United States v. Donna Fallon

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______________

No. 19-2775

______________

UNITED STATES OF AMERICA

v.

DONNA FALLON,

Appellant

______________

No. 19-2788

______________

UNITED STATES OF AMERICA

v.

DEAN VOLKES,

Appellant

______________

No. 19-2792

______________

UNITED STATES OF AMERICA

v.

DEVOS LTD LLC d/b/a GUARANTEED RETURNS,

Appellant

______________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(District Court Nos. 2-14-cr-00574-003, 2-14-cr-00574-002,

& 2-14-cr-00574-001)

District Judge: Petrese B. Tucker

______________

Argued: March 16, 2021

______________

Before: KRAUSE, PHIPPS, and FUENTES, Circuit Judges.

(Filed: September 30, 2022)

Robert J. Cleary [ARGUED]

William C. Komaroff

James R. Anderson

Proskauer Rose LLP

11 Times Square

New York, NY 10036

Counsel for Appellant Donna Fallon

Lisa A. Mathewson [ARGUED]

The Law Offices of Lisa A. Mathewson, LLC

123 S. Broad Street, Suite 810

Philadelphia, PA 19109

2

Counsel for Appellant Dean Volkes

Douglas E. Grover

Richard H. Dolan [ARGUED]

Thomas A. Kissane

Schlam Stone & Dolan LLP

26 Broadway

New York, NY 10004

Counsel for Appellant DEVOS, LTD

William M. McSwain

Robert A. Zauzmer

Patrick J. Murray

Elizabeth M. Ray

Nancy Rue [ARGUED]

Office of United States Attorney

615 Chestnut Street, Suite 1250

Philadelphia, PA 19106

Counsel for Appellee United States of America

______________

OPINION OF THE COURT

______________

FUENTES, Circuit Judge.

The three Appellants—Devos LTD LLC, which trades

under the name “Guaranteed Returns”; Dean Volkes, the

company’s owner and Chief Executive Officer; and Donna

Fallon, the company’s Chief Financial Officer and Volkes’s

sister—appeal their convictions arising from multiple schemes

to defraud their clients, including the United States

3

Government. For the reasons explained herein, we will vacate

Appellants’ conviction for conspiracy to launder money,

vacate the sentences, and remand for resentencing, including a

recalculation of the forfeiture award. For all other convictions,

we will affirm.

I. Background

A. Factual Background

Guaranteed Returns was a “reverse distributor” of

pharmaceutical products. It provided inventory management

services to healthcare providers (such as hospitals, pharmacies,

long-term care facilities, and doctors’ offices) by returning

unused or expired pharmaceutical drugs to the drug

manufacturers, for which the provider can normally receive a

refund. Because healthcare providers need multiple

pharmaceuticals from a variety of manufacturers, each with

different return policies for their products, reverse distributors

perform this service for their clients in exchange for a fee,

which is typically a percentage of the return value of the drugs.

To obtain a refund, the provider must either physically

return the pharmaceutical to the manufacturer, or certify that it

has been destroyed. The manufacturer then issues the refund,

either in the form of a credit to the healthcare provider’s

account at the relevant wholesaler, 1 or as a money refund by a

wire transfer or check. Reverse distributors like Guaranteed

1

Most healthcare providers purchase their pharmaceutical

products through wholesale distributors rather than through

individual manufacturers. A healthcare provider therefore may

have an account with a wholesaler of a drug, not with the

manufacturer of the drug.

4

Returns manage this process for their clients: a provider sends

its pharmaceuticals to the reverse distributor who returns the

drugs on the provider’s behalf. As a consequence, both the

drugs and the funds that reverse distributors receive from

manufacturers for returning those drugs are the property of the

healthcare-provider clients.

Providers will also send non-returnable pharmaceuticals

to reverse distributors. These include unexpired

pharmaceuticals that the providers no longer need but that may

become eligible for a refund upon expiration. These are

commonly known as “indates.” 2 Reverse distributors can keep

track of these indates, “age” them until they are returnable, and

then submit them for a refund when the time comes.

To run their operations efficiently, reverse distributors

return all pharmaceuticals eligible for a refund to a single

manufacturer in one “batch.” These batches can be comprised

of different drugs submitted on behalf of different healthcare

providers. The manufacturer, in accordance with its policy,

will then either credit the individual healthcare provider’s

account at the relevant wholesaler, or remit a lump-sum

payment to the reverse distributor who then issues refunds—

less a service fee—to its healthcare-provider clients whose

drugs were in the batch. For Guaranteed Returns, the lump-

sum refunds were wired directly to the company’s general

operating account, and the company then issued refund checks

from that account to the relevant clients, less a service fee. 3

2

These products are still “in date,” meaning that they are not

yet expired.

3

The operating account was used to receive and distribute

money relating to the operation of the business, including to

make vendor payments and to pay operating expenses such as

5

Guaranteed Returns used a database management software

called FilePro to track the information necessary to determine

how much money to remit to which clients from the lump-sum

refunds. Each healthcare-provider client had a separate account

in FilePro. This software tracked the pharmaceuticals

received, to which client they belonged, the date they arrived,

and the date of return, among other information. For indates,

FilePro also tracked the date on which these pharmaceuticals

would become eligible for a refund.

In 2001, the Government started doing business with

Guaranteed Returns. The Department of Defense (“DoD”)

contracted with Guaranteed Returns to handle pharmaceutical

returns for a number of government facilities. DoD and

Guaranteed Returns entered into another agreement in 2007.

Guaranteed Returns’s proposal for the second contract

specifically stated that it would inventory, warehouse, and age

the Government’s indates, and then return the indates when

eligible, for its usual fee. Guaranteed Returns’s 2001 contract

did not refer to indates by name, but the company specifically

included indates in the 2007 contract. The company also

required its clients to use a return authorization form when

sending drugs for credit that purported to give Guaranteed

Returns wide discretion concerning pharmaceuticals that were

not “immediately creditable.” 4

freight, payroll, and expenses related to the company’s

facilities.

4

App. 6101–02 (“Guaranteed Returns reserves the right, in its

sole discretion, to dispose, remit, donate and/or otherwise

receive product that it believes not to be in an immediately

creditable state without claim for remuneration.”).

6

The Government began investigating Guaranteed

Returns after the District of Columbia noticed that it did not

receive the full refund on a return of some of its

pharmaceuticals. 5 The Defense Criminal Investigative Service

investigated, and the Government eventually uncovered a

series of schemes that Guaranteed Returns used to defraud its

clients. Four such schemes are described below.

1. The Indates Scheme

Volkes devised and implemented a scheme to return

indated drugs to manufacturers on Guaranteed Returns’s own

behalf—not on behalf of the client who owned the drugs—and

to keep the refund money. To do this, in 2007, Volkes

instructed his IT staff to change the programming in FilePro to

divide each of Guaranteed Returns’s clients into two

categories: “managed” and “unmanaged.” “Managed” clients

were thought to pay close attention to whether they received

refunds or credits for indates, while “unmanaged” clients were

thought not to do so. The computer program diverted indates

from unmanaged clients by reclassifying them as the property

of Guaranteed Returns, listing them in FilePro as the property

of a non-existent client labeled “GRX Stores.” The program

did not affect the indates for “managed” clients. When

Guaranteed Returns received the lump-sum payment from

manufacturers for returning a batch of pharmaceuticals, it

would pay “managed” clients the amount owed but kept for

itself the amount that should be owed to “unmanaged” clients

for the indate refunds. To ensure that the scheme was not

uncovered, when submitting batches of pharmaceuticals to

5

The return in question was for $600,000 worth of recently

expired Cipro, which the District of Columbia had stockpiled

for availability in case of an anthrax attack.

7

manufacturers for refunds, Guaranteed Returns attributed each

drug to the healthcare provider from whom Guaranteed

Returns had diverted the drug.

2. The G-13 Scheme

Volkes also devised a scheme to divert indates from

managed clients. In late 2010, he instructed his IT staff to

reclassify every thirteenth expiring indate product of a

managed client as the property of GRX Stores, if the value of

the product was less than $3,000. Volkes wanted to avoid

stealing products that were so valuable that they might catch

the client’s attention.

3. The Three-Year Cutoff Scheme

In 2011, Volkes developed another scheme to divert

indates from managed clients. Volkes instructed his IT staff to

reclassify indates that were received more than three years

earlier as the property of the GRX Stores.

4. Adjustment Scheme

Not all of Guaranteed Returns and Volkes’s schemes

involved indates. In fall 2010, Volkes directed his IT staff to

create a program that “adjusted” downward the amount of

refunds that were due to certain clients. This adjustment

program skimmed a certain percentage from the lump-sum

refund that was owed to clients and reassigned it to the fictious

GRX Stores. Volkes had the program installed on Fallon’s

computer so that Fallon could decide when to run the

adjustment program and what percentage to skim from the

clients’ refunds. Volkes did this in order to repay a loan he had

taken out to satisfy a civil judgment against him issued by a

Missouri court.

8

5. Money Laundering Conspiracy

In addition to the fraud schemes, the Government

alleged that Guaranteed Returns, Volkes, and Fallon conspired

to launder the fraud proceeds corresponding to the indate

products that had been diverted from clients and reclassified as

belonging to GRX Stores. Since the company received all

refund payments as a lump-sum from manufacturers, the

Government alleged that the fraud proceeds were initially

commingled with the “legitimate” refunds due to clients, as

well as the company’s service fees, in the lump-sum refund

received into the company’s general operating account. Once

clients were paid, the Government alleged that Appellants

transferred the fraud proceeds out of the general operating

account and eventually into Volkes’s personal account through

a series of complex transactions designed to conceal the nature,

location, source, ownership, and control of these proceeds.

