United States v. Kosth, Daniel A.

In the

United States Court of Appeals

For the Seventh Circuit

No. 00-1215

United States of America,

Plaintiff-Appellee,

v.

Daniel A. Kosth,

Defendant-Appellant.

Appeal from the United States District Court

for the Central District of Illinois.

No. 98-40028-001--Michael M. Mihm, Judge.

Argued November 13, 2000--Decided July 18, 2001

Before Harlington Wood, Jr., Kanne, and

Diane P. Wood, Circuit Judges.

Diane P. Wood, Circuit Judge. Daniel

Kosth was convicted on four counts of

making false statements in violation of

18 U.S.C. sec. 1001 in connection with

loans from the Small Business

Administration (SBA). His appeal rests

principally on a claim that the evidence

was insufficient to support those

convictions, although he also raises a

few other arguments and he claims error

in the trial court’s application of the

Sentencing Guidelines. We find that the

evidence was adequate to support the

jury’s conclusions and that no other

reversible error occurred, and we

therefore affirm the convictions.

I

The genesis of this case can be found in

Kosth’s plans to convert an abandoned 40-

acre golf course and recreation area in

Orion, Illinois, into the Hillcrest

Resort. In the summer of 1992, he

approached Charles Azzaline and Peter

Gray about purchasing the land and

becoming partners in Hillcrest Resort,

Inc. He described his idea for the

resort, but he did not tell Azzaline and

Gray about his own dubious background.

Kosth had recently been released from

federal prison after serving time on a

financial fraud conviction. One of the

conditions of his supervised release was

that he notify any financial institution

with which he did business of his

previous offense, his conviction, and his

supervised release status. Kosth, aware

that his new venture was not likely to

succeed if he complied with the terms of

his supervised release, hatched a plan.

Part one of the plan called for him to

avoid disclosing his past to his partners

and any financial institutions that he

dealt with by concealing his ownership

interest in Hillcrest. Part two, which he

also implemented, required him to place

his one-third stock interest in the

Hillcrest Resort, Inc. in his wife

name, alleging that he was doing so for

tax purposes.

These arrangements did not change the

fact that Kosth enjoyed all the rights

and benefits that come with having a

substantial ownership interest in a

closely held corporation. His wife, Terri

Kosth, had none of them. Terri Kosth’s

Hillcrest stock was acquired almost

exclusively with in-kind contributions of

building supplies; supplies which a

reasonable jury could have concluded came

from Daniel Kosth’s construction

business. It was Kosth who incorporated

Hillcrest. He co-signed the deed to

purchase the Hillcrest property with

Azzaline and Gray. He was named vice

president and was empowered to write

checks and enter into contracts on

Hillcrest’s behalf. He ran Hilcrest

monthly board meetings and he regularly

voted Terri’s ownership interest.

Hillcrest implemented a stock reversion

agreement under which, upon the death of

any stockholder, the stock would revert

to the corporation rather than to the

stockholder’s heir. But the agreement

included a special provision for the

stock held by Terri; her stock was to

revert to the corporation upon Daniel

Kosth’s death. Finally, when itsuited

his purposes, Kosth publicly held himself

out to be a one-third owner of Hillcrest.

In 1992, Hillcrest Resort Inc. purchased

the golf course and recreation area

property for $170,000. Kosth negotiated

this transaction and subsequently

negotiated additional financing for the

renovation of the property with Orion

Bank. In keeping with his plan, Kosth

relied on his nominal non-ownership of

Hillcrest to avoid his obligation to

disclose his criminal past to Orion Bank.

During 1992 and 1993, Orion loaned

Hillcrest $70,000 and took a security

interest in private property owned by

Azzaline, Gray, and Terri Kosth. For

Terri, this included a real estate

business that she owned, named Quad

Cities Property Management, as well as

several pieces of real property. Using

the proceeds of this initial loan,

Hillcrest hired Bi-State Construction to

begin the renovation of the golf course.

Daniel Kosth was the sole owner and

President of Bi-State.

