Petition for Writ of Certiorari — Gregory v. United States

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Docket No.

8 4 ™ 5 9 0 / | Office Supreme Ca

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urt, U.S.

D

SEP 26 joR4

———EE *STEVAS

CLERK

In THE

Supreme Court of the Hnited States

October Term 1984

E.A. GREGORY and VONNA JO GREGORY,

Petitioners,

VS.

THE UNITED STATES OF AMERICA,

Respondent

CERTIORARI

TO THE ELEVENTH CIRCUIT

___ COURT OF APPEAL

Counsel for Petitioners

Peter F. Burns

50 St. Emanuel Street

Post Office Box 1583

Mobile, Alabama 36633

(205) 432-0612

QUESTIONS PRESENTED FOR REVIEW

A. Can the government, after exposure

to relevant immunized testimony, circumvent

its requirement of proving its evidence is

untainted by demonstrating that other

sources would have led to the information

revealed in the immunized testimony?

B. Does the Fifth Amendment protect a

witness from having his immunized testimony

studied by government investigators who are

investigating him for criminal charges

relating to that testimony?

PARTIES

The parties inthis case when it was

before the United States Court of Appeals

for the Eleventh Circuit were the United

States of America, E. A. Gregory, Vonna Jo

Gregory, Gerald Atkinson, and Robert

Spurlock.

(i)

CITATIONS TO OPINIONS BELOW.

JURISDICTION .

e e e e e . e e e oO . 7 2

STATEMENT OF THE CASE. 3 a,

A. The Gregory® . «s«s« © 6 Ss 6 8 @

- Immunized Testimony. .

. . * e am . . . . ~

B

C. Exposure ..« «

D

. Use. * * + 7 . La

oJ . . » . . ° . 9

E. Absence of Prophilactic

Measures .. sss 8s & ss 6 © oe

PF. Indictment ..«s+#s4t* ©.) 8) 2) ee

G. Hearing on Motion to Dismiss

H. Disposition on Appeal. ..... 18

I. Original Federal Jurisdiction. . 19

ARGUMENT

vv

i. The lower courts failed to

impose Kastigar's requirement

that the government demonstrate

an independent source even for

the evidence challenged by the

defendants ..s«st*se bs ss ee

(ii)

Page

TI. The lower courts' interpreta-

tion of what constitutes an

impermissible use of immunized

testimony fails to protect the

Fifth Amendment rights of the

OREGMGONRtS . ss we wee eo es « 4

III. The application of correct

legal principals to the undis-

puted facts reveals that the

defendants' Fifth Amendment

rights can only be protected

by a dismissal of the indict-

a a a a ee ae ee

CONCLUSION . . "aaa War age tat ae ek Re ee ee

(iii)

Page

Kastigar v. United States, 406 U.S. 441,

32 L.Ed. 2d 212, 92 S.Ct. 1653, reh den

408 U.S. 931, 33 L.Ed. 2d 345, 92 S.Ct.

eueew Caeret 6 «& s 8 es 6 es 6 se ke eK we Be SD

22, 22, 26,

26, 27, 29, 32

United States v,. Beery, 678 F.2d 856,

Bees Ms DS CECEE Cakes TOGR cic a us « « Se 2,

38

United States vy. Gregory, 730 F.2d 692

(llth Gare 1984). . . . . . . , . . . a 19, 23,

29, 30, 35

United States y, McDaniel, 482 F.2d 305,

Pr | er eee eee ee:

32, 38

» 299 F.26 Si,

32 SMG Cik.g LOTT) 2 -o. 8 sw a oe 0 0 ee ae 38

United States v,. Seiffert, 463 F.2d

(1089 (5th Cir. 1972)

. . . e ” . . ° ° . 4

(iv)

CONSTITUTIONAL PROVISIONS

—AND_ STATUTES INVOLVED _

1. The Fifth Amendment to the United

States Constitution:

"No person shall be held to answer for a

Capital, or otherwise infamous crime, unless

on a presentment or indictment of a Grand

Jury, except in cases arising in the land or

naval forces, or in the Militia, when in

actual service in time of War or public

danger; nor shall any person be subject for

the same offence to be twice put in jeopardy

of life or limb; nor shall be compelled in

any Criminal case to be a witness against

himself, nor be deprived of life, liberty,

Or property, without due process of law; nor

shall private property be taken for public

use, without just compensation,"

