided at trial. As we have previously stated,

We review a properly preserved objection to

"the form and wording" of an instruction given

by the district court for abuse of discretion.

United States v. McFarlane, 491 F.3d 53, 59

(1st Cir. 2007). "While we would review de

novo a claim that an instruction embodied an

error of law," we also "review for abuse of

discretion 'whether the instructions

adequately explained the law or whether they

tended to confuse or mislead the jury on the

controlling issues.'" United States v. Silva,

554 F.3d 13, 21 (1st Cir. 2009) (quoting

United States v. Ranney, 298 F.3d 74, 79 (1st

Cir. 2002)). A trial court's refusal to give

-61-

a particular instruction is reversible error

only in the "relatively rare case" in which

"the requested instruction was

(1) substantively correct; (2) not

substantially covered elsewhere in the charge;

and (3) concerned a sufficiently important

point that the failure to give it seriously

impaired the defendant's ability to present

his or her defense." United States v.

Prigmore, 243 F.3d 1, 17 (1st Cir. 2001).

United States v. González, 570 F.3d 16, 21 (1st Cir. 2009).

Furthermore, "[a]ny error, defect, irregularity, or variance that

does not affect substantial rights must be disregarded." Fed. R.

Crim. P. 52(a) (setting forth harmless error standard).37

Where the defendants fail to object to the court's jury

instructions at trial, we review for plain error. See United

States v. Griffin, 524 F.3d 71, 76 (1st Cir. 2008). To establish

plain error, a defendant "must show an error that was plain, (i.e.,

obvious and clear under current law), prejudicial (i.e., affected

the outcome of the district court proceedings), and that seriously

impaired the fairness, integrity, or public reputation of the

judicial proceedings." Id.

This standard is so demanding that we have

characterized it as "cold comfort to most

defendants pursuing claims of instructional

error," United States v. Medina-Martínez, 396

F.3d 1, 8 (1st Cir. 2005), because, "[w]hile

37

We note that none of the challenges here involve a claim of

structural error, which would not require a showing of prejudice.

See United States v. Brandao, 539 F.3d 44, 58 (1st Cir. 2008)

(defining structural errors as "constitutional errors that deprive

the defendant of a fundamentally fair trial and thus may not be

found harmless under Rule 52(a)'s harmless error standard").

-62-

reversal of a conviction predicated on

unpreserved jury error is theoretically

possible, . . . [it is] the rare case in which

an improper instruction will justify reversal

of a criminal conviction when no objection has

been made in the trial court." United States

v. Weston, 960 F.2d 212, 216 (1st Cir. 1992).

González, 570 F.3d at 21 (modification in the original).

Finally, the Supreme Court has "repeatedly . . .

cautioned that instructions must be evaluated not in isolation but

in the context of the entire charge." Jones v. United States, 527

U.S. 373, 391 (1999).

1. Embezzlement Instruction

The Defendants first challenge certain portions of the

district court's "legal background" as part of the court's

instruction concerning 18 U.S.C. § 669. They do not challenge the

instructions on the elements of § 669 themselves. Rather, the

Defendants challenge the following: (a) the district court's

instruction that AAA's contributions were Health Plan assets for

purposes of § 669; (b) the district court's instruction with

respect to commingling; and (c) its instruction concerning

"fiduciary principles."

a. instruction that AAA's contributions

belonged to Health Plan

The Defendants challenge the following instruction given

by the district court:

[T]he [H]ealth [P]lan had a vested property

interest in [the AAA's monthly]

contributions[,] such [that] they constitute

-63-

health plan assets under 18 U.S. Code, Section

669.

The Defendants argue that, by instructing the jury that the Plan

had a "vested property interest" in the AAA monthly contributions,

the district court took from the jury "an essential element of the

government's case." For support, the Defendants cite United States

v. Alessio, where we reversed and remanded for a new trial when the

district court made a "finding" during the relevant witness's

testimony that the specific funds the defendant allegedly

misdirected under Section 641 were "the property of the United

States." 439 F.2d 803, 804 (1st Cir. 1971) (per curiam).

Moreover, the Defendants argue that the instruction is at odds with

the government's concession in Jackson that employer contributions

to an ERISA plan "themselves are not assets of [a] plan until the

contributions are paid to the plan." Jackson, S. Ct. No. 08-263,

U.S. Br. at 10.

This case is distinguishable from Alessio. Unlike in

Alessio, the district court did not instruct the jury that the

funds the Defendants actually embezzled were Health Plan funds.

Rather, and as the government correctly points out, the district

court simply described that the AAA contributions generally were

for the Health Plan, and specifically charged the jury with

determining "beyond a reasonable doubt" whether the specific

"payments that came into the . . . possession of the defendants"

were Plan funds. Cf. Evans, 572 F.2d at 471, 473 (in § 641

-64-

embezzlement case, affirming use of jury instruction describing

"federal character of the monies generally involved").