B. Procedural History

The Government brought 64 charges against

Guaranteed Returns, Volkes, and Fallon. 6 Counts 1–23

charged Guaranteed Returns and Volkes with wire fraud, 7 and

Counts 24–40 charged them with mail fraud arising from the

same schemes. 8 Counts 41–52 charged all Appellants with

6

The Government obtained a superseding indictment against

Appellants. We refer to this superseding indictment as the

“indictment” for brevity.

7

In violation of 18 U.S.C. § 1343.

8

In violation of 18 U.S.C. § 1341.

9

mail fraud, 9 Count 53 charged Guaranteed Returns and Volkes

with theft of Government property in the form of more than

$27 million worth of pharmaceutical products, 10 and Count 54

charged all Appellants with conspiracy to launder money. 11

After a seven-week trial, Guaranteed Returns was

convicted on all counts; Volkes was convicted on Counts 1–55

and 62–64; and Fallon was convicted on Counts 41–52, 54, and

56–61. The jury acquitted on the remaining counts. All

Appellants moved for a judgment of acquittal or a new trial,

which the District Court denied.

The indictment also listed two forfeiture counts. The

first count sought forfeiture of $180,673,777, and the second

sought forfeiture attributable to Appellants’ money laundering

conspiracy. Both counts sought substitution of other assets if

those sought were commingled or not traceable. After the

jury’s trial verdict, the District Court held a one-day forfeiture

trial, at which the Government sought to proceed against two

bank accounts. The jury found that the funds in those accounts

were subject to forfeiture.

At sentencing, the Court sentenced Fallon to one year

and one day in prison, followed by three years’ supervised

9

In violation of 18 U.S.C. §§ 1341, 1349.

10

In violation of 18 U.S.C. §§ 641, 2. See also App. 383.

11

In violation of 18 U.S.C. § 1956(h). Additionally, Count 55

charged a conspiracy to obstruct justice, while Counts 56–59

and 62–63 charged substantive obstruction of justice, and

Counts 60, 61, and 64 charged making false statements. These

charges are not the subject of any specific challenges on

appeal.

10

release, and sentenced Volkes to five years’ imprisonment,

with three years’ supervised release. 12 The Court sentenced

Guaranteed Returns to five years’ probation with restrictions

on how the company may operate. The Court also ordered

Appellants to pay two restitution awards. The first restitution

amount was $94,737,868.16, to be paid jointly and severally

by Volkes and Guaranteed Returns. The second restitution

amount was $515,221.89, to be paid jointly and severally by

Volkes, Fallon, and Guaranteed Returns. 13 Finally, the Court

entered a forfeiture judgment of $114,832,445.62 against

Guaranteed Returns.

II. Discussion

The District Court had jurisdiction over this federal

criminal prosecution under 18 U.S.C. § 3231. We have

appellate jurisdiction under 28 U.S.C. § 1291 to review the

convictions, and under 18 U.S.C. § 3742 to review the

sentences. Our standard of review varies with each challenge

that Appellants raise to their convictions and sentences. We

address each challenge and the corresponding standard of

review in the sections below.

A. The 2011 Warrant Was Not a General

Warrant

Fallon argues that the very first search warrant that the

Government obtained in the investigation was an

unconstitutional general warrant. This Court reviews the facts

12

Fallon and Volkes do not appeal the custodial aspects of their

sentences.

13

Volkes and Guaranteed Returns were therefore ordered to

pay a total restitution award of $95,253,090.05.

11

determined at a suppression ruling for clear error, but exercises

plenary review over the application of law to those facts. 14

On March 29, 2011, the Government obtained five

search warrants, including one authorizing a search of

Guaranteed Returns’s headquarters in Holbrook, New York. 15

When executing this warrant, the agents found significant

amounts of evidence relating to Guaranteed Returns’s fraud

schemes, including hard drives that Fallon had told

investigators the company did not have. Before trial,

Appellants moved to suppress all the evidence obtained under

the 2011 warrant. 16 They argued that the warrants were

insufficiently particularized and therefore unconstitutional

general warrants, but the District Court disagreed and denied

the motion to suppress. Appellants repeat these contentions on

appeal, but we agree with the District Court that the 2011

warrant was sufficiently particularized.

14

United States v. Perez, 280 F.3d 318, 336 (3d Cir. 2002).

15

Specifically, the Government obtained authorization to

search Guaranteed Returns’s headquarters, warehouse, and a

safe deposit box held at a local bank, as well as the residences

of two employees of the company’s information technology

department.

16

Before trial Appellants also sought to suppress evidence

uncovered under a 2014 search warrant. Appellants’ opening

briefs do not challenge any aspect of the 2014 warrants.

Appellants have thus waived any argument relating to these

warrants. See United States v. Pelullo, 399 F.3d 197, 222 (3d

Cir. 2005), as amended (Mar. 8, 2005) (“It is well settled that

an appellant’s failure to identify or argue an issue in his

opening brief constitutes waiver of that issue on appeal.”).

12

The Fourth Amendment protects the “right of the people

to be secure in their persons, houses, papers, and effects,

against unreasonable searches and seizures.” 17 It also requires

warrants to be supported by probable cause and to “particularly

describ[e] the place to be searched, and the persons or things

to be seized.” 18 Although the phrase “general warrants” does

not appear in the text of the Fourth Amendment, the term refers

to a specific form of authorization abhorred by the founders,

which authorized “a general, exploratory rummaging in a

person’s belongings.” 19 Accordingly, the particularization

requirement was included to prohibit these general warrants. 20

A general warrant is one that is insufficiently particularized in

either the places to be searched or the persons or things to be

seized. 21

Whether a warrant is sufficiently particularized depends

on the nexus between the evidence to be sought or seized and

the alleged offenses. 22 Where a warrant affidavit provides

probable cause to believe that it will uncover evidence of a

wide-ranging and long-lasting scheme with multiple

participants, an equally broad search for such evidence is

permissible. 23 In United States v. Yusuf, this Court held that

17

U.S. Const. amend. IV.

18

Id.

19

Coolidge v. New Hampshire, 403 U.S. 443, 467 (1971),

holding modified by Horton v. California, 496 U.S. 128 (1990).

20

Id.

21

United States v. Christine, 687 F.2d 749, 753 (3d Cir. 1982).

22

United States v. Yusuf, 461 F.3d 374, 394 (3d Cir. 2006).

23

Id.

13

warrants that sought a broad range of documents and records

were not general warrants because “(1) they specified that

agents were searching for evidence of several specifically

enumerated federal crimes; (2) the search was limited in time

to [an eleven-year period]; and (3) the evidence sought was

limited to records pertaining to [specified corporations and

defendants].” 24 The offenses in Yusuf also included mail fraud

and money laundering. 25

The warrant here is strikingly similar to the one in

Yusuf. In both cases, the Government sought a broad range of

business records relating to multi-year schemes of mail fraud

and a money laundering conspiracy. The alleged schemes here

were arguably broader than those in Yusuf since they involved

vastly larger sums and many more defrauded clients, and they

therefore needed much more information to put together.

Despite this greater breadth, the warrants here were precisely

as limited as those in Yusuf: the Government sought

Guaranteed Returns’s records relating to five enumerated

federal offenses, identified by statutes, and limited to a ten-year

period. This warrant is not impermissibly general.

Furthermore, the Government argues that, even if the

warrant was deficient, the good-faith exception would prevent

suppression here. We agree. Under the good-faith exception

to the exclusionary rule, if an officer relies in good faith on a

warrant later found to be deficient, evidence obtained pursuant

to that warrant should be suppressed only if the officer had—

or may be fairly charged with—knowledge of the deficiency. 26

24

Id. at 395.

25

Id. at 378.

26

United States v. Leon, 468 U.S. 897, 922–23 (1984).

14

We have also recognized that an officer’s reliance on a warrant

would not be reasonable and thus would not trigger the good-

faith exception if “the warrant was so facially deficient that it

failed to particularize the place to be searched or the things to

be seized.” 27 The 2011 warrant here is not so deficient. The

warrant contains an extensive recitation of the place to be

searched and the items to be seized, with further hand-written

limitations added by the magistrate judge. Under these

circumstances, suppression would not serve to deter future law

enforcement misconduct, and the evidence seized pursuant to

the 2011 warrant is admissible.

B. Civil Contract Law Expert and Proposed

Jury Instructions

Appellants next argue that the District Court erred in

precluding expert testimony on civil contract law. We review

the District Court’s decision to exclude expert testimony for

abuse of discretion. 28

1. Proposed Testimony of Prof. Finkelstein

Appellants sought to have University of Pennsylvania

Carey Law School Professor Claire Finkelstein testify in their

defense. They argued that her testimony on civil contract law

would oppose that of Guaranteed Returns’s sales

representatives and clients who testified regarding their

understandings of the company’s contracts and return

authorization forms, and would also demonstrate that there was

27

United States v. Zimmerman, 277 F.3d 426, 437 (3d Cir.

2002).