2. 18 United States Code, Section

6002:

"Whenever a witness refuses, on the basis

of his privilege against self-incrimination,

to testify or provide other information ina

proceeding before or ancillary to--

(1) a court or grand jury of the United

States,

(2) an agency of the United States, or

(3) either House of Congress, a joint

committee of the two Houses, ora

committee or a subcommittee of

either House,

and the person presiding over the proceeding

communicates to the witness an order issued

(v)

under this part, the witness may not refuse

to comply with the order on the basis of his

privilege against self-incrimination; but no

testimony or other information compelled

under the order (or any information directly

or indirectly derived from such testimony or

other information) may be used against the

witness in any Criminal case, except a

prosecution for perjury, giving a false

statement, Or otherwise failing to comply

with the order."

(vi)

CITATIONS TO OPINIONS BELOW

That portion of the hearing wherein the

District Court denied the petitioners'

motion to dismiss the indictment because of

governmental use of immunized testimony is

attached hereto as “Exhibit A". The opinion

of the United States Court of Appeals for

the Eleventh Circuit is attached hereto as

"Exhibit B".

JURISDICTION

The opinion of the United States Court

of Appeals for the Eleventh Circuit is dated

April 23, 1984. The application for

rehearing en banc was denied on July 30,

1984.

The statutory provision which confers

jurisdiction on this court to review the

judgment of the United States Court of

Appeals for the Eleventh Circuit is 28

U.S.C. 1254(1).

STATEMENT OF THE CASE

A. _The Gregorys

E. A. and Vonna Jo Gregory are husband

and wife who, prior to their involvement in

banking, were self made millionaires with

excellent reputations (Tr. Vol. 10, p. 2207,

2208; Tr. Vol. 8, p. 1711; Def. exhibit 6).!

They purchased controlling interest in the

Bank of Camden in November of 1975. Both

were elected to the Board of Directors with

Mr. Gregory serving as Chairman of the

Board. They sold their interest in the bank

to Mr. and Mrs. Lyons on April 8, 1977. The

bank was closed and the FDIC took control of

its assets in April of 1978.

B. Immunized Testimony

On June 19, 1978, the Gregorys filed

for relief under Chapter XII of the Bank-

ee ree re ere ee cere eee ere ee ee ee ee ee ee ee ee ee ee ee

Judge Varner made the following

observation at the sentencing hearing: "I

am impressed that prior to the time you got

into the banking business your reputation

was excellent, all of you..." (Tr. hearing

4/23/82, p. 6).

=3q

ruptcy Act. Corporations which the Gregorys

controlled filed for relief under Chapter

XI. At the First Meeting of Creditors,

July 26, 1978, the Gregorys testified in-

dividually? and as the designated represen-

tatives of the corporations. This testimony

was given under a grant of immunity pursuant

to 18 U.S.C.A. Section 6002.4 The testimony

2 The Gregory corporations included

the following: Faith Investment Co., Inc.

(Tr. Vol. 8, p. 1714); A.L.M., Inc., Jodi

Carrousel, JoVonn Hotels of America, Inc.,

Action Lending Incorporations, Inc., Sea

Ranch Properties, and Queeve Development

(Tr. Vol. 8, p. 1687). Transactions among

these corporations, the Gregorys and the

Wilcox County Bank were challenged in the

indictment and are integral to the

government's case,

3 Mrs. Gregory testified at the

direction of the Bankruptcy Judge by

adopting the testimony of Mr. Gregory (Tr.

Hearing 3/4/82, exhibit 1 p. 8).

4 ‘The Gregorys thus received use and

derivative use immunity which is coextensive

with the Fifth Amendment Kastigar v. United

States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.

2d 212 (1972); United States v, Seiffert,

463 F.2d 1089 (5th Cir. 1972); United States

vy. Beery, 678 F.2d 856 (10th Cir. 1982).

(Tr. Hearing 3/4/82, exhibit 1, p. 9 and

exhibit 16, p. 1).

wn

Tahini aici dialed

at the First Meeting of Creditors

paralleled in some instances the allega-

tions of the subsequent indictment (Tr.

Hearing 3/5/82, p. 210; appendix "Exhibit A"

attached).