However, the instruction is in some tension with the

government's concession in Jackson. Although here we express some

doubt that Jackson applies to this case, we conclude that any error

was harmless. First, and as noted above, the district court did

not instruct the jury as to any element of the offense, and thus

the Defendants were free to argue their theories to the jury.

Second, and as discussed in more detail above, at all relevant

times most or all of the Health Plan contributions were, in fact,

deposited in the Plan Account to conclusively establish that the

Health Plan had a "vested property interest" in the funds.

b. commingling instruction

The district court instructed that, "[b]ecause the

[H]ealth [P]lan fund[s] [were] not . . . [U]nion property," they

"should not" as a general matter have been "commingled with other

[U]nion funds." It went on to say:

[t]he mere fact that funds may have been

transferred from other accounts or commingled

with other [U]nion funds is not enough to

create criminal liability. Such co[m]mingling

could have occurred for a number of reasons,

such as bad advice from accountants, bad

management practices on the part of some

officer or officers, or because of mistakes or

other innocent reasons.

But when the diversion is knowingly and

willfully made into other [U]nion accounts,

unrelated to the [H]ealth [P]lan, with intent

to embezzle or with intent to resupply [Union

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money], then we [have] conduct that may

constitute a federal offense under 18 U.S.

Code, Section 669.

"[A]t the risk of repetition," the court further stated:

remember that the commingling of funds

standing alone, without proof of criminal

intent proven beyond a reasonable doubt,

cannot . . . give rise to criminal liability.

Precisely and for this reason, the government

must prove beyond a reasonable doubt, by

either direct or . . . circumstantial

evidence[,] that the commingling of funds was

part of the criminal plan to embezzle [P]lan

funds, monies or assets. Proof beyond a

reasonable doubt of each and every element of

the offense charged is required for the

government to establish that [the] charged

conduct is criminal in nature[,] and that of

course is for you to decide.

The Defendants contend that the district court improperly

instructed the jury that commingling is illegal per se.38 But the

plain terms of the charge did not provide such an instruction. The

district court did not instruct the jury that commingling is per se

illegal. Instead, as shown above, the district court repeatedly

emphasized that "[t]he mere fact that funds may have been

transferred from other accounts or commingled with other [U]nion

funds is not enough to create criminal liability." (Emphasis

added). We thus reject the Defendants' claim.

38

García and Vázquez argue that the government argued in closing

that commingling itself "made the receipt of all compensation by

[the defendants] illegal." However, they cite no transcript page

for that claim, and we cannot find any record of it.

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c. "legal principles" instruction

The Defendants challenge a "legal principles" instruction

that the district court provided sua sponte. The district court

instructed the jury that:

When persons hold money in trust for

other persons, or for particular purposes,

they have a fiduciary duty to use the trusted

funds in good faith and in a scrupulous

manner, acting always in the best interests of

the beneficiaries.

Duties general to any fiduciary

relationship arise when the trust in question

is, as here, a health care benefit program.

You, the jury, may consider in your evaluation

of the evidence whether and to what extent the

government has proven beyond a reasonable

doubt in this case that these fiduciary rules

were or were not followed.

And there are some rules I'm going to

give you as guidelines. These may not be the

only rules. You may think of other rules or

principles that are so obvious that I may not

even put in here to give you some aid in

figuring this out.

The court then provided a non-exclusive list of fiduciary

principles that the jury could "consider" in determining whether

the government had "prove[n] beyond a reasonable doubt" that a

particular defendant acted "knowingly and willfully [with] the

intent to embezzle." The court stated, in full:

There are some rules that you may

consider in determining whether any of the

charged conduct was willfully, knowingly and

intentionally made for the purpose of

violating the law, or whether the charged

conduct was entered into by mistake, bad

management or other innocent reasons.

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Remember that bad management, careless

or innocent reasons by themselves do not

constitute a crime. Repeating myself a

second: The government must prove beyond a

reasonable doubt that the conduct charged in

the indictment was knowingly and willfully

performed, that is to say, the intent to

embezzle or misapply as contemplated in 18

U.S. Code, Section 669.

The first rule that may assist you in

figuring out whether criminal intent exists or

does not exist is what can be defined as the

"solely-in-the-interest rule." This rule

requires that management of health plan

contributions be solely in the interests of

the participants and the beneficiaries.

The second rule that may assist you in

figuring out whether criminal intent existed

or not is the "exclusive person rule." This

rule requires that the management of the

health plan contributions, or the health plan

contributions be for the exclusive purpose of

proving benefits to the participants and their

beneficiaries; and also for the defraying

reasonable expense of administering plan.