28

United States v. Heinrich, 971 F.3d 160, 163 (3d Cir. 2020).

15

a reasonable interpretation of those documents that was

consistent with Appellants’ good faith.

The Government opposed this testimony, claiming that

contract law could be considered governing, and that the Court

would instruct the jury as to the governing law. Lay witnesses,

on the other hand, discussed the contract terms and other

representations based on their personal knowledge and

involvement, and did not purport to interpret them. The

District Court agreed with the Government, finding that the

expert testimony would be confusing and unnecessary, without

expressly citing to a rule of evidence, but presumably

excluding it under Federal Rules of Evidence 403 and 702,

respectively. Later, in denying Appellants’ motion for a new

trial, the District Court addressed its prior rulings in more

depth, finding that the testimony was properly excluded under

three Federal Rules of Evidence: (1) under Rule 401 because

the testimony was irrelevant to the criminal fraud case before

the jury; (2) under Rule 403 because the marginal probative

value of the testimony would be substantially outweighed by

the danger of confusing the jury; and (3) under Rule 702

because the testimony would not have been helpful to the jury

as expert witness testimony. Appellants attack all three

rationales on appeal but fail to demonstrate an abuse of

discretion.

a) Exclusion as Confusing Under

Rule 403

At trial, the District Court stated that Prof. Finkelstein’s

testimony should be excluded because it “would have a

tendency to confuse the jurors.” 29 Under Rule 403, a district

court may exclude otherwise relevant evidence “if its probative

29

App. 4377.

16

value is substantially outweighed by a danger of . . . confusing

the issues.” 30 The commands of Rule 403 are “inexact,

‘requiring sensitivity on the part of the trial court to the

subtleties of the particular situation, and considerable

deference on the part of the reviewing court to the hands-on

judgment of the trial judge.’” 31 “We will not disturb the

District Court’s ruling unless it was arbitrary or irrational.” 32

Where, as here, the District Court did not explicitly articulate

the balancing test on the record, we may either conclude that

the Court implicitly performed the test; or, if we find that the

District Court did not perform it, we may perform the test

ourselves on review. 33

We find that the District Court implicitly performed the

Rule 403 balancing test. It heard detailed argument on this

question and raised the issue of confusion with defense

counsel, noting that admitting the testimony could “turn this

case into a contract case even though it’s a fraud case.” 34 The

District Court’s concern is understandable: having a well-

credentialed law professor testify as an expert on contract law

would inevitably cause the jury to believe that the contractual

30

Fed. R. Evid. 403.

31

Egan v. Del. River Port Auth., 851 F.3d 263, 275 (3d Cir.

2017) (quoting United States v. Vosburgh, 602 F.3d 512, 537

(3d Cir. 2010)).

32

Vosburgh, 602 F.3d at 537 (quoting United States v. Kellogg,

510 F.3d 188, 197 (3d Cir. 2007) (internal quotation marks

omitted).

33

See Egan, 851 F.3d at 276 (citing United States v. Eufrasio,

935 F.2d 553, 572 (3d Cir. 1991)).

34

App. 4373.

17

terms were at issue in the case. The Government also argued

that the confusion could extend to the relevant source of law,

substituting the expert’s testimony for the District Court’s

instructions. Excluding evidence that could confuse the

dispositive issue in the case is not an abuse of discretion. 35

Additionally, under Rule 403, the risk of confusion to

the jurors must be offset against the probative value of the

evidence, and here the probative value was small. Appellants’

rationale for admitting Prof. Finkelstein’s testimony was to

demonstrate that their interpretations of the contracts were

reasonable, and could support a defense of good faith.

However, as an expert, Prof. Finkelstein could not testify as to

Volkes’s subjective good faith or actual belief; she could only

address what was a reasonable interpretation of the contracts.

And to demonstrate a good faith belief negating his intent,

Volkes did not need to show that he held a reasonable

interpretation of the contracts, only that he did in fact believe

that the contracts entitled him to keep indate refunds. An

unreasonable belief would suffice. 36 Prof. Finkelstein’s

testimony was therefore properly excluded under Rule 403

because it had very limited probative value, which was clearly

outweighed by the risk of confusing the jury.

35

McKenna v. City of Phila., 582 F.3d 447, 461 (3d Cir.

2009) (excluding police directives on use of force in § 1983

case on excessive force as it could confuse the jury as to the

relevant violation under consideration).

36

See Cheek v. United States, 498 U.S. 192, 203–04 (1991);

United States v. Jimenez, 513 F.3d 62, 75 (3d Cir. 2008)

(noting that good faith negates intent to defraud).

18

b) Exclusion as Not Helpful under

Rule 702 and as Irrelevant under

Rule 401

The District Court’s other rationale for exclusion at trial

was that Prof. Finkelstein’s expert testimony would not be

helpful to the jury. 37 Under Rule 702(a), an expert may testify

in the form of an opinion if the expert’s “specialized

knowledge will help the trier of fact to understand the evidence

or determine a fact in issue.” 38 Expert testimony is “helpful”

if it is sufficiently tied to the facts of the case such that it will

help the jury resolve a factual dispute. 39

As previously discussed, the probative value of Prof.

Finkelstein’s expert testimony on contract law was small. The

testimony would not help the jury determine a fact in issue

because there was no genuine factual dispute as to whether

Guaranteed Returns entered into contracts with its clients.

Appellants could be convicted of mail and wire fraud even if

they had behaved consistently with their obligations under the

contracts, because the relevant question was their intent to

defraud. To the extent that Prof. Finkelstein’s opinion bears

on the relevant governing law of the case, it would be unhelpful

under Rule 702 “because it would usurp the District Court’s

pivotal role in explaining the law to the jury.” 40

37

App. 4377 (finding that Prof. Finkelstein’s testimony “is not

something that is necessary to have an expert testify”).

38

Fed. R. Evid. 702(a).

39

United States v. Schiff, 602 F.3d 152, 173 (3d Cir. 2010).

40

Berckeley Inv. Grp., Ltd. v. Colkitt, 455 F.3d 195, 217 (3d

Cir. 2006).

19

The same rationale indicates why Prof. Finkelstein’s

testimony was not relevant under Rule 401. Evidence is

relevant if it has “any tendency to make a fact [of consequence

in determining the action] more or less probable than it would

be without the evidence.” 41 As Prof. Finkelstein could not

testify to the only fact of consequence—Appellants’ subjective

beliefs—her testimony did not bear on any of Appellants’ guilt.

Prof. Finkelstein’s testimony was therefore properly excluded.

2. Contract Law Jury Instructions

In the alternative, Appellants claim that the District

Court should have instructed the jury on principles of civil

contract law and included an instruction that a breach of

contract is not fraud. We review a denial of a requested jury

instruction for abuse of discretion. 42

Appellants characterize this argument as the denial of a

theory of the defense, but this is not strictly accurate.

Appellants’ theory was that they acted in good faith, and they

claim that principles of civil contract law would support this

inference. Even assuming that this standard applies, the

argument still fails. A defendant is entitled to a theory-of-

defense jury instruction if (1) he proposes a correct statement

of the law; (2) his theory is supported by the evidence; (3) the

theory of defense is not part of the charge; and (4) the failure

to include an instruction of the defendant’s theory would deny

him a fair trial. 43

41

Fed. R. Evid. 401.

42

Jimenez, 513 F.3d at 74.

43

United States v. Sussman, 709 F.3d 155, 178 (3d Cir. 2013).

20

Appellants cannot meet this standard. The good-faith

defense was already part of the jury charge. The District Court

instructed the jury that “[a] person acts in good faith when he

or she has an honestly held belief, opinion, or understanding

that his or her conduct was not unlawful, even though that

belief, opinion, or understanding turns out to be inaccurate or

incorrect.” 44 This is a correct statement of the law that

permitted the jury to find in Appellants’ favor, with or without

concluding that they complied with their contract obligations.

Instructions on civil contract law are not supported by the

evidence here, as they would not bear on Appellants’ good

faith for the reasons discussed above. In addition, Appellants

cannot demonstrate that denying their proposed instruction on

contract law deprived them of a fair trial. The jury was

instructed on the good faith defense, and the District Court

therefore did not err in not instructing the jury on civil contract

law.

C. Constructive Amendment to Indictment’s

Mail Fraud Counts 41–52

Appellants claim that the Government constructively

amended Counts 41–52 by varying their proof at trial from the

charges presented to the grand jury. Our review of a

constructive amendment claim is plenary. 45

A constructive amendment occurs where “the evidence

and jury instructions at trial modify essential terms of the

charged offense in such a way that there is a substantial

44

App. 5428.

45

United States v. Centeno, 793 F.3d 378, 389 n.10 (3d Cir.

2015).

21

likelihood that the jury may have convicted the defendant for

an offense differing from the offense the indictment returned

by the grand jury actually charged.” 46 Trial evidence,

arguments, or the district court’s own instructions can all form

the basis of constructive amendments. 47 A constructive

amendment is per se reversible error because it deprives a

defendant of his Fifth Amendment right to be tried on charges

presented to the grand jury. 48 The “key inquiry” in a

constructive amendment claim “is whether the defendant was

convicted of the same conduct for which he was indicted.” 49

Counts 41–52 charged Appellants with mail fraud. The

indictment claimed that Guaranteed Returns, Volkes, and

Fallon told clients that their negotiated fees were “all

inclusive,” but in reality they charged additional hidden fees. 50

These hidden fees were implemented through changes to

computer code made by the company’s information technology

department, and “[a]mong those programs” was the

“adjustment” scheme that reduced the amount due to a client

by a certain percentage, with Guaranteed Returns keeping that

percentage. 51 Volkes instructed employees to create the

necessary code, and Fallon applied it to certain client refunds.