Unfortunately, in the summer of 1993

severe rains caused significant damage to

the Hillcrest property. Kosth initially

requested an additional $400,000 loan

from Orion on behalf of Hillcrest. Orion

denied his request. It agreed instead

that it would loan Hillcrest the money to

pay off the $130,000 still owed on the

original contract for the property

andextend an additional $70,000 in

credit, provided that Hillcrest paid off

its outstanding debt on the original

$70,000 loan. This offer appealed to

Kosth, but he needed to find someone to

loan him the money to pay off the

outstanding debt to Orion. His eye fell

on the SBA, which, because of the heavy

rains in the area including Hillcrest,

had decided thatresidents there were

eligible for its low interest disaster

assistance loans.

Kosth completed preliminary paperwork

for the Federal Emergency Management

Agency, met with the local SBA

representative, and then filled out the

SBA disaster loan application. That

application required Kosth to identify

all the managers of Hillcrest Resort,

Inc., and defined a manager as anyone

with an ownership interest in the company

of greater than 20%. Kosth put down

Azzaline, Gray, and Terri Kosth. The

application then required Kosth to

disclose whether any of the managers had

ever been convicted of a crime. None of

the managers he had listed ever had, so

he put "no."

Shortly after he submitted the

application, an SBA loss verifier visited

the Hillcrest property. Following an

inspection of the damage, the loss

verifier prepared an estimate for the

repairs of $151,000. This estimate had as

a built-in component a standard 15%

profit margin. The catch was that under

the terms of the SBA’s loan agreement

with Hillcrest, this profit could not be

enjoyed by companies affiliated with

Hillcrest (without prior permission of

the SBA) or by the immediate family

members of Hillcrest’s principals. The

language of the agreement to this effect

was clear:

Borrower will not use any proceeds of

this Loan to pay wages or any other

compensation for repair work performed by

Borrower or members of Borrower’s

immediate family.

The loan agreement also specified that

loan proceeds could be used only to pay

for disaster repairs and that any money

not needed to complete the repairs had to

be returned.

Despite this language, Kosth thought he

saw a way around it. He submitted a

financing proposal to Orion Bank in which

he declared that, using his company

Bi-State, he could complete all the

repairs at Hillcrest and retain a $70,000

profit. He would then take this profit

and give it to his wife. She in turn

would loan it to Hillcrest, as an officer

loan, and Hillcrest would use the loan to

pay off its outstanding obligation to

Orion. Once this was done, Orion would

pay off the $130,000 mortgage on the

Hillcrest property and extend a new

$70,000 loan to Hillcrest.

Recognizing the potential problem

created by the terms of the SBA loan

agreement, Orion approved the financing

proposal contingent upon receipt of a

letter from the SBA "evidenc[ing] their

full knowledge and approval of the method

you plan to use to make the necessary

repairs to the resort and retire

Hillcrest’s existing indebtedness to the

bank." Kosth consulted an attorney to

determine what kind of disclosure would

satisfy the terms of the loan agreement.

Although Kosth gave the attorney all of

the relevant documents, he somehow

neglected to inform him that he (Kosth)

intended to take $70,000 of the $151,000

loan as profit and not to return it to

the SBA. Based on the information he had,

Kosth’s attorney advised Kosth that

everything should be fine if Hillcrest

disclosed that one of its partners was

married to the owner of Bi-State.

Azzaline and Gray--also unaware of

Kosth’s plan to take $70,000 profit from

the loan--were satisfied with this

advice.

Kosth then carried out the master plan.

Acting on behalf of Hillcrest, he sent a

letter stating Hillcrest’s desire to

"continue its business relationship" with

Bi-State and disclosing that Terri Kosth

was married to Bi-State’s owner. With the

letter, Kosth enclosed Bi-State’s

"Construction Agrement [sic]" with

Hillcrest, which included its "bid, work

schedule agrement [sic] with payment

requirements." This document itemized the

proposed repairs and, without indicating

any profit line item, projected a total

project cost of $151,000. The SBA

received the letter and began making

disbursements payable to Hillcrest and

Bi-State in March of 1994.

Between April and November 1994, the SBA

approved $190,000 in disaster loan funds

for Hillcrest and actually disbursed

$176,000 of that total. The increase over

the original $151,000 came as a result of

several "urgent" requests from Kosth

claiming that he needed additional

funding to complete the Hillcrest

repairs. The SBA also gave Kosth a

$15,900 loan for a separate economic

injury.