The third rule that you can use in the

process of assessing whether criminal intent

or noncriminal reasons were behind the charged

conduct is the "prudent person rule." Members

of the board of directors of the health plan

must be prudent persons, executing their

fiduciary duties with care, skill, prudence,

under the circumstances then prevailing. The

prudent person rule requires the trustees to

be familiar with the matters of the enterprise

for which they act.

The fourth rule that may assist you in

figuring out whether criminal intent exists,

or whether there was no criminal intent in the

charged actions, is what I refer to as the

"plan documents rule." Plan documents include

managerial organization charts, written

descriptions of authorized positions, written

descriptions of duties for each position,

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employment contracts, and any scope that these

employment contracts may contain, Board of

Directors' decisions and minutes under the

legal structure of the plan under its

corporate bylaws, and any other

contemporaneous document that confirms or

denies that the management decisions were made

and contemplated as the exclusive purpose,

providing benefits to the participants and

their beneficiaries and defraying reasonable

expenses of administration.

The fiduciary must act in accordance

with the documents and instruments governing

the health plan insofar as such documents and

instruments are consistent with the provisions

of law.

To evaluate and enforce these duties in

the context of a criminal statute you may

focus not only on the merits of the

transaction, but also on the thoroughness of

the investigation made by the fiduciaries into

the merits of such.

As I have already advanced, I also

instruct you that a good faith or a negligent

breach of fiduciary duties, standing alone,

does not create a criminal liability, but can

be instructed along with other factors

mentioned as to whether criminal intent is or

is not present.

The Defendants primarily contend that the district court's

instruction as to fiduciary principles were "lengthy, legally

incorrect, and complex," such that the district court "engrafted"

civil ERISA law onto Section 669 and thereby "relieved the

prosecution's evidentiary burden" to prove all elements beyond a

reasonable doubt. They also argue that the Defendants' actions

were authorized and that they owed no fiduciary duty, so the

instructions were misplaced.

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We agree that the instruction is certainly "lengthy" and

"complex." Indeed, it is difficult to characterize the instruction

as anything but confusing, and we do not sanction it in any way.

Nevertheless, "instructions must be evaluated not in isolation but

in the context of the entire charge," Jones, 527 U.S. at 391

(citations omitted), and based upon our review of the instruction

as a whole, we conclude that the instruction was harmless. First,

although the district court borrowed principles from the ERISA

context, the court stated that the jurors "may consider" the rules.

Second, the district court repeated twice within this instruction

that "[t]he government must prove beyond a reasonable doubt that

the conduct charged in the indictment was knowingly and willfully

performed," and further instructed on this requirement four other

times in the jury charge. Third, the district court instructed the

jury at the beginning of its instruction "that bad management,

careless or innocent reasons by themselves do not constitute a

crime" and at the end that "a good faith or a negligent breach of

fiduciary duties, standing alone, does not create a criminal

liability." Thus, read as a whole, the instruction did not result

in an error warranting reversal. Cf. United States v. Snyder, 668

F.2d 686, 690-99 (2d Cir. 1982) ("We agree with appellant that he

should not be convicted of a crime merely because he breached his

civil fiduciary duties. But [the court] was careful to make that

point, and we have no doubt that the jury grasped it.").

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2. Money Laundering Instruction

Román, Ramos, and Roldán separately argue that the

district court erred in instructing on the elements of money

laundering under 18 U.S.C. § 1956. The government has conceded

that the money laundering convictions against Ramos and Roldán

should be reversed. We thus focus on Román.

The district court gave the following instruction with

respect to money laundering:

First, that a defendant knowingly

conducted or attempted to conduct a financial

transaction[.] . . .

Second, [that] the defendant knew that

the monies or funds involv[ed] [in the]

financial transaction represented the proceeds

of some form of unlawful activity, in this

case the embezzlement of monies from a health

plan organization.

Third, that the funds or monies

involved in the financial transaction did in

fact represent the proceeds of [that]

specified [unlawful] activity[.] . . .

Fourth, that the defendant engaged in

[the] financial transaction knowing that the

transaction was designed, in whole or in part,

to conceal or to disguise the nature, the

location, the source, the ownership or the

control of the proceeds of such specified

[unlawful] activity.

Because no defendant objected to the instruction prior to "the jury

retir[ing] to deliberating," we review for plain error. See Fed.

R. Crim P. 30(d) ("A party who objects to any portion of the

instructions . . . must inform the court of the specific objection

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and the grounds for the objection before the jury retires to

deliberate. . . . Failure to object in accordance with this rule

precludes appellate review, except as permitted under Rule

52(b).").

There was no plain error. Román claims that the district

court erred by only instructing the jury as to one theory of money

laundering when two were charged, instructing on "conceal[ment]"

under Section 1956(a)(1)(B)(i), but not on "to promote the carrying

on of specified unlawful activity" under Section 1956(a)(1)(A)(i).