46

United States v. Daraio, 445 F.3d 253, 259–60 (3d Cir.

2006).

47

United States v. McKee, 506 F.3d 225, 229 (3d Cir. 2007).

48

Daraio, 445 F.3d at 260; Vosburgh, 602 F.3d at 531.

49

Daraio, 445 F.3d at 260 (quoting United States v. Robles-

Vertiz, 155 F.3d 725, 729 (5th Cir. 1998)).

50

App. 379.

51

App. 380.

22

The indictment also identified twelve mailings in furtherance

of the scheme.

Appellants argue that these counts were constructively

amended because the only hidden fee scheme mentioned in the

indictment was the adjustment program, but at trial, the

Government claimed the indictment encompassed additional

schemes. Specifically, they contend that the verdict form and

the Government’s summation permitted the jury to convict

them of other fraudulent schemes.

Appellants’ argument fails as to the verdict form

because the form tracks the language of the indictment

precisely. The indictment claimed that Appellants charged

their clients “additional hidden fees,” despite their

representations to the contrary, while the verdict form claims

that they “charg[ed] undisclosed fees.” 52 The indictment also

charged that this scheme was implemented through changes to

the company’s computer programs, and that “[a]mong those

programs” was the “adjustment” scheme; the verdict form

states that the scheme included “an adjustment program.” 53

There is no material difference between the indictment and the

verdict form, and thus the form cannot be said to have

expanded the scope of the charges in the indictment.

Appellants’ remaining argument is that, because the

indictment charged only the adjustment scheme, the

Government’s references during summation to other hidden

52

Compare App. 379 (indictment) with App. 6368 (verdict

form).

53

Compare App. 380 (indictment) with App. 6368 (verdict

form).

23

fees that could form the basis of these mail fraud counts

constructively amended the indictment. They claim that the

indictment charged only the adjustment scheme because,

despite its references to that scheme being one “among” the

other “programs” that the company used to extract additional

hidden fees, the grand jury testimony only addressed the

adjustment program. Interpreting the indictment’s text in light

of that testimony, Appellants claim that references to other fee

schemes expanded the scope of the indictment.

Appellants offer no basis for looking behind the

indictment’s text in order to interpret it. Relying on two cases

from one of our sister circuits, they argue that, by looking

through the indictment to the testimony before the grand jury,

we may determine that the Government only charged the

adjustment scheme. 54 But neither case supports interpreting

the text of an indictment by looking to grand jury testimony. 55

54

See United States v. Milstein, 401 F.3d 53, 64–66 (2d Cir.

2005); United States v. Cervone, 907 F.2d 332, 345 (2d Cir.

1990).

55

In each case, the Second Circuit did not interpret the text of

the indictment by consulting grand jury testimony. In United

States v. Milstein, the Court found a constructive amendment

without consulting grand jury testimony at all, but merely

noted in passing that the Government had not sought to amend

one charge in that indictment at the same time it sought a

formal amendment to correct a jurisdictional defect. 401 F.3d

at 65–66. In United States v. Cervone, the Court looked to

grand jury testimony because one defendant was charged with

perjury for lying to a grand jury about whether he had engaged

in bid rigging. 907 F.2d at 345. It did not seek to interpret the

indictment by consulting the grand jury testimony.

24

We can also find no basis for looking to anything other

than the text of the indictment itself to determine its meaning.

Doing so would undermine the rationale for constructive

amendment challenges, to guard jealously the grand jury’s

charging role. As the Supreme Court has noted:

If it lies within the province of a court to change

the charging part of an indictment to suit its own

notions of what it ought to have been, or what the

grand jury would probably have made it if their

attention had been called to suggested changes,

the great importance which the common law

attaches to an indictment by a grand jury, as a

prerequisite to a prisoner’s trial for a crime, and

without which the constitution says ‘no person

shall be held to answer,’ may be frittered away

until its value is almost destroyed. 56

This Court has no more authority to subtract a scheme charged

in an indictment than it does to add others, and parsing the

minutes of the grand jury testimony would be to draw a

different conclusion from the very same evidence before it.

This would utterly remove the grand jury’s role and render that

56

Stirone v. United States, 361 U.S. 212, 216 (1960) (quoting

Ex parte Bain, 121 U.S. 1, 10 (1887)).

25

portion of the Fifth Amendment a nullity.57 We must limit

ourselves to the text of the indictment when construing its

meaning. In doing so, we find that the indictment here charged

“hidden fees” schemes, one of which was the adjustment

program, and that the Government’s references to other hidden

fee schemes did not expand the scope of the indictment.

Finally, the District Court’s instructions on mail fraud

would also preclude finding a constructive amendment, as the

instructions limited the jury to the adjustment scheme

anyway. 58 To find Appellants guilty on Counts 41–52, the jury

had to find that each mail fraud count was supported by a

mailing that furthered the scheme. 59 Counts 41–52 identified

twelve such mailings, each alleged to further one of the twelve

counts. The District Court instructed the jury that, in order to

find Appellants guilty, the Government had to prove that “the

use of the United States Mails . . . in some way furthered or

57

We also note that, in the context of challenges to probable

cause findings for pretrial freezes of assets possibly subject to

forfeiture, the Supreme Court has prohibited looking to what

was presented to the grand jury to determine if it actually

amounts to probable cause. Kaley v. United States, 571 U.S.

320, 328 (2014). The same rationale of protecting the grand

jury’s historic role applies equally in this context.

58

See Daraio, 445 F.3d at 261 (“[T]he district court obviated

the possibility of the indictment being constructively amended

by issuing accurate and thorough jury instructions precluding

the jury from convicting [the appellant] for any conduct other

than that which the indictment charged.”).

59

United States v. Cross, 128 F.3d 145, 150 (3d Cir. 1997).

26

advanced or carried out the scheme.” 60 Thus, for Counts 41–

52, the Government had to connect each of the identified

mailings to a scheme to defraud. The evidence demonstrates

that the Government connected each of the mailings referenced

in those counts to checks for batches that had been reduced

through application of the adjustment program. As we

presume that the jury followed the District Court’s instructions,

the jury could not freely conclude that the mailings were in

furtherance of a different scheme. 61 We can thus be certain

that Appellants were convicted on the adjustment scheme.

Accordingly, Appellants’ constructive amendment claim fails.

D. Sufficiency of the Evidence Challenges

Fallon and Volkes also argue that the evidence was

insufficient to support either the mail fraud convictions in

Counts 41–52, or the conviction for the money laundering

conspiracy in Count 54. We review sufficiency of the evidence

challenges under a deferential standard, viewing the evidence

in the light most favorable to the prosecution and asking

whether any rational trier of fact could have found the essential

elements of the offense beyond a reasonable doubt. 62 We

address each challenge in turn.

60

App. 5423.

61

United States v. Givan, 320 F.3d 452, 462 (3d Cir. 2003).

62

United States v. Caraballo-Rodriguez, 726 F.3d 418, 424–

25 (3d Cir. 2013) (en banc).

27

1. Mailings in Furtherance of Fraudulent

Scheme in Counts 41–52

Fallon and Volkes claim that the evidence was

insufficient to support their mail fraud convictions as it did not

demonstrate that the mailings in question were in furtherance

of mail fraud. The mail fraud statute makes it an offense to

make use of the mails “for the purpose of executing” a scheme

or artifice to defraud. 63 The statute is expansive, and does not

require the defendant’s use of the mails to be an essential

element of the scheme. 64 “All that is required is that the

defendants knowingly participated in a scheme to defraud and

caused a mailing to be used in furtherance of the scheme.” 65

To be “in furtherance” of a scheme to defraud, the relevant

mailings “must be sufficiently closely related to the scheme to

bring the conduct within the ambit of the mail fraud statute,”

and the scheme must depend in some way on the charged

mailings. 66 These can include mailings after the scheme has

come to fruition, “if designed to lull the victims into a false

sense of security” or to make it less likely that the scheme

would be discovered. 67

63

18 U.S.C. § 1341.

64

United States v. Pharis, 298 F.3d 228, 234 (3d Cir. 2002), as

amended (Sept. 30, 2002) (en banc).

65

Id.

66

United States v. Coyle, 63 F.3d 1239, 1244 (3d Cir. 1995).

67

Id.; see also Schmuck v. United States, 489 U.S. 705, 714

(1989) (mailing registration paperwork to state motor vehicles

department was sufficiently connected to a scheme to defraud

by selling cars with rolled back odometers because failing to

do so could jeopardize the success of the scheme).

28

Fallon and Volkes argue that the twelve checks Fallon

mailed were not in furtherance of the scheme because the fraud

was completed by the time the checks were mailed. The

adjustment scheme worked by having Guaranteed Returns

submit batches of drugs for refunds, and once the company

received the refunds, Fallon used a computer program to

reduce amounts that would otherwise be due to clients by a

percentage. She then authorized mailing checks with the

lower, reduced amounts to Guaranteed Returns’ clients, while

the company kept the difference. This scheme operated by

“essentially skim[ming] a percentage and put[ting] it into” the

fictitious GRX Store account. 68 Because the program allocated

the percentage to Guaranteed Returns before the checks were

mailed, Fallon and Volkes argue that the Government has not

shown that these mailings were in furtherance of the scheme.