The first two SBA disbursement checks,

totaling $130,000, were deposited into

Bi-State’s account in April and May of

1994. Using this money, Kosth wrote

checks totaling $118,800 to Quad Cities

Property Management. Terri Kosth then

transferred $70,000 of this money to

Orion Bank to pay off Hillcrest’s

outstanding debt. Orion in turn loaned

Hillcrest the $200,000 as promised and

released its security interest in the

Hillcrest partners’ private property.

Terri Kosth then wrote two checks for

$45,000 from her Quad Cities account to

Hillcrest. Through this money-shuffling,

the Kosths managed to use the SBA loan

proceeds to put Hillcrest in debt to

Terri Kosth and Quad Cities to the tune

of $115,000. Shortly after the third loan

disbursement check for $21,000 was

deposited in Bi-State’s account, Kosth

made out several checks for cash. He also

paid off over $5,000 in gambling and

credit card debts with checks drawn on

Bi-State’s account.

Things began unraveling in late 1994,

when the U.S. Attorney’s office sent a

letter to the SBA expressing concern

about Kosth’s receipt of SBA funds. That

letter prompted the SBA to send an

inspector, Karl Dietz, to Hillcrest on

November 16, 1994. In preparation for

Dietz’s visit, Kosth prepared an

accounting of Bi-State’s use of SBA

funds. This accounting contained a line

item indicating that Bi-State had made

$13,275 in profit and incurred $5000 in

administrative costs to date. Dietz,

seeing the line items, crossed them out

and wrote "not eligible."

As a result of the information Dietz

gathered, the SBA halted any further

disbursements of funds to Hillcrest. On

June 18, 1998, the grand jury returned a

four count indictment against Kosth

alleging that he had made numerous false

statements to the SBA, all in violation

of 18 U.S.C. sec.1001. As we have already

noted, a jury convicted Kosth on all four

counts. Following his conviction, Kosth

moved for a judgment of acquittal and for

a new trial, under Fed. R. Crim. P. 29(c)

and 33 respectively. The district court

denied both motions. On January 13, 2000,

Kosth was sentenced to 46 months’

imprisonment and required to pay $128,593

in restitution. Kosth appeals both his

conviction and his sentence.

II

A. Evidentiary Challenges

Kosth raises a number of challenges to

his conviction. We can dispose quickly of

his evidentiary claims, which challenge

the district court’s decision to admit

evidence of his prior conviction, the

terms of his supervised release, and his

gambling. These kinds of decisions are

reviewed for abuse of discretion. United

States v. Van Dreel, 155 F.3d 902, 905

(7th Cir. 1998). In this case, there was

none. The government wanted to use, as

part of its proof on Count I of the

indictment, the fact of Kosth’s prior

conviction to show that Kosth lied when

he stated on the SBA loan application

that none of Hillcrest’s managers had

criminal records. It sought to introduce

the terms of his supervised release to

establish Kosth’s motive for originally

establishing the sham ownership

arrangement with his wife. Both of these

are proper bases for admitting what would

otherwise arguably fall within the scope

of Fed. R. Evid. 404(b)’s prohibition

against the use of other wrongful acts

evidence. The court also issued

appropriate cautionary instructions that

prohibited the government from telling

the jury the nature of the previous

conviction and clearly delimited the

purposes for which the evidence could be

considered. The government’s evidence

that Kosth spent part of the SBA loan

money on gambling was also properly

admitted as direct evidence relating to

the charges in Count III, which asserted

that Kosth falsely represented to the SBA

that he would use the SBA loan money only

for repairs of the Hillcrest property.

B. Jury Instructions

Kosth next argues that the district

court’s instruction to the jury regarding

the government’s "sham ownership" theory

was erroneous. We review the district

court’s decisions regarding jury

instructions for abuse of discretion.

United States v. Neville, 82 F.3d 750,

759 (7th Cir. 1996). If jury instructions

fairly and accurately summarize the law

and have support in the record they will

not be disturbed on appeal. United States

v. Wimberly, 79 F.3d 673, 676 (7th Cir.

1996).