However, Román cannot show that he was prejudiced because the

district court failed to instruct on an alternative government

theory. Román also claims that the instruction was "jumbled," but

does not explain how the instruction was jumbled, and we thus deem

this ground waived. See United States v. Zannino, 895 F.2d 1, 17

(1st Cir. 1990) ("[I]ssues adverted to in a perfunctory manner,

unaccompanied by some effort at developed argumentation, are deemed

waived.") (citations omitted). Finally, Román cannot show

prejudice because the district court did not define "proceeds" as

"profits," see Santos, 128 S. Ct. at 2031 (defining "proceeds" as

"profits" for purposes of the money laundering statute), because,

as discussed above, a rational jury could find beyond a reasonable

doubt that Román in fact engaged in a conspiracy to launder

profits.

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3. Good Faith Instruction

Román, Ramos, and Roldán also challenge the district

court's instruction on good faith. They properly preserved their

claim. However, because they only object as to the form and

wording of the instruction, we review for abuse of discretion.

The district court provided the following instruction:

In making a determination of whether a

defendant acted with specific criminal intent

to embezzle [Health Plan] funds or monies in

violation of Section 669 of Title 18, or to

conspire to violate Section 669[,] . . . you

may consider . . . whether or not that

defendant had a good faith belief that there

was authorization by law, and whether or not

that defendant had a good faith belief that

[his or her] use of the [Plan's] funds was in

furtherance of the interest of the [Plan].

The government has the burden of proving that

a defendant acted with the required intent[.]

. . .

[G]ood faith is an absolute defense to th[e]

charge[s]. Accordingly, the government must

prove in . . . the case of each defendant,

that [1] the defendant did not believe in good

faith that the use of the funds . . . would

benefit the [Health Plan's] participants and

beneficiaries[,] [and] [2] the defendant did

not believe in good faith that his or her use

of the fund[s] was authorized by the law.

(Emphasis added).

Román, Ramos, and Roldán first argue that the district

court erred because the instruction shifted the burden of proof

onto the Defendants, "requiring them to justify what the court

clearly saw as some degree of wrongful conduct." However, as the

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quoted section shows, the instruction plainly explains that the

government had "the burden of proving that a defendant acted with

the required intent." Román, Ramos, and Roldán further argue that

the instruction "eviscerated" their defense that "they had a good

faith belief that the funds were Union funds." Although the

instruction sets forth two examples of good faith conduct that the

jury "may" consider, it did not specifically preclude the

Defendant's theory. Thus, although perhaps not the most artful

instruction, the district court did not abuse its discretion in

providing it.

4. Rejection of Tax Evasion Instruction

García, Román, Ramos, Vázquez, and Roldán all argue that

the district court erred when it failed to instruct the jury during

the jury charge that this is not a tax evasion case. They claim,

given the use of tax related evidence during the government's case

in chief and closing, that declining their request to repeat the

instruction prejudiced them.

During the government's case-in-chief, however, and at

the Defendants' request, the district court did instruct the jury

that this was not a tax evasion case. The district court

instructed as to the following:

Members of the jury, this evidence that you

are going to receive now regarding the income

tax returns, I should tell you that . . . the

case that is before us . . . has nothing to do

with tax evasion. Tax evasion is exclusively

under the jurisdiction of the state courts,

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not the federal courts. And the evidence is

being allowed because the Government needs to

present evidence as part of their effort to

prove a number of elements in the federal

offenses which they think have something to do

with this. That is, of course, for you to

decide at the end of the case, on the basis of

the instructions that I will give you. And

that is the only purpose. So this is not a

tax evasion case. This is a healthcare

programs fraud case. That is what it is.

None of the above Defendants objected to the district court's

decision not to provide the same instruction during the jury

charge, only Caraballo did, who does not join this argument on

appeal. Thus, we review for plain error. See Fed. R. Crim. P.

30(a) ("Any party may request in writing that the court instruct

the jury on the law as specified in the request. The request must

be made at the close of the evidence or at any earlier time that

the court reasonably sets."); see also United States v. Harris, 104

F.3d 1465, 1471 (5th Cir. 1997) ("[T]he greater weight of authority

counsels that a party can rely upon the objection of his

codefendant only if he joins in the objection," citing cases).

The above Defendants claim prejudice, but it is difficult

to see how, when the mid-trial instruction was correct, and case

law presumes that "jurors . . . follow the trial judge's

instructions." United States v. Torres, 162 F.3d 6, 12 (1st Cir.

1998); see also United States v. Rivera-Gómez, 67 F.3d 993, 999

(1st Cir. 1995) ("[J]urors are not children.") overruled on other

grounds by Jones v. United States, 526 U.S. 227 (1999). Moreover,

-75-

García specifically argues that prejudice may have resulted from

the government's closing, but the government reminded the jurors in

closing that "[t]his is not a tax evasion case." We thus see no

error.