But the record shows just the opposite. The point of the

scheme was to divert to Guaranteed Returns a portion of funds

that should rightly go to clients, and the scheme could only be

accomplished if the company’s clients received less than they

were due, in amounts that would not generate suspicion.

Mailing the checks both ensured that Guaranteed Returns’

clients received less than they were due and reduced the

likelihood of detection. The evidence was therefore sufficient

to demonstrate that mailing the checks was in furtherance of

the fraud.

Fallon and Volkes argue that United States v. Altman

from the Second Circuit supports their view, but they misread

that case. In Altman, a court-appointed attorney embezzled

money from two estates to invest in a Brazilian dance show

68

App. 2938.

29

that later collapsed. 69 The attorney was charged and convicted

of mail fraud based on mail sent to him, either by other

attorneys as part of court-ordered accounting proceedings, or

by a bank at which he maintained an account. 70 The Second

Circuit ruled that none of these mailings furthered Altman’s

schemes since they occurred after he had embezzled the funds:

“A mailing cannot be said to be in furtherance of a scheme to

defraud when it occurs after the scheme has reached

fruition.” 71 Reliance on Altman does not help Fallon or Volkes

because the mailings in that case were “insufficiently related

to Altman’s scheme to be said to be in furtherance of it” and

were not “incident to any essential part of [the] scheme to

defraud the estates.” 72 In contrast, mailing the checks here was

a necessary step in depriving clients of their refund amounts.

Rather than happening after the scheme was accomplished,

mailing the checks was “sufficiently closely related to the

scheme,” and in fact was “an essential part of the scheme.” 73

The jury therefore had sufficient evidence to convict

Appellants on the mail fraud charges.

2. Money Laundering Conspiracy in Count

54

Appellants argue that the evidence was insufficient for

a reasonable jury to find that they conspired to engage in

financial transactions designed to conceal the nature or source

of the proceeds from the fraud schemes. We agree.

69

48 F.3d 96, 98–101 (2d Cir. 1995).

70

Id. at 103–04.

71

Id. at 103.

72

Id.

73

See Coyle, 63 F.3d at 1244.

30

Appellants were charged with conspiring to commit

concealment money laundering under 18 U.S.C.

§ 1956(a)(1)(B)(i) by laundering the proceeds of the indate

fraud schemes through complex financial transactions

designed “to conceal or disguise the nature, location, source,

ownership and control of the proceeds.” 74 To prove a

conspiracy to launder money, the Government must show (1)

an agreement between two or more persons to launder money;

and (2) that the defendant knowingly became a member of the

conspiracy. 75 The agreement must be one that, if completed,

would satisfy the elements of the underlying substantive

74

See App. 384–86 (Count 54); see also 18 U.S.C.

§ 1956(a)(1)(B)(i) (substantive offense of concealment money

laundering), 1956(h) (conspiracy to violate § 1956).

There are two types of money laundering under 18 U.S.C. §

1956(a)(1), both of which involve financial transactions with

proceeds from unlawful activity. Concealment money

laundering under § 1956(a)(1)(B) is money laundering done

with knowledge that the financial transactions are designed to

conceal the proceeds of specified unlawful activity. United

States v. Omoruyi, 260 F.3d 291, 294–95 (3d Cir. 2001) (citing

18 U.S.C. § 1956(a)(1)(B)). This is the type of money

laundering charged here. In contrast, promotional money

laundering under § 1956(a)(1)(A) is money laundering

conducted with the proceeds of specified unlawful activity

with the intent to promote certain further illegal activity. Id.

(citing 18 U.S.C. § 1956(a)(1)(A)).

75

United States v. Greenidge, 495 F.3d 85, 100 (3d Cir. 2007).

An overt act is not required to prove a conspiracy to violate §

1956(h). Whitfield v. United States, 543 U.S. 209, 219 (2005).

31

offense—in this case, concealment money laundering. 76 The

Government therefore must prove that Appellants knowingly

conspired to engage in (1) an actual or attempted financial

transaction; (2) involving the proceeds of a specified unlawful

activity; (3) with knowledge that the transaction involves the

proceeds of some unlawful activity; and (4) with knowledge

that the transaction was designed in whole or in part to conceal

the nature, location, source, ownership or control of the

proceeds of that activity. 77

There is a fine line between the concealment inherent in

fraud offenses and concealment money laundering. “Congress

did not enact money laundering statutes simply to add to the

penalties for various crimes in which defendants make

money.” 78 This Court has found that 18 U.S.C. § 1956(a)(1)

“addressed this concern, and therefore delineated clearly [the

difference] between the underlying offense and the money

laundering offense, by including an intent requirement,”

namely “the intent to conceal or disguise the nature, source,

ownership and control of the proceeds of the . . . fraud,” as

distinct from the intent to commit the underlying fraud itself. 79

Even the Supreme Court has warned about the danger of

reading the money laundering statute in a way that would

“merge” money laundering with the transactions inherent to

the underlying crime that generates the proceeds to be

laundered because “Congress [did not] want[] a transaction

76

See Ocasio v. United States, 578 U.S. 282, 287 (2016).

77

United States v. Richardson, 658 F.3d 333, 337–38 (3d Cir.

2011).

78

United States v. Conley, 37 F.3d 970, 979 (3d Cir. 1994).

79

Omoruyi, 260 F.3d at 295.

32

that is a normal part of a crime it had duly considered and

appropriately punished elsewhere in the Criminal Code to

radically increase the sentence for that crime.” 80

There are two good reasons to guard the line between

fraud concealment and money laundering concealment. First,

in many cases, “the addition of a money laundering charge can

result in . . . a sentence that is much larger than the sentence for

the predicate offense.” 81 That is because a defendant can be

charged based on the full value of the laundered assets, even if

that defendant did not participate in the underlying fraud that

generated the fraud proceeds.

Second, a money laundering conviction can add

significant financial penalties. Where ill-gotten funds are

commingled with legitimate funds in an account, many of our

sister circuits have held that the Government can take the entire

account, including the value of both the ill-gotten and

legitimate funds, because the account helped “facilitate” the

laundering by concealing the ill-gotten funds. 82 These

financial penalties demonstrate how tacking on a money

laundering charge can vastly extend the prosecution’s reach.

At best, it could subject companies to enormous forfeiture

80

United States v. Santos, 553 U.S. 507, 517 (2008) (Scalia, J.)

(plurality opinion).

81

Rachel Zimarowski, Taking a Gamble: Money Laundering

After United States v. Santos, 112 W. Va. L. Rev. 1139, 1146–

47 (2010).

82

See, e.g., United States v. Hawkey, 148 F.3d 920, 928 n.13

(8th Cir. 1998); United States v. Tencer, 107 F.3d 1120, 1133–

36 (5th Cir. 1997); United States v. Bornfield, 145 F.3d 1123,

1135–36 (10th Cir. 1998).

33

obligations based on relatively minor fraud schemes. At worst,

it could motivate prosecutors to bring money laundering

charges in almost every fraud case. For example, if a company

commits a relatively small fraud, treats the proceeds of that

fraud as revenue, and circulates that money through several

accounts within the company just as it would with legitimate

revenue, every account through which the fraud proceeds pass

could be subject to forfeiture under 18 U.S.C. § 982 for being

“involved in” money laundering. This would be well beyond

the value of the fraud proceeds themselves that would be

subject to forfeiture.

The “classic” money laundering case is where a “drug

trafficker collects large amounts of cash from drug sales and

deposits the drug proceeds in a bank under the guise of

conducting a legitimate business transaction.” 83 In United

States v. Richardson, we also said that “funneling cash through

an ostensibly legitimate business—a classic example of money

laundering—is ordinarily sufficient to prove a design to

conceal the nature and source of the money.” 84 However,

Richardson and the other cases we cited to support this

statement in Richardson all concerned proceeds from illicit

drug dealing being funneled into a completely separate

legitimate business or activity. 85 The fraud schemes and

83

Conley, 37 F.3d at 981 n.14 (quoting under United States v.

LeBlanc, 24 F.3d 340, 346 (1st Cir. 1994)).

84

Richardson, 658 F.3d at 341 (citing United States v. Rivera–

Rodriguez, 318 F.3d 268, 277 (1st Cir. 2003); United States v.

Jackson, 935 F.2d 832, 842 (7th Cir. 1991)).

85

See, e.g., Richardson, 658 F.3d at 334–36 (funneling drug

proceeds into a recording label); Rivera-Rodriguez, 318 F.3d

at 271–72, 276–77 (funneling drug proceeds into a

34

alleged money laundering conspiracy at issue here did not

concern the proceeds of illegitimate drug dealing being

funneled into Guaranteed Returns’s legitimate business.

Concealment money laundering is not limited to the

“classic” example. An essential element of money laundering

is the intent to conceal the nature, location, source, ownership,

or control of the ill-gotten proceeds. Evidence supporting an

intent to conceal can come in many forms, including:

statements by a defendant probative of intent to

conceal; unusual secrecy surrounding the

transaction; structuring the transaction in a way

to avoid attention; depositing illegal profits in the

bank account of a legitimate business; highly

irregular features of the transaction; using third

parties to conceal the real owner; a series of

unusual financial moves cumulating in the

transaction; or expert testimony on practices of

criminals. 86

Other circuits have held that simply moving ill-gotten funds

from one account to another or from one person to another is

not enough, absent evidence that the transfer was outside of

construction company, and using drug proceeds to purchase

and then sell speedboats); Jackson, 935 F.2d at 840–42

(funneling drug proceeds into a church bank account).