The instruction at issue was worded as

follows:

Also as to Count I, if the defendant

made or used, or caused to be made or

used a document containing a statement

and that statement represented as true a

false front or sham ownership arrangement

in an effort to qualify to receive a

government loan, such conduct would be

unlawful provided the government proves,

in connection with that statement, each

of the five [elements of a false

statement offense]. It is for you to

determine whether the ownership

arrangements regarding Hillcrest Resorts,

Inc. constituted a false front or sham.

Kosth contends that this instruction was

erroneous because it failed to specify

the "elements" of a sham ownership

arrangement. In support of this argument,

he cites a number of tax liability cases

involving sham ownership allegations.

See, e.g., Sacks v. Commissioner, 69 F.3d

982, 986 (9th Cir. 1995). The doctrine of

sham ownership in the context of tax

liability determinations, however, is at

most a useful indicator that judges and

juries may look beyond formalities to

determine questions of income and, in

this case, ownership. See, e.g., Buelow

v. Commissioner, 970 F.2d 412 (7th Cir.

1992) (noting tax court’s decision that

property assigned by defendant to sham

trust remained his property for tax

purposes). The specific elements of this

tax liability doctrine are not applicable

here.

The government’s theory in this case was

straightforward: Kosth was the true owner

of the shares in Hillcrest but he used

his wife Terri as the paper owner in

order to gain access to and control over

government benefits to which he otherwise

would not have been entitled. The

impropriety of this kind of evasion has

long been well established in the case

law. United States v. Kingston, 971 F.2d

481 (10th Cir. 1992) (defendant who paid

sham-buyers to be title-holders in order

to get access to HUD and VA loans induced

false statements in violation of sec.

1001); Harrison v. United States, 279

F.2d 19 (5th Cir. 1960) (entries in

bank’s books indicating loan to city were

false statements where mayor was true

beneficiary of the loans); United States

v. Swaim, 757 F.2d 1530 (5th Cir. 1985)

(affirming conviction for scheme to

conceal purchase price of building in

order to acquire federal loan); Ehrlich

v. United States, 238 F.2d 481 (5th Cir.

1956) (scheme to use veterans’ names to

obtain subsidized price for properties

supported conviction under sec. 1001).

Even if the instruction could have been

more detailed with respect to the

relevant indicia of ownership (an issue

Kosth has not raised and thus has

waived), the concepts of "sham" and

"false front" did not require any further

specification to state the law adequately

for the jury’s purposes. This

instruction, in short, did not give rise

to reversible error.

C. Sufficiency of the Evidence

We come, then, to Kosth’s principal

argument, which attacks the sufficiency

of the evidence on all four counts.

Although Kosth properly preserved both

his argument for acquittal as a matter of

law and for a new trial in the procedural

sense, see United States v. Griffin, 194

F.3d 808, 816-18 (7th Cir. 1999), from a

substantive standpoint it is exceedingly

difficult to succeed on either ground. On

this type of review, the appellate court

must consider the evidence in the light

most favorable to the verdict. Only if,

from this vantage point, the record

contains no evidence from which the jury

could have found guilt beyond a

reasonable doubt, is reversal

appropriate. E.g., United States v.

Hickok, 77 F.3d 992, 1002 (7th Cir.

1996). Our review of the district court’s

denial of the Rule 33 new trial motion is

also deferential; as the late Professor

Charles Alan Wright’s respected treatise

puts it, "[t]he appellate court properly

defers to the view of the trial court [on

the denial of a Rule 33 motion], and will

affirm unless there has been error as a

matter of law or a clear and manifest

abuse of judicial discretion." 3 Charles

Alan Wright, Federal Practice and Procedure:

Criminal (2d), sec. 559 at 368 (1982).

1. Count I

Count I of the indictment charged Kosth

with making a false statement on the SBA

disaster loan application in violation of

18 U.S.C. sec. 1001. To convict under

this statute the government must prove

beyond a reasonable doubt that (1) the

defendant made a statement, (2) the

statement was false, (3) the statement

was material, (4) the statement was made

knowingly and willfully, and (5) the

statement concerned a matter within the

jurisdiction of a federal department or

agency. United States v. Ross, 77 F.3d

1525, 1543-44 (7th Cir. 1996).