C. Trial Procedure

The Defendants also raise a number of issues with respect

to the district court's management of the trial.

1. Mid-Trial Severance Challenge

Vázquez separately contends that the district court

abused its discretion when it refused to grant a mid-trial

severance based on his attorney's alleged conflict of interest.

Vázquez argues that he was discouraged from testifying by his

counsel as a result of this asserted conflict, affecting the

outcome of the proceedings.

As background, Francisco Dolz, counsel for Andino,

informed the government during its case-in-chief that Angel Tapia,

counsel for Vázquez, had admitted to doctoring minutes concerning

the Welfare Account. The government filed a sealed motion

informing the district court of the allegation, and requested a

hearing. The court held a hearing that same day, with Dolz

testifying that Tapia had admitted to him that Tapia's handwriting

appeared on the doctored minutes. The district court ordered Tapia

to respond, and the next day Tapia declared that the allegation was

"totally untrue," but that the allegation created "a conflict of

-76-

interest" that required severing Vázquez's case mid-trial. The

district court denied the motion, finding no conflict, but further

required Tapia to respond to the allegation in writing. Tapia

filed a sworn statement, stating that "I have never told attorney

Francisco Dolz expressions to the effect that I have altered any

minute or any document of any kind of the [Union]," and further

stating that the allegation was based on a misunderstanding.

Vázquez appeals the denial of his mid-trial severance

motion. Since a "mid-trial severance is . . . an extraordinary

measure," we will "overturn [a denial for severance] only if [the

court's] wide discretion is plainly abused." United States v.

Sotomayor-Vázquez, 249 F.3d 1, 17 (1st Cir. 2001) (citations and

quotations omitted). Moreover, where, as here, a defendant claims

that a conflict of interest warrants a new trial, he "must show

that the lawyer could have pursued a plausible alternative defense

strategy or tactic and that the alternative strategy or tactic was

inherently in conflict with or not undertaken due to the attorney's

other interests or loyalties." Id. at 15 (quotation marks

omitted).

Vázquez contends that Tapia's conflict of interest,

particularly his purportedly doctoring the Welfare Account minutes,

caused Tapia to discourage Vázquez from testifying. However,

Vázquez's claim of "intimidation" has no support in the record, and

Vázquez does not cite to any. Furthermore, Vázquez failed to file

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any pro se motion contending that Tapia discouraged him from

testifying, or claimed that he was prevented from doing so. In any

event, the proper vehicle for relief for ineffective assistance of

counsel is a motion under 28 U.S.C. § 2255, not direct appeal. Cf.

United States v. Genao, 281 F.3d 305, 313 (1st Cir. 2002) ("[W]e do

not entertain ineffective assistance claims on direct appeal absent

an evidentiary record that allows us to evaluate the fact-specific

allegations. The preferable vehicle for such claims is a

collateral proceeding under 28 U.S.C. § 2255.") (citation

omitted).

Given the lack of any record support to substantiate

Vázquez's claim, and the process afforded to Vázquez by the

district court, it is hard to see any abuse of discretion on the

part of the district court in denying a severance. Accordingly, we

hold that the district court did not abuse its discretion in

refusing to sever mid-trial.

2. Misstatement in Closing Argument

García and Vázquez both argue that the district court

abused its discretion when it declined to grant them a new trial

based on an alleged misstatement made during the prosecution's

closing argument.

As we noted earlier, during the strike in 2004, the Union

paid each of its members $300 every two weeks. In its rebuttal

closing argument, the prosecution argued that (1) this money came

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from the Union Account; (2) the Union Account contained Health Plan

funds; and (3) the Plan thus helped pay for the strike, even though

its funds were not meant for that purpose. The prosecutor further

stated:

I did my math. And it's approximately $5.8

million that the [U]nion dished out for those

picketing workers on the lines, the striking

people, the people that were out. And I'm not

saying that those people don't deserve to get

monies. I'm saying not from health care

funds. Where did the [U]nion get $5.8 million

during the strike? Where did the [U]nion get

the money to pay Héctor René Lugo and all

these people?

None of the defendants contemporaneously objected to this line of

argument during the closing itself, but they all objected at a

sidebar afterward. They claimed that the argument was "false"

because, according to them, the money for the picketing workers

came from a Union "strike fund," not from Health Plan funds. The

district court overruled the objection.