86

Richardson, 658 F.3d at 340 (quoting United States v.

Garcia–Emanuel, 14 F.3d 1469, 1475–76 (10th Cir. 1994)).

35

normal operations or that the irregularity was designed to

obscure an aspect of the ill-gotten proceeds. 87

Critically for our purposes, however, concealment

money laundering, whether classic or otherwise, requires

financial transactions involving “proceeds” of the fraud, 88 and

ill-gotten funds do not become “proceeds” until after a

defendant receives them. 89 After that point, transactions in

those funds that are designed to conceal, such as a deliberate

commingling of illicit and lawful funds, can form the basis of

a money laundering charge. But any transactions that occur

before a defendant obtains the fruits of its fraudulent scheme

fall outside of § 1956(a)’s scope. Thus, a defendant’s mere

receipt of funds as a result of a fraudulent transaction cannot

itself constitute money laundering, and that is true even if the

funds received include illicit funds commingled with lawfully

obtained funds.

Here, what constituted normal operations of the

company was established largely through the testimony of

Daniel Stieglitz, the Vice President of Finance in Guaranteed

Returns. He testified at length about the accounting practices

87

See, e.g., United States v. Blankenship, 382 F.3d 1110, 1131

(11th Cir. 2004) (reversing a money laundering conviction

where transactions involved moving funds deposited from one

account bearing the defendant’s name into another); United

States v. Willey, 57 F.3d 1374, 1388 (5th Cir. 1995) (reversing

a money laundering conviction where the transaction involved

transferring funds from a personal brokerage account to a

personal checking account).

88

18 U.S.C. § 1956(a)(1)(B)(i).

89

See Omoruyi, 260 F.3d at 296–97.

36

in the company through his departure from the company in

April 2010. 90 Stieglitz was involved in the financial

transactions in the company, including moving money between

the company accounts, yet he was not aware of the fraud

schemes. He explained that, in the ordinary course of business,

the company would receive refunds for batches of returned

products as lump-sum payments from manufacturers. These

lump-sum payments were wired directly into the company’s

general operating account. The FilePro system would

determine how much to refund to clients, which Fallon would

review and advise Stieglitz of how many checks to distribute

to clients. Stieglitz would transfer the appropriate money from

the general operating account to the customer payment account

to issue refunds.

The company’s service fee was based on a percentage

of the value of the returned product, as determined by the

manufacturer after they received the returned product. This

means that the company did not know what its service fee, i.e.,

its legitimate profit, would be before sending batched returns

to manufacturers. Stieglitz testified that, based on the

accounting, “the difference between what we paid out and what

we received should have been our fee.” 91 Any money left in

the general operating account after sending refund payments to

clients was “assumed” to be legitimate income and thus spent

90

The Government did not elicit testimony from any

Guaranteed Returns employees about the company’s banking

or accounting practices for the relevant time period after

Stieglitz left the company.

91

App. 3406.

37

on operations of the facility, payroll, or distributions to

Volkes. 92

Stieglitz further testified that it is “common for

companies to have multiple bank accounts” at different

financial institutions and to “[f]requently transfer[] funds . . .

among those various bank accounts.” 93 Guaranteed Returns

maintained five accounts at three different financial institutions

during the relevant period of this prosecution: the general

operating account, a business investment account, a payroll

account, and two accounts for making distributions to clients.

Stieglitz moved money between these accounts as needed. In

addition, Stieglitz testified that he was asked “from time to

time” to make distributions to Volkes. 94 Volkes would talk to

Fallon about the amount, who would relay that information to

Stieglitz. Stieglitz would then talk to the accountant and find

out how the distribution was to be made, either through payroll

or as a dividend (i.e., profit), for tax filings. Stieglitz would

first try to make the distribution from the general operating

account, but, if there were not enough funds for the

distribution, he would move funds from the customer payment

account.

The Government argues that Appellants engaged in

“classic” money laundering by commingling their ill-gotten

proceeds with legitimate income, and then transferring the

commingled funds through various company bank accounts

before eventually depositing millions of dollars into Volkes’s

personal account. It pressed these same arguments with the

92

See App. 3405–06.

93

App. 3458.

94

App. 3407.

38

jury at trial. Throughout the prosecution, the Government

repeatedly argued that it was in fact the manufacturers’ lump

sum refund payments to Guaranteed Returns that “concealed”

the illicit funds by making them impossible to trace because

those refunds commingled legitimate and illegitimate funds.

The Indictment charged that Appellants’ “fraud proceeds were

concealed by commingling them” with legitimate refunds.95

At trial, the Government’s witnesses testified that, although

they could trace the stolen indates and all of Guaranteed

Returns’s financial transactions without difficulty, they could

not separate the illicit from the legitimate funds because the

funds were “all combined into one large check” when sent by

manufacturers to Guaranteed Returns 96 and because the

company received its refunds in “a one-lump-sum amount.”97

And in its closing, the Government hammered home that its

primary evidence of Appellants’ alleged intent to conceal,

purportedly supporting the money laundering charge, was the

commingling of legitimate and illicit refunds. 98 The

95

App. 385.

96

App. 4212.

97

App. 3505.

98

See, e.g., App. 4981 (describing how, when refunds were

deposited with the company, “these monies were all co-

mingled. . . . [These] monies[] were all put together, and as a

result you could not tell the difference. And that’s what the

conspiracy was, to launder this money”); id. at 4983

(explaining the purpose of the transactions was to conceal

because the funds “were not put in some separate account; they

were all co-mingled together so the illegal proceeds could not

be detected”); id. at 4984 (“[W]hat this money laundering case

is about is the commingling of funds.”); id. at 4985 (“[W]hat is

at issue here is . . . how [the money] was co-mingled so you

39

Government’s lead investigator, Agent Woodring, testified

that the refunds for both legitimate clients and from diverted

indates were “co-mingled” in the lump-sum payments from

manufacturers. 99

The problem is that, to the extent that the ill-gotten

proceeds were “comingled” with other funds, the commingling

occurred before the money came into Guaranteed Returns’s

accounts. That is, ill-gotten funds were commingled in the

lump-sum payments from manufacturers as part of the fraud

schemes, and, as evident in the foregoing record excerpts, the

theory the Government conveyed to the jury was that

Appellants “caused the proceeds of these [indate] frauds to be

deposited into the Company’s bank accounts,” thereby

suggesting the refunds were “proceeds” of fraud before

manufacturers paid them into Appellants’ bank account in the

first place. 100

But money from unlawful activity does not become

“proceeds” until it is “derived from an already completed

offense, or a completed phase of an ongoing offense.” 101 This

means that a money-laundering transaction can only occur

after funds obtained from unlawful activity (e.g., fraud

could not tell the difference between the illegal money and the

legal money that was laundered, and that’s what the conspiracy

is here.”).

99

App. 4196–97, 6163 (“[T]he stolen indate, the money is

comingled with the money from the other customers that had

returned product legitimately.”).

100

App. 4981 (emphasis added).

101

Conley, 37 F.3d at 980.

40

schemes) are delivered into the defendant’s possession. 102 In

this case, money from the lump-sum payments from

manufacturers did not become “proceeds” until after the lump-

sum payments were deposited into Guaranteed Returns’s

general operating account, and after refund checks were issued

to clients, minus the money from the diverted indates or the

adjustment scheme. At that point, the fraud offenses were

complete. The funds remaining in the general operating

account were the legitimate profits from service fees, the

money “skimmed” as part of the adjustment scheme, and the

proceeds from the indate fraud schemes. Stieglitz testified that

these remaining funds were assumed to be legitimate profit, in

part, because he was unaware of the fraud schemes generating

additional funds beyond the legitimate service fees.

Accordingly, the only relevant financial transactions for

Appellants’ money-laundering charge are the transactions that

occurred after Appellants paid partial refunds to clients from

the lump-sum payments.

As to those transactions, however, there is no evidence

of Appellants’ intent to conceal illicit proceeds separate from

their intent to commit the underlying fraud scheme. We review

a sufficiency of the evidence challenge under a “highly

deferential” standard, 103 considering the evidence “in the light

most favorable to the government.” 104 We can uphold the

convictions only if the Government’s evidence would permit a

102

Omoruyi, 260 F.3d at 296–97.

103

Caraballo-Rodriguez, 726 F.3d at 430.

104

United States v. Iglesias, 535 F.3d 150, 155 (3d Cir. 2008).

41

reasonable jury to “find the essential elements of the crime

beyond a reasonable doubt.” 105

In an effort to show otherwise, the Government argues

that the transactions between the company’s accounts were

irregular and complex, consisting of unnecessary steps on a

convoluted path, with the ultimate goal of transferring ill-

gotten proceeds to Volkes. The Government asserts that the

numerous transfers had no purpose other than concealment of

the ill-gotten proceeds. Based on the totality of the facts,

including the number of transactions and the circumstances

surrounding these transactions, the Government argues that

there was substantial evidence from which the jury could infer

that the transactions were designed, in whole or in part, to

conceal or disguise the nature or source of the ill-gotten

proceeds. 106

The evidence belies the Government’s argument.