The government alleged that Kosth

knowingly made a material false statement

when he indicated on the disaster relief

application that Terri was a manager of

Hillcrest and that no Hillcrest manager

had a criminal record. According to

Kosth, the government’s case founders on

the second and third of the sec.1001

requirements--falsehood and materiality.

He claims that he was not required to

identify himself as one of Hillcrest’s

managers or to disclose his criminal his

tory on the SBA disaster relief

application because the SBA application

defined "manager" as any person owning at

least 20% of the company’s stock, and it

was Terri who owned 30% of the shares in

Hillcrest Resort, Inc.

This position implies that the jury was

required to accept the superficial

arrangements Kosth had made as reality.

The government, however, presented

evidence intended to convince the jury

that Terri Kosth was merely a sham or

straw owner of Hillcrest. Although Kosth

attacks the sufficiency of the evidence

of sham ownership, we are satisfied that

there was enough evidence in the record

to support the jury’s decision to accept

the government’s version of events. There

was ample evidence to support findings

that Hillcrest Resorts, Inc., was Kosth’s

idea; that because of the terms of his

probation, he needed a way to conceal his

ownership interest in Hillcrest when

dealing with financial institutions and

the SBA; and that he used his wife for

this purpose. Among the most compelling

evidence that he was the true owner of

the stock was the stock reversion

agreement that provided that Terri

Kosth’s stock would revert to the

corporation in the event of Daniel

Kosth’s death. It was also telling that

Daniel Kosth regularly voted his wife’s

shares, that Terri played no role in the

management of the business, and that she

acquired 90% of "her" stock interest

through in-kind contributions of building

materials, goods which Daniel Kosth, as

owner of a construction company, was well

positioned to supply. This evidence, when

considered in conjunction with the

extensive evidence of Kosth’s control

over the day-to-day operations of

Hillcrest, supports the jury’s conclusion

that Kosth was the true part-owner and

manager of Hillcrest, that he knew this

to be the case when he filled out the SBA

loan application, and that he made the

false statement with the intention of

obtaining an SBA loan which he realized

he was otherwise unlikely to get. Cf.

Ehrlich, 238 F.2d at 483-84 (whether

veterans’ statements were true depended

on jury’s determination of the nature of

the defendant’s scheme).

Perhaps recognizing the problem the

evidence presented at trial created for

his claim of innocence, Kosth tried

tointroduce two affidavits with his Rule

29 and 33 motions whose purpose was to

buttress the bona fides of Terri’s

separate ownership. He has continued to

rely heavily on these affidavits in his

arguments on appeal. But the district

court, while allowing the affidavits to

be filed, made clear that they would be

considered only for the limited purpose

of one of the specific claims of error in

Kosth’s motion for a new trial. Kosth did

not argue that they were pertinent to the

government’s sham ownership claim in that

motion, nor were they admitted for that

purpose. We therefore do not consider

them to be part of the record and decline

Kosth’s invitation to treat them as if

they were evidence before the jury. We

note in addition that they would not have

anything like the dispositive effect

Kosth attributes to them, even if they

were properly here.

Kosth stresses, and we agree, that he

cannot be convicted under sec.1001 for

statements that are literally true, see

United States v. Lozano, 511 F.2d 1 (7th

Cir. 1975), and that there is no "sham"

if the owner of property transfers his

entire interest in the property to a

third party and then denies ownership of

that property. See United States v.

Gahagan, 881 F.2d 1380 (6th Cir. 1989).

We note at the outset that Kosth did not

request a "literal truth" instruction or

otherwise assert this defense at trial.

Even if it was not waived, a full review

of the record shows that the jury did not

convict Kosth for literally true

statements. The whole point of the

government’s evidence was that, unlike

the defendant in Gahagan, Kosth had not

relinquished the benefits of owning the

property at the time he completed the SBA

application. To the contrary, he enjoyed

all the real indicia of share ownership

and he was actively managing both the

board and the operations of the company.

If, as we conclude it reasonably could

have done based on the evidence before

it, the jury determined that Terri

Kosth’s nominal stock ownership was

simply part of Daniel Kosth’s scheme to

conceal the fact that he was the part-

owner of Hillcrest Resort, Inc., then

neither his claim that Terri Kosth was

the owner of 30% of the Hillcrest stock,

nor his claim that no Hillcrest manager

had a criminal record was literally true.