C, Exposure

Approximately six months before the

immunized testimony, the FBI and FDIC were

cooperating in an investigation into the

financial affairs of the Gregorys in ex-

pectation of criminal charges being filed.

The FDIC was represented at the hearing of

5 Prior to April 5, 1978, FDIC Examiner,

Lamar Kelly, was in contact with an FBI

Agent investigating the Gregorys. As stated

in defense exhibit 1, "Both Kelly and the

agent feel, there is a better than 90%

chance for criminal charges being brought

against the Gregorys...". Mr. Kelly was

given authority to continue his investiga-

tion (Defense exhibit 1 of the jin camera

proceeding of 3/4/82).

ith an

July 26, 1978 by Herbert Adk inson,® Robert

Blouin,’ Dee Doher, Lamar Kelly and three

attorneys (Tr. Hearing 3/4/82, p. 186, 187;

Hearing 3/5/82 p. 31, 32).

6 Mr. Adkinson was the liquidator in

charge of Wilcox County Bank (Tr. Hearing

3/4/82, p. 158). He attended practically

all of the bankruptcy hearings many of which

he knew to be a continuation of the First

Meeting of Creditors. He knew the Gregorys

were testifying under a grant of immunity,

but he did not know the legal effect (Tr.

Hearing 3/4/82, p. 161-164).

7 Mr. Blouin, FDIC liquidator, stayed

in Court all day during the immunized

testimony. He does not recall the Gregorys

being given immunity.

8 The evidence also strongly suggests

that FBI Agents Strickland and Gilman

listened to the immunized testimony. James

Jerry Wood, an attorney practicing law in

Montgomery, Alabama, specifically testified

that he saw those two agents in the

Courtroom while the Gregorys were testifying

and after they had been granted immunity

(Tr. Hearing 3/4/82, p. 24). Charles S.

Liberis, an attorney in Pensacola, Florida,

testified that individuals were pointed out

to him by Mr. Wood as being FDIC employees

and agents of the FBI who were in the

Courtroom during the proceedings (Tr.

Hearing 3/4/82, p. 119).

The Gregorys by letter dated August l,

1979, called the grand jury's attention to

(Footnote 8 continued on the following page)

~

(Footnote 8 continued):

the government's exposure to immunized

testimony at their bankruptcy proceedings.

That letter was read to the grand jury by

Agent Heisler and the pertinent parts are as

follows:

"Please be advised that both officers

of the FBI and representative of the

FDIC have at various times been in

attendance at examinations of our

: :

personal _and business affairs which

a

and related companies

and which were subject to the immunity

provisions..." (Def. Ex. 3 to Hearing

3/4/82, p. 3-5).

The United States Attorney responded to

the letter from Mr. and Mrs, Gregory by

advising the grand jury as follows:

"For your information, at my direction

there have been some of the bankruptcy

proceeding involving the Gregorys and

their holding companies that have been

attended by either FBI agents and/or

assistant United States attorneys. I

believe an agent for the FDIC obtained

a copy of some of the bankruptcy

applications that were filed. While it

is true that certain matters contained

in there may not be used in a criminal

prosecution because of the compulsory

aspects of the bankruptcy law, it is my

opinion that none of the conduct of any

agent or attorney of the Government at

this point constitutes misconduct, and

I do not accept that charge and I have

denied it, and I have asked simply that

(Footnote 8 continued on the following page)

=J=

(Footnote 8 continued):

this lawyer let us know what it is that

he is talking about." (Exhibit 3,

Hearing 3/4/82, p. 9).

Clearly, the United States Attorney was

responding to allegations that he sent

investigators to the personal bankruptcy of

the Gregorys.

Finally, the two agents in question

admit being in the Federal Courthouse when

the bankruptcy proceedings were being

conducted, but say that their purpose was to

interview Gregory employees (Tr. Hearing

3/5/82, p. 95, 108, 169-172). No Gregory

employees were interviewed on that date.

7"

P Use

Mr. Adkinson had numerous conversations

with Jumar Kelly regarding the bankruptcy

proceedings and talked to FBI Agent Heisler?

more than once but less that 5,000 times,

Since the hearing (Tr. Hearing 3/4/82, p.