Stieglitz testified that it is “common” for companies to have

multiple bank accounts at different financial institutions.

Guaranteed Returns was such a company. In fact, the evidence

shows that Guaranteed Returns was a multi-million-dollar

company with hundreds of clients and more than 200

employees or service representatives. Stieglitz also testified

that he would move money between accounts to pay for

105

United States v. Starnes, 583 F.3d 196, 206 (3d Cir. 2009).

106

Intent to conceal may also be found with respect to the

location, ownership, or control of the ill-gotten proceeds, but

the Government on appeal does not specifically argue that the

transfers were designed to conceal these aspects. Instead, the

Government focuses on the transfers being designed to conceal

the source and nature of the proceeds.

42

customer refunds, payroll, and operating expenses, as well as

to make distributions to Volkes as the owner and CEO. Neither

Stieglitz nor any other witness from Guaranteed Returns

described the transfers as irregular. The Government has not

pointed to any evidence to show that the company having

multiple bank accounts or moving money between them was

irregular.

The Government relies heavily on its exhibit 70-28 to

show the financial transactions between the various company

accounts and Volkes’s personal accounts between 2006 and

2014. The Government’s exhibit 70-28 is not itself evidence;

it is merely a demonstrative aid. Part of the Government’s

argument as to why the transfers between accounts were

unusual was because some transfers moved money back into

the general operating account. However, exhibit 70-28 itself

illustrates that, of the hundreds of transactions moving billions

of dollars between accounts over the multi-year period, only

seven transactions for a total of $11.875 million moved money

from the customer payment account back into the general

operating account. 107 This is a minuscule number, and there is

no evidence to suggest that this is unusual—or indicative of

intent to conceal—based on Stieglitz’s testimony that it was

common to move money between accounts for the general

operation of the business.

The Government also asserts that the numerous

transfers from the general operating account allowed

Appellants to hide the fact that the company was bringing in

millions of dollars more than it would from just the legitimate

107

Five transactions moved $9.375 million in 2006, one

transaction moved $1.5 million in 2009, and one transaction

moved $1 million in 2010.

43

service fees. For the Government’s argument to have any

credence, the intent to conceal must have been to conceal from

Stieglitz, who was the key financial person not involved in the

money-laundering conspiracy. But Stieglitz’s testimony

directly contradicts the inference that the Government wishes

to be drawn.

Stieglitz was well aware of all the money in the general

operating account, how much money was paid to clients from

that account, how much was left over, and how much was

moved between the various accounts. Due in part to the

variable service fee structure, he assumed that what was left in

the general operating account after refunding clients was

legitimate profit. Even if the presence of the fraud proceeds in

the general operating accounts made the assumed profit larger

than what the profit should be without the fraud schemes,

Stieglitz remained unaware of the fraud schemes or the

proceeds generated from them. Stieglitz was even involved in

transferring money between accounts. For distributions to

Volkes, both Stieglitz and an accountant were aware since they

had to determine from which accounts to source the

distribution funds and how to report them to the IRS. The

evidence does not show that the transfers were designed, in

whole or in part, to conceal the fraud proceeds since Stieglitz—

the key financial person not involved in the money-laundering

conspiracy—was aware of all the money in the company and

was involved in the financial transactions, yet he remained

unaware of the fraud schemes.

This also highlights that the financial transactions could

not have been designed to conceal the source of the ill-gotten

proceeds. The source of all money in the company was the

pharmaceutical manufacturers. The legitimate and ill-gotten

funds did not come from different sources. The only difference

44

is that the ill-gotten funds were supposed to go to clients and

instead remained in the company’s general operating account.

Appellants’ conviction for concealment money

laundering under 18 U.S.C. § 1956(a)(1)(B)(i) requires proof

that financial transactions were “designed in whole or in part .

. . to conceal or disguise the nature, the location, the source, the

ownership, or the control” of the ill-gotten proceeds from the

fraud schemes. Viewing the evidence in the light most

favorable to the Government, there is not sufficient evidence

to prove beyond a reasonable doubt that the alleged complex

financial transactions—after the initial receipt of the

“commingled” fraudulent and lawfully obtained funds—were

designed for such concealment. We will therefore vacate the

conviction for all Appellants as to Count 54 for conspiracy to

launder money, vacate Appellants’ sentences, and remand for

resentencing. 108

E. The Government’s Alleged Pattern of

Misconduct

Appellants also argue that prosecutorial misconduct

requires reversal of their convictions and either dismissal of the

indictments or remand for a new trial. Appellants allege three

forms of prosecutorial misconduct: (1) suppression of two

favorable pieces of evidence in violation of Brady; (2) knowing

misstatements by Agent Woodring to the grand jury; and (3)

108

Appellants also argue that the indictment and jury

instructions permitted the jury to convict them on a legally

invalid theory of conspiracy to launder money. Since we

vacate Appellants’ convictions of conspiracy to launder money

due to insufficient evidence, we need not consider this

additional argument challenging the convictions.

45

display of an exhibit not in evidence to the jury. We address

each argument in turn.

1. Brady Violations

This Court reviews a violation of Brady v. Maryland 109

de novo for conclusions of law, but applies a clearly erroneous

standard to findings of fact. 110 To establish a Brady violation,

Appellants must show (1) that the Government suppressed

evidence; (2) that the evidence was favorable to Appellants

either because it was exculpatory or impeaching; and (3) that

the evidence was material to guilt or punishment, meaning that

there is a reasonable probability that, had the evidence been

disclosed to Appellants, the result of the proceeding would

have been different. 111

Appellants claim that the Government suppressed two

pieces of evidence. The first is two pages of notes prepared by

Agent Woodring, memorializing a phone call that she had with

Vincent Valinotti, the DoD chief contracting officer for the

2007 contract. The first page of these notes is dated March 12,

2010, and states that, although reverse distributors “will take

indates,” this “contract is silent” as to indates. 112 The second

page, dated December 17, 2010, states “nothing in contract re

indates + not required,” followed by a few illegible words. 113

109

373 U.S. 83 (1963).

110

United States v. Georgiou, 777 F.3d 125, 138 (3d Cir.

2015).

111

Id. (quoting Pelullo, 399 F.3d at 209).

112

App. 6125.

113

App. 6126.

46

The second piece of evidence is a report of Agent

Woodring’s January 3, 2017 interview of Linda Magazu, the

DoD contracting officer for the 2001 contract. In this report,

Magazu opined that, “based on the statement of work [in the

2001 contract,] Guaranteed Returns was not obligated to store

indated product because storing indated product was not

specifically stated in the statement of work in the contract.” 114

Magazu added that, “if Guaranteed Returns [held] indated

product for the DoD, [it] could not return the product for credit

and keep the credit. Guaranteed Returns could only give credit

to the DoD and earn a service fee.” 115

Appellants concede that the Government produced the

Magazu report on January 27, 2017, after the final pretrial

conference and one business day before jury selection. The

Valinotti notes were not disclosed until February 3, 2017, the

Friday of the first week of trial and the Friday before the week

when Valinotti was expected to testify.

“Where the government makes Brady evidence

available during the course of a trial in such a way that a

defendant is able effectively to use it, due process is not

violated and Brady is not contravened.” 116 Thus, assuming—

without deciding—that these two pieces of evidence qualify as

Brady material, we must consider whether Appellants were

able to use the material and suffered prejudice from an

untimely disclosure. 117 The Magazu interview report was

114

App. 6256.

115

App. 6256.

116

United States v. Johnson, 816 F.2d 918, 924 (3d Cir. 1987).

117

United States v. Moreno, 727 F.3d 255, 262 (3d Cir. 2013)

(finding no violation where alleged Brady material was

47

produced five days before opening statements, and thirty-eight

days before Agent Woodring testified. The Valinotti notes

were produced four days before Valinotti testified.

Guaranteed Returns argues that the suppression of the

Valinotti notes prevented it from discussing the notes in its

opening statement, and that it would have used the notes to

cross examine Robert Dooley, another Government witness.

However, Guaranteed Returns’s counsel mentioned in his

opening that the 2001 DoD contract was silent on indates, and

he made repeated reference to the notion that Guaranteed

Returns’s clients did not expect anything in return for indates.

Guaranteed Returns also had the notes two days before Dooley

testified, 118 and yet the company offers no argument as to how

its cross examination of Dooley would have changed if it had

received the evidence earlier. The company also claims that

the Magazu interview report came too late to integrate the

report into its pretrial strategy, but the company does not

articulate how its strategy would have changed. In particular,

the company does not argue that it would have called Magazu

as a witness had the notes been disclosed earlier. Since

Appellants have failed to demonstrate prejudice from the

delayed disclosure of this evidence, they cannot succeed on

their Brady arguments. 119

produced at 7 p.m. the night before trial because defendant

failed to establish prejudice).

118

The Valinotti notes were produced two days before Dooley

testified.

119

Guaranteed Returns also argues that it would have moved

to dismiss the indictments with these pieces of evidence, but

again, it fails to articulate how this evidence would have

permitted it to do so.

48

2. Misrepresentations to Grand Jury and in

Pursuit of Search Warrants

Appellants also incorrectly claim that Agent Woodring

lied to the grand jury and to a magistrate judge to obtain a

search warrant. They argue that, once Agent Woodring spoke

with Valinotti, she conclusively knew that the 2001 DoD

contract did not “cover” indates, and therefore any statement

that the contract did cover indates was a willful

misrepresentation.