2. Count II

Count II charged Kosth with submitting

a construction agreement to the SBA that

indicated that Bi-State developers (his

company) would generate no profit from

the proceeds of the SBA loan, even though

he knew that Bi-State would reap

approximately $70,000 from the Hillcrest

loan. Once again, this was alleged to

violate the false statement statute, 18

U.S.C. sec. 1001. Kosth submitted the

construction agreement at issue together

with his letter seeking permission to

have loan proceeds go to Bi-State. Kosth

argues that nothing he said in the

contract made any promises about profits,

because the contract simply indicated the

total amount that would be necessary for

the repairs--$151,000 initially--and that

all such estimates include some

percentage mark-up for profit. He reasons

that the SBA must have known that some

part of that $151,000 represented profit,

and supports his argument with testimony

from SBA estimators who confirmed that it

is standard practice to build a profit

figure into the projected cost for each

item of repair in the estimate. The

contract Kosth submitted reproduced the

SBA estimator’s figures and made no

mention of Bi- State’s expected profits.

The government’s case, however, rested

on the fact that Kosth was not just an

ordinary borrower. Kosth submitted his

estimate as part of a request to be

exempted from the express terms of the

SBA loan agreement. That agreement

specifically prohibited use of loan funds

to pay the borrower or members of the

borrower’s family and it required the

loan recipient to retain only those funds

needed to make the necessary repairs. The

jury heard considerable evidence that,

given these terms, Kosth was required not

only to get permission from the SBA to

have loan proceeds go to Bi-State, but

also to have Bi-State take a profit.

Moreover, there was evidence that Kosth

was well aware that the SBA loan

agreement created such a requirement.

After evaluating the loan agreement,

Orion Bank informed Kosth that he needed

to disclose both Bi-State’s relationship

to Hillcrest and that he intended to use

$70,00 of the loan proceeds to pay off

his existing debt to Orion. The fact that

Kosth intentionally withheld from his

attorney and his partners the fact that

he intended to take a profit on the loan,

and the fact that he prepared one

estimate for Orion with a profit line,

and a "carbon copy" for the SBA without

one, was also evidence that he understood

the SBA’s expectations under the terms of

the loan agreement. Instead of requesting

permission to retain a portion of the

loan proceeds as profit, however, Kosth’s

letter to the SBA seeking an exemption

only disclosed that Bi-State would be

receiving the proceeds of the loan.

Absent a disclosure of Kosth’s intent to

take a profit, the SBA assumed that Kosth

would only request the amount Bi-State

actually needed to complete the repairs,

and a reasonable jury could conclude that

Kosth knew it. Thus, when he submitted to

the SBA an estimate for $151,000 without

an indication that he would be taking a

profit, knowing that in fact this was

$70,000 more than what he would need and

would be entitled to under the terms of

the loan agreement, Kosth made a false

statement to the SBA.

In sum, while we consider this to be a

close call, we believe the jury could

reasonably have concluded that, in the

context of Kosth’s negotiations with the

SBA to escape the prohibitions in the SBA

loan agreement, he knew the estimate that

he submitted would be assumed by the SBA

not to contain a profit and that this was

clearly false. Kosth attempts to portray

the government’s theory as absurd,

suggesting that the government thinks the

SBA assumed he would do the work for

"free." What the SBA assumed, absent any

contrary indication from Kosth, was that

Kosth would comply with the terms of the

loan agreement and do the work without

any additional profit but with all costs

covered.

3. Count III

This count charged that Kosth made false

statements in violation of sec.1001 when

he signed the SBA loan agreement and

thereby represented that "the proceeds of

the loan would be used solely to

rehabilitate and replace Hillcrest

property damaged and destroyed by

disaster flooding," when he knew that "a

purpose of the application for an SBA

disaster loan was to generate financial

profit for Bi-State Developers . . . so

that the profit could be used to pay off

preexisting debt of Hillcrest." Once

again, from the perspective we are

required to use in evaluating a jury’s

verdict and a district court’s denial of

a motion for new trial, we see nothing

that requires reversal.

According to Kosth, it was just the

government’s misfortune that the loan

money it gave Bi-State to perform the re

pairs was substantially in excess of the

amount actually required to do the work.