As García and Vázquez preserved their claim, we review de

novo whether the prosecution's remarks were improper. United

States v. Nelson-Rodríguez, 319 F.3d 12, 38 (1st Cir. 2003); see

also United States v. Robinson, 473 F.3d 387, 393 (1st Cir. 2008)

("We review de novo whether a challenged statement by the

prosecutor during closing argument was improper.") However, we

review for "manifest abuse of discretion" a district court's

"refusal to grant a new trial." United States v. Potter, 463 F.3d

9, 22 (1st Cir. 2006). Even if the remarks are improper, we affirm

-79-

unless they prejudiced the defendant. United States v. Joyner, 191

F.3d 47, 53 (1st Cir. 1999). We consider the following factors in

considering prejudice:

(1) the severity of the prosecutor's

misconduct, including whether it was

deliberate or accidental; (2) the context in

which the misconduct occurred; (3) whether the

judge gave curative instructions and the

likely effect of such instructions; and

(4) the strength of the evidence against the

defendants.

Nelson-Rodríguez, 319 F.3d at 38 (quotation omitted).

García and Vázquez contend that the government's remarks

at closing were improper, claiming that (1) the Union paid the

striking workers from "Banco Santander [Account] No. 1310003987";

(2) that the account belonged to the Union, not the Health Plan;

and (3) the Plan thus did not help pay for the strike, and the

prosecution, in arguing to the contrary, had "misstate[d] evidence"

and "misl[e]d the jury." In response, the government contends that

"Banco Santander No. 1310003987" was the Union Account, as defined

in the indictment, and, since the Plan funds were diverted to that

Account, the government's remarks were factually accurate.

Even if improper, the remarks had no effect on the trial

outcome, as the case concerned not how the striking workers were

paid, but whether the Defendants paid themselves with money they

knew did not belong to them. At best, this is a "stray remark"

that is too inconsequential to warrant reversal. See United States

v. Martínez-Medina, 279 F.3d 105, 119 (1st Cir. 2002). Finally, as

-80-

correctly noted by the government, the district court instructed

the jury that closing statements are "not evidence." Accordingly,

we see no reversible error.

3. Post-Trial Threats and Harassment

Caraballo, Andino, and Urbina argue that the district

court abused its discretion in declining to grant them a new trial

based on their post-trial allegations that Lugo and others

discouraged them, through threats and harassment, from testifying.

As background, the Defendants were found guilty on

June 16, 2006. Six months later, during a December 6, 2006

sentencing hearing, Urbina alleged for the first time that Lugo and

other unnamed individuals had issued veiled threats that had

discouraged him, Caraballo, and Andino from testifying at trial on

their own behalf. Urbina further asserted that he, Caraballo, and

Andino would have testified that they were not at the purported

board meetings concerning the loans from the Union to the Health

Plan.

On February 2, 2007, Caraballo, Andino, and Urbina moved

for a new trial, arguing that the alleged threats constituted

"newly discovered evidence" under Rule 33(b)(1) of the Federal

Rules of Criminal Procedure. The district court denied the motion,

finding that any threats had not been "serious enough" to dissuade

the defendants from testifying and that their decision not to

testify was in fact a "strateg[ic]" one.

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Caraballo, Andino, and Urbina renew their arguments on

appeal, and contend that they are entitled to a new trial. "We

review a district court's denial of a new trial motion for manifest

abuse of discretion." United States v. Del-Valle, 566 F.3d 31, 38

(1st Cir. 2009). "The remedy of a new trial must be used sparingly,

and only where a miscarriage of justice would otherwise result."

Id. (citing United States v. Conley, 249 F.3d 38, 45 (1st Cir.

2001)).

A defendant who seeks a new trial on the basis

of newly discovered evidence bears a 'weighty

burden' of establishing that: (1) the evidence

was unknown or unavailable to the defendant at

the time of trial; (2) failure to learn of the

evidence was not due to lack of diligence by

the defendant; (3) the evidence is material

and not merely cumulative or impeaching; and

(4) the emergence of the evidence will

probably result in an acquittal upon retrial

of the defendant.

Id.

There was no abuse of discretion. First, if their claims

of threats were true, then obviously they would have known about

the threats during trial. Thus, their evidence cannot be "newly

discovered," as they cannot claim that the threats were "unknown or

unavailable to [them] at the time of trial." See United States v.

Wright, 625 F.2d 1017, 1019 (1st Cir. 1980). Second, they cannot

show any prejudice. This is because their claim that they would

have testified that they did not participate in purported board

meetings concerning the loans from the Union to the Health Plan

-82-

would have supported the government's theory that these meetings

never occurred and that minutes over those loan meetings were

doctored.

D. Sentencing

Finally, some of the Defendants appeal their sentences.

As a threshold matter, the government concedes that, because the

convictions for the Seven Chapter Presidents for money laundering

must be set aside, they are entitled to resentencing. See United

States v. Meader, 195 F.3d 66, 68 (1st Cir. 1999) (resentencing

appropriate where the Court "[could] not say that the trial judge

would have reached the same sentence within the range"). Since the

government concedes that the Chapter President Defendants are

entitled to resentencing, we decline to address any of their

arguments with respect to their sentences. Cf. United States v.