This mischaracterizes Agent Woodring’s notes of her

conversation. Valinotti told Agent Woodring that there was

“nothing re indates” 120 in the 2001 DoD contract, meaning that

the indates were not treated differently than any other

pharmaceutical return under that contract. Valinotti also

testified at trial that, although the 2001 DoD contract did not

use the word “indates,” the company treated indates like any

other drug by either returning the indates to the manufacturer

when they reached their expiration date or by destroying the

indates if they were not returnable under the manufacturer’s

policy. Appellants point to nothing in the record to suggest

that either Valinotti or Agent Woodring understood the

contract differently. The argument that Agent Woodring lied

or made a material misrepresentation every time she claimed

that the 2001 contract covered indates is therefore baseless.

Appellants also claim that Agent Woodring made

similar misrepresentations to the grand jury, but they concede

that they are precluded from challenging their convictions

120

App. 6126.

49

based on grand jury perjury. 121 They only mention this in

support of their argument on general prosecutorial misconduct,

which, as noted below, does not succeed.

3. Display of an Exhibit not in Evidence

Fallon also argues that a mistrial was warranted based

on the Government’s improper reference to an exhibit that was

not in evidence. During the Government’s rebuttal summation,

it displayed a one-page task list that listed Volkes as the

“owner” and listed several tasks that he was apparently to

complete. The Government used the task list to connect the

adjustment scheme to other testimony and evidence,

suggesting that Appellants implemented the adjustment

scheme to increase revenue and thereby enable Volkes to repay

a loan that he took out to satisfy an unrelated Missouri

judgment.

The District Court gave the jurors a curative instruction

to disregard the task list, before other instructions in the

case. 122 After approximately ten hours of deliberation, the

jurors sent a note indicating that they were hung as to Fallon

on Counts 41–52 and 54. The Court reminded them that the

case had taken seven weeks to present, that they may reach

Guaranteed Returns’s Br. at 51; United States v. Mechanik,

121

475 U.S. 66, 73 (1986).

122

The instruction stated that the exhibit was not in evidence

and therefore that “aspect of [the Government’s] argument is

stricken, meaning that you must disregard the document itself

and all arguments relating to it, and neither the document nor

the related arguments may be considered by you in any way

during your deliberations.” App. 5390.

50

different verdicts as to each defendant on each count, and that

they should keep deliberating. The jury then asked to see a

number of exhibits, including the task list not in evidence. The

Court wrote back to the jury, noting that the task list was not in

evidence, and referring them to the appropriate curative

instruction, which they had with them in the jury room. At the

request of Volkes’s counsel, the Court also brought the jurors

back to the courtroom to instruct them again that they should

not consider the task list or any argument the Government

made related to it. The jury then reached a verdict on all

counts.

As we presume that jurors follow curative instructions,

Appellants cannot prevail on this claim. 123 The District Court

gave multiple instructions not to consider the task list,

including a specific reminder after the jury requested it. This

ensured that the jury was aware that they could not consider

the task list. Appellants also concede that any error here is

subject to harmless error analysis. 124 An error is harmless

where the reviewing court possesses a sure conviction that the

error did not prejudice the defendant. 125 We have such a

conviction here. A Government witness had already connected

123

United States v. Franz, 772 F.3d 134, 152 (3d Cir. 2014).

United States v. Molina-Guevara, 96 F.3d 698, 703 (3d Cir.

124

1996)

125

United States v. Cunningham, 694 F.3d 372, 392 (3d Cir.

2012) (quoting United States v. Dispoz-O-Plastics, Inc., 172

F.3d 275, 286 (3d Cir. 1999)).

51

the Missouri judgment to the adjustment scheme, and the jury

did not learn anything new from the task list. 126

4. Cumulative Effect of Prosecutorial

Misconduct

In order to have an indictment dismissed due to a course

of prosecutorial misconduct, Appellants must demonstrate

both prejudice from the misconduct and that there was no less

severe means to remedy that prejudice. 127 Appellants can do

neither. The only prejudice that they have identified was the

Government’s display of an exhibit not in evidence, which the

District Court addressed through curative instructions and was

harmless in any event. Accordingly, Appellants have not

shown that the indictment should be dismissed or that a new

trial is warranted on the basis of alleged prosecutorial

misconduct.

126

In arguing for reversal on this basis, Appellants offer a

different version of events. Appellants contend that, after the

jury was again instructed to disregard the task list, they

provided a note to the Court indicating that they had reached a

verdict and suggesting that they did so before hearing the

curative instruction again. Fallon’s counsel raised this

possibility with the District Court, but the Court clarified that,

while it did receive an envelope when the jury entered to be

reinstructed to disregard the task list, the envelope was empty.

There is no basis in the record for Appellants’ assertions that

the jury reached a verdict before the second curative

instruction.

127

United States v. Wright, 913 F.3d 364, 371 (3d Cir. 2019).

52

F. The Restitution and Forfeiture Awards

Finally, Appellants challenge the District Court’s

restitution and forfeiture awards.

1. Restitution Award

Our review of whether restitution is permitted by law is

plenary, and we review any particular award for abuse of

discretion. 128 We review factual findings as to the amount of

loss for clear error. 129 To set aside an award, Appellants must

demonstrate that the award is “completely devoid of a credible

evidentiary basis or bears no rational relationship to the

supporting data.” 130

At sentencing, the Government sought $157,896,446.94

in restitution for the indate scheme based on the “estimated

return value” of the pharmaceuticals that Guaranteed Returns

misdirected to itself, and $515,211.89 in restitution for the

adjustment scheme. Appellants opposed using the estimated

return value to calculate restitution in the indate scheme since

the “actual return value” of the misdirected indates was readily

available and reflected the proceeds that the company actually

received. Appellants argued that the actual return value was

$94,737,868.16. Appellants further argued that the actual

return value should be reduced by approximately $13 million

to reflect the reasonable fees that the defrauded clients would

128

United States v. Quillen, 335 F.3d 219, 221 (3d Cir. 2003).

129

United States v. Vitillo, 490 F.3d 314, 330 (3d Cir. 2007),

as amended (Aug. 10, 2007).

130

Id. (quoting United States v. Haut, 107 F.3d 213, 218 (3d

Cir. 1997)).

53

have expected to pay for services in connection with the

misdirected indates. Appellants therefore argued for a total

restitution award of approximately $81 million for the indate

scheme. The District Court accepted Appellants’ calculation

of the actual return value of the misdirected indates as the

amount of restitution for the indate scheme. The Court ordered

Appellants to pay two restitution awards: (1) $94,737,868.16

for the indate scheme, to be paid jointly and severally by

Volkes and Guaranteed Returns; and (2) $515,221.89 for the

adjustment scheme, to be paid jointly and severally by Volkes,

Fallon, and Guaranteed Returns. Volkes and Guaranteed

Returns were therefore responsible, jointly and severally, for a

total of $95,253,090.05 in restitution.

Appellants now argue that the restitution award for the

indate scheme was improper because the record did not support

that every single client suffered a loss when Guaranteed

Returns stole indate refunds properly due to them. This

argument fails. A restitution award is only an abuse of

discretion if it is devoid of a credible evidentiary basis or bears

no rational relationship to the supporting data. 131 The District

Court’s use of Guaranteed Returns’s records of the funds it

actually received for the diverted indates satisfies this standard.

The company argues that a low response rate to a victim impact

survey somehow undermines this conclusion, but again, the

District Court’s use of the company’s own records is a

sufficient basis for the restitution calculation. Moreover,

Appellants themselves proposed the $94 million restitution

figure as the actual return value of the misdirected indates.

Appellants have not shown that the District Court abused its

131

Vitillo, 490 F.3d at 330.

54

discretion in imposing any of the restitution awards, so we will

affirm. 132

2. Forfeiture Award

Guaranteed Returns also raises a number of challenges

to the District Court’s forfeiture award. Since the forfeiture

award is based on Appellants’ convictions for conspiracy to

launder money under Count 54, and since we will vacate the

convictions as to Count 54 and vacate the sentences, so too

must the forfeiture award be vacated. To the extent that a

forfeiture award applies to the remaining convictions, we will

remand to the District Court to recalculate any appropriate

forfeiture award. 133

III. Conclusion

For the foregoing reasons, we will vacate the

Appellants’ convictions on Count 54 for the conspiracy to

launder money, but we will affirm the remaining convictions.

132

Since the restitution awards were not calculated based on

the convictions for conspiracy to launder money, the awards

do not need to be recalculated in light of our decision to vacate

these convictions.

133

The parties also agree that the District Court committed a

computational error in calculating the forfeiture award because

the Court did not adjust the award for the $6,313,128.10 in

“direct credits” from the manufacturer that went directly to the

accounts of Guaranteed Returns’s clients. Guaranteed Returns

Br. at 41; Gov’t Br. at 174. To the extent that the District Court

recalculates a forfeiture award absent the convictions for

conspiracy to launder money, this amount in “direct credits”

must be considered.

55

We also will vacate Appellants’ sentences, other than the

restitution award, and remand for resentencing, including a

recalculation of the forfeiture award.

AFFIRMED in part; REVERSED in part; VACATED

in part; and REMANDED for resentencing.

56