166, 175). Mr. Adkinson does not know what

he discussed with Agent Heisler on those

occasions (Tr. Hearing 3/4/82, p. 175). He

testified before the grand jury and was the

first witness for the prosecution at trial

(Tr. Bearing 3/74/82, p. 1593; Tr. Vol. 2, PD.

244, 412).

Mr. Blouin has talked with U. S.

Attorneys or Assistant U. S. Attorneys, as

well as FBI agents Strickland, Heisler, and

Long about the Gregorys. He does not recall

what was said at the bankruptcy hearing nor

what he told the FBI (Tr. Hearing 3/5/82, p.

29-34). Essentially the same thing is true

9 John B. Heisler was the case agent

in charge of the Gregory investigation from

September of 1978 through trial (Tr. Hearing

3/5782, p. 175).

ae

of Ms. Doher. She has reviewed Gregory

files with Agent Heisler; she does not

remember the grant of immunity, what was

said at the hearing or what she told Agent

Heisler (Tr. Hearing 3/5/82, p. 43, 46-48).

Mr. Kelly listened to the entire

immunized testimony of the Gregorys; pre-

pared a memorandum of that testimony for the

FDIC files. and thinks he sent a copy of

that memo to Mr. Beasley,29 (Tr. Hearing

3/4/82, p. 186, 187; Tr. Hearing 3/5/82, p.

3). He prepared a memorandum from which Mr.

Adkinson testified at trial (Tr. Vol. 2, Pp.

276).

After the immunized testimony, FDIC

Examiner, Lamar Kelly, was designated under

Rule 6(e) Federal Rules of Criminal

Procedure, aS a government employee to whom

the United States Attorney had made

Mr. Beasley was the Regional

Director of the Federal Deposit Insurance

Corporation and government trial witness

(Tr. Vol. 7, p. 1366-1307).

=10<

disclosure of secret grand jury information

and from whom he could seek assistance in

the performance of his duty to enforce

federal criminal law (Tr. Hearing 3/4/82, p.

203, 204; Def. exhibit 3 of that Hearing, p.

39). On January 31, 1979, the United States

Attorney for the Southern District of

Alabama requested that Kelly be allowed to

freely assist the FBI, U. S. Attorney's

Office and grand jury in the investigation

of the Gregorys. This request was granted

with the limitation that:

"In addition, Mr. Kelly must be

instructed that while he is assisting

the United States Attorney he is

functioning only as an agent of the

Department of Justice or the United

States Attorney's Office and not as a

representative of the FDIC." (Def.

exhibit 21; Tr. Hearing 3/4/82).

Mr. Kelly did not know that the prose-

cution was prohibited from making either

direct or indirect use of the immunized

testimony. In regard to the grant of

immunity, he testified:

@li-

"I believe there was some attorney

talk regarding immunity, but I'm not

an attorney, so I don't know the

legal effect of that." (Tr. Hearing

3/4/82, p. 188).

Mr. Kelly has had numerous conversations

with FBI agents, Assistant U. S. Attorneys

or U. S. Attorneys since 1978 in relation to

criminal proceedings against the Gregorys

and he cannot recall the specifics of those

conversations (Tr. Hearing 3/5/82, p. 7-10).

Nor can he recall the specifics of the

immunized testimony (Tr. Hearing 3/5/82,

p. 7). He does recall discussing Dr. Don,

Rolphe McCollister, Mr. Whitehead?! and the

"excessive use of uncollected funds" by the

Gregorys with FBI agents on numerous

occasions (Tr. Hearing 3/4/82, p. 197-198).

Kelly played an active part in the

investigation and he divulged all informa-

11 hese men are creditors of the

Gregorys who owed money to the Wilcox County

Bank. Don and McCollister are mentioned in

paragraphs five and nineteen of the

indictment respectively. All three were

interviewed for the first time after the

immunized testimony.

-12-

tion known to him. He understood that as an

agent of the grand jury:

",..that I was to cooperate fully with

both the FBI in their investigation and

the grand jury...I was to testify

freely before the grand jury. That

means everything that I had knowledge

of." (Tr. Hearing 3/4/82, p. 204-206).

Mr. Kelly also helped the U. S. Attorney's

Office and the FBI analyze financial

documents and other records pertaining to

the Gregorys (Tr. Hearing 3/4/82, p. 205,

206). He was so valuable in the preparation

of the case that the prosecutor requested

that he be allowed to assist at counsel

table during presentation of evidence to the

jury (Tr. Vol. 1, p. 195, 196).