His ability to complete the job while

retaining a profit of $70,000 entitled

him to a windfall that he could use to

retire Hillcrest’s $70,000 debt. Even if

we indulge in the economically reasonable

assumption that part of the cost of

performing work is a profit to the

contractor, however, that does not answer

the question whether Kosth was entitled

to tell the SBA that he needed $151,000

to do the work when he knew all along

that he needed only $81,000. As the

government argued and the evidence

showed, he took the extra money knowing

that he (through Bi-State) would spend

the excess proceeds to benefit Hillcrest

in a manner not permitted by the terms of

the loan agreement. Furthermore, the loan

agreement itself required him to return

any funds that were not required for

doing the repair work. The evidence is

crystal clear that Kosth planned from the

start to use almost half of the loan to

pay the Hillcrest debt; his

correspondence with Orion leaves no doubt

on the point. And this was indeed what he

did, along with using other parts of the

money for a variety of personal

expenditures. It is difficult to see how

the jury could have come to any other

conclusion on this part of the case.

4. Count IV

Last, Count IV charged Kosth with making

a materially false statement in violation

of sec. 1001 when he submitted a report

to the SBA indicating that Bi-State had

generated $13,275 in profit from the

repair work supported by the loan, when

he "well knew, Bi-State Developers

already had generated a profit of

approximately $70,000" from the loan. The

jury had ample evidence before it to

support the conviction on this count, for

both Rule 29 and Rule 33 purposes.

When Kosth was preparing for SBA

Inspector Dietz’s visit on November 16,

1994, he prepared an accounting of his

use of the SBA funds that included a line

item indicating that Bi-State had earned

just over $13,275 in profit. He did so at

a time after he had already taken $70,000

of the SBA loan proceeds and deposited

them in Terri’s account to use for the

repayment of the debt Hillcrest owed to

Orion Bank. Dietz, seeing the $13,275

line item, crossed it off and wrote "not

eligible."

The jury saw this as a false statement,

and Kosth is hard pressed to challenge

that characterization. He does, however,

urge that it was not "material" for

purposes of sec. 1001, citing United

States v. Gaudin, 515 U.S. 506 (1995).

His misstatement, he claims, had no

"natural tendency to influence" the SBA’s

decision, nor was it capable of

influencing the agency’s decision. Any

profit at all was impermissible under the

government’s theory, so why should

$13,275 be any different from $70,000?

We see no merit to this line of

argument. Although the government was

alleging that Kosth was not entitled to

any profit, it was also asserting that he

was using the proceeds of the loan for

impermissible purposes. A claim that he

was earning approximately 8.8% profit on

the work would have made his story of the

inclusion of an ordinary profit in the

line items far more plausible than a

claim that he was earning more than 46%

profit on the same work. Moreover, Dietz

was there to find out how the money was

being used, period: telling him that only

$13,275 was profit when the real number

was $70,000 changed the entire picture.

The district court committed no error

when it rejected Kosth’s challenges to

his conviction on Count IV.

III

Kosth has also raised several challenges

to his sentence. The district court gave

him a two-level enhancement for more than

minimal planning, under U.S.S.G. sec.

2F1.1(b) and sec. 1B1.1; it found that he

was a leader or organizer under sec.

3B1.1(c); it enhanced his sentence based

on the amount of the fraud eight levels

under sec. 2F1.1 (finding that $200,000

was involved); and it required him to pay

restitution in the amount of $128,593 to

the SBA. We find no reversible error in

any of the district court’s actions. The

district court’s findings about the

amount of planning and Kosth’s leadership

role were not clearly erroneous. It

explained the $200,000 figure by noting

that Kosth received or had commitments to

receive $205,000 from the SBA when all

was said and done. Relying on note 8(d)

to sec. 2F1.1, the court found that Kosth

diverted the full $205,000 from the

intended recipients of SBA loans, even

though the agency had not gotten around

to disbursing everything by the time the

scheme unraveled. We agree that this is

the proper way to interpret that

guideline. And there is no merit at all

to his challenge to the restitution

amount, which could have been even higher

than the level the court imposed.

As for the remaining issues Kosth has

raised, suffice it to say that we find

nothing that requires reversal, or that

merits discussion here. The judgment of

the district court is Affirmed.