Pinillos-Pietro, 419 F.3d 61, 74-75 & n.14 (1st Cir. 2005)

(declining to reach drug quantity claims given vacatur and remand

of sentences in light of government's concession of Booker error).

We thus address only the sentencing challenges of the Top Four

Defendants, and do not discuss the merits of the other Defendants'

sentencing challenges.

1. Loss Calculation Enhancement

Some of the Top Four Defendants contend that the district

court erred in assessing against each of the defendants an 18-level

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enhancement under the Sentencing Guidelines based on a "loss"

calculation of between $2,500,000 and $7,000,000.

"Under the advisory guidelines regime, the district court

can use the preponderance of the evidence standard to determine

whether an enhancement applies." United States v. Pierre, 484 F.3d

75, 89 (1st Cir. 2007) (quoting United States v. Holliday, 457 F.3d

121, 130 (1st Cir. 2006)). Accordingly, we review the district

court's "factbound" determinations for purposes of sentencing for

clear error. Id. (citing United States v. Ventura, 353 F.3d 84, 89

(1st Cir. 2003)).

As background, the district court applied U.S.S.G.

§ 2B1.1(b)(1) (2005), and applied an 18-level enhancement for each

defendant under Section 2B1.1(b)(1)(J), since the loss amount the

court calculated (approximately $5.5 million, with $1.1 million

added to Lugo and Román for misapplying additional funds) was

between $2.5 million and $7.5 million. Application Note 3(E)(I) to

U.S.S.G. § 2B1.1(b)(1) provides an offset for "[t]he money

returned, and the fair market value of the property returned and

the services rendered, by the defendant or other persons acting

jointly with the defendant, to the victim before the offense was

detected." We review the district court's determination for clear

error.

On appeal, the Top Four Defendants all challenge the

district court's loss calculation on two grounds: (1) none of them

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could have foreseen the amounts that each of the other defendants

would receive, such that each defendant's loss amount should, at

the most, be the amount he or she individually received; see United

States v. Codarcea, 505 F.3d 68, 72 (1st Cir. 2007) (under Section

2B1.1, a conspirator will be held accountable for losses within the

scope of a conspiracy that "would have been foreseeable by a

reasonable person in [the conspirator's] shoes"); and (2) the court

should have credited them for "services rendered."

The first ground fails. The Top Four Defendants'

extensive knowledge and control of the embezzlement scheme as a

whole made the total amount foreseeable. As to the second ground,

the Top Four Defendants premise their argument on the fact that

their scheme was detected in 2004, but the evidence shows that the

date of detection was as early as 2000, when the OIC audited the

Health Plan. See U.S.S.G. § 2B1.1 cmt. n.3(E)(I) (defining "time

of detection" as "the earlier of (I) the time of the offense was

discovered by a victim or government agency; or (II) the time the

defendant knew or reasonably should have known that the offense was

detected or about to be detected by a victim or government

agency"). By that time, the evidence showed that the AAA paid $1.2

million pursuant to the "labor license." Assuming the same amount

for services rendered to the Plan, it would not lower the total

amount embezzled below the $2.5 million threshold for the

enhancement. Thus, we find no error.

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2. Lugo Enhancements

Lugo separately argues that the court's factual findings

with respect to his sentencing enhancements for (1) using

sophisticated means, (2) deriving more than $1,000,000 from a

financial institution, and (3) organizing or leading an extensive

criminal activity, were clearly erroneous.

As background, at Lugo's sentencing, the district court

assessed a base offense level of seven, pursuant to U.S.S.G.

§§ 2S1.1(a)(1) & 2B1.1(a)(1), and then the following enhancements:

an 18-level loss enhancement under U.S.S.G. § 2B1.1(b)(1), as

already discussed; a two-level enhancement under U.S.S.G.

§ 2S1.1(b)(2)(B), because Lugo was convicted under 18 U.S.C.

§ 1956; a two-level enhancement under U.S.S.G. § 3B1.3, because

Lugo abused a position of trust; a two-level enhancement under

U.S.S.G. § 2B1.1(b)(9)(C), because Lugo used "sophisticated means"

in committing the offense; a two-level enhancement under U.S.S.G.

§ 2B1.1(b)(14)(A), because Lugo derived more than $1,000,000 in

gross receipts from a "financial institution[ ]"; and a four-level

enhancement under U.S.S.G. § 3B1.1(a), because Lugo was an

"organizer or leader" of an extensive criminal activity involving

five or more participants. Lugo objected to the enhancements for

using sophisticated means, deriving more than $1,000,000 from a

financial institution, and organizing or leading an extensive

criminal activity. The district court overruled his objections.

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As Lugo preserved his claims, we review the district

court's factual findings supporting these enhancements for clear

error.

a. sophisticated means

As to using sophisticated means, Lugo used several Union

Accounts (the Infrastructure Account, the Administrative Account,

and the Welfare Account) to conceal and move millions of dollars.

The record also shows that Lugo filed fraudulent tax returns and

that he participated in doctoring minutes of meetings. These are

sufficient "sophisticated means" to support the enhancement. See

United States v. Edelmann, 458 F.3d 791, 816 (8th Cir. 2006)

(affirming where the defendant "created and used numerous false

documents," "including multiple years of federal tax returns," fake

loan documents, and misleading bank statements; even assuming the

component parts of the scheme were not complex, "the total scheme

was sophisticated"). The only things that Lugo raises in response

are the same claims that support his sufficiency claims, which we

have already rejected.

b. $1,000,000 in gross receipts from a

"financial institution[]"

As to "deriving more than $1,000,000 from a financial

institution," Lugo argues that the Plan does not qualify as a

"financial institution." However, U.S.S.G. § 2B1.1 cmt. n.1

defines a "financial institution" as the following:

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"Financial institution" includes any . . .

union or employee pension fund; any health,

medical, or hospital insurance association;

. . . and any similar entity, whether or not

insured by the federal government. "Union or

employee pension fund" and "any health,

medical, or hospital insurance association,"

primarily include large pension funds that

serve many persons . . . and associations that

undertake to provide pension, disability, or

other benefits (e.g., medical or

hospitalization insurance) to large numbers of

persons.

The Health Plan clearly falls within this definition. We thus

reject Lugo's claim.

c. "organizer or leader"

As to his "organizer or leader" enhancement under

U.S.S.G. § 3B1.1(a), Lugo argues that the district court clearly

erred in imposing the enhancement because, he claims, there was no

evidence that Lugo managed participants. See United States v.

Cali, 87 F.3d 571, 578 (1st Cir. 1996) (noting that, "[i]n the

past, we have required some 'degree of control or organizational

authority over others' to support a section 3B1.1(b) adjustment").

Lugo, in particular, argues that the district court clearly erred

when it found at sentencing that Lugo "recruit[ed]" the other

Defendants to participate in the scheme, as all of the Defendants

were elected to their positions. But such a finding is not clearly

erroneous given that the evidence showed his extensive coordination

of the various activities engaged in by the Defendants, such as

falsifying loan documents, doctoring minutes, and bamboozling the

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OIC concerning the administrative services contract. Thus, his

coordination supports a reasonable inference that he recruited the

others to participate. In any event, his involvement in all of

these activities supports the district court's ultimate finding

that "[f]rankly, this [crime] would not have happened [but] for the

fact that [Lugo] was there." Finally, Lugo seizes on the district

court's statement that "[t]here is no leader here," but the

district court made this statement in response to defense counsel's

statement that the Defendants "were elected by the leadership."

(Emphasis added). Read in context, the statement only corrects

defense counsel's statement. Accordingly, the district court did

not err in imposing the enhancement.

3. Substantive Reasonableness

Finally, Lugo and Román challenge the substantive

reasonableness of their sentences under 18 U.S.C. § 3553(a), citing

their old age and poor health. Lugo separately challenges the

disparity between his sentence and that of Román. Lugo was

sentenced to 210 months and Román to 108 months.

We review a substantive reasonableness challenge under an

"abuse-of-discretion standard." Gall v. United States, 128 S. Ct.

586, 594 (2007). Specifically, we review a within Guidelines

sentence only for whether it represents "a defensible overall

result." United States v. Jiménez-Beltre, 440 F.3d 514, 518 (1st

Cir. 2006) (en banc).

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We conclude that the result here was defensible. Román

claims that nine years "is a very long time" for someone with his

health conditions, but fails to show that he cannot get adequate

medical care in prison. Neither does Lugo, who makes the same

argument. Given the severity and sophistication of their offenses,

their sentences are appropriate despite their ages. Lugo

separately emphasizes the disparity between his sentence (210

months) and Román's sentence (108), arguing that their sentences

must be "aligned" because the "disparit[y] [is] conspicuous and

threaten[s] to undermine confidence in the criminal justice

system." United States v. Martin, 520 F.3d 87, 94 (1st Cir. 2008).

However, we leave such alignment to the discretion of the district

court, see id., and the district court did not abuse its discretion

here, where Lugo's longer sentence is justified by, among other

things, the fact that he embezzled double the amount of funds as

did Román. For all of these reasons, we reject their claims.

III. Conclusion

For the forgoing reasons, we affirm in part, reverse in

part, and remand for proceedings consistent with this opinion.

Affirmed in part, Reversed in part, and Remanded.

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