E Al € Pp hilactic M

In September of 1978, two months after

the immunized testimony, Agent Heisler

became case agent in charge of the Gregory

investigation (Tr. Hearing 3/4/82, p. 175).

He did not know that the Gregorys had testi-

fied under a grant of immunity until on or

=} 3

about 3/4/82--three and one-half years after

the testimony and four days before trial.

Naturally, he did not instruct his agents to

attempt to shield themselves from immunized

testimony (Tr. Hearing 3/5/82, p. 205, 208)

the first immunized testimony occurred

approximately twenty months before the

indictment was returned, After the

immunized testimony, 65% of the FBI 302

reports were taken and fourteen of the |

government's twenty-two trial witnesses were

interviewed,.! None of the FDIC personnel

were cautioned against using immunized

testimony or leads gained therefrom in

assisting in the investigation of the

Gregorys (Tr. 3/5/83, p. 63, 64--Herb

Adkinson, 188--Lamar Kelly, 44-45--Ms,

12 The 14 government witnesses

interviewed for the first time by the FBI

after the immunized testimony are Harvey

DeWesse; Lewis C. Beasley; Rolphe

McCollister; Bill G. Agall; Millard C. Hall;

Dr. H. M. Don; ‘Eugene M, Finkelstein; A. L.

Johnson, Sr.; Dan B, Cook; Joe C. Williams;

James E. Branum; John R. Liggon; Charles A.

Whitehead; Cathy W. Craig (Tr. Hearing

3/4/82; Def. exhibit 2).

Sy

Doher). Thus, the immunized testimony came

at an early stage of the investigation. The

people who heard the testimony did not know

of the prohibition against its use in a

Criminal prosecution and the agent in charge

of the investigation did not even know that

there had been immunized testimony.

FP. Indictment

On May 30, 1980, the grand jury re-

turned an indictment against the Gregorys,

G. W. Atkinson, Robert T. Spurlock, Jr., and

Mark Lyons, III (R. 1). The indictment,

Criminal Case No, 80-00025, charged con-

Spiracy (18 U.S.C. Section 1014); wire fraud

(18 U.S.C. Section 1343); willful misappli-

cation (18 U.S.C. Section 656); and aiding

and abetting (18 U.S.C. Section 2) in the

misapplication of monies, funds and credits

of the Wilcox County Bank, f/k/a Bank of

Camden. The Gregorys pled not guilty and on

June 30, 1980, filed several pre-trial

=} Se

motions. Among those was a motion to

dismiss the indictment because, among other

things, government agents exposed themselves

to immunized testimony (R. 232).

CG. _H . Moti to Disni

On March 4 and 5, 1982, the Gregorys

were afforded a hearing on their motion to

dismiss the indictment based upon improper

use of immunized testimony. During that

hearing, the Trial Judge incorrectly put the

burden of proof on the Gregorys to:

",..demonstrate to this Court that

there is testimony contained and where

it is contained and what it is that

was given at the immunized proceeding

and how that appears in any count of

the indictment. And when that has

been done, the government will then

have the burden of demonstrating to

me that the information that they got

that produced that was not from the

grand jury (sic) immunized testimony."

(Tr. Hearing 3/4/82, p. 17)!

13° The Gregorys conducted the hearing

pro se and as they ably pointed out to the

Court, they understood that the law and the

Court's prior order put the burden on the

government to go forward. On six separate

occasions the Gregorys argued that the

burden ofroof was being improperly placed on

them (Tr. Hearing 3/4/82, p. 4, 15-17, 19

and 128-141).

-)6-

The Gregorys then demonstrated that their

immunized testimony revealed matters related

to the indictment. In evaluating the impact

of the government's exposure to immunized

testimony, the Court erroneously ruled that:

"I think you may have travelled under

a misapprehension, though you may not,

The fact that you get immunity does not

preclude anyone from listening to that

or being present or having it available

and studying it. What they are precluded

from doing is using it in any way."

(Tr. Hearing 3/5/82, p. 209; appendix

"Exhibit A" attached).

Finally, the Trial Court impermissibly

speculated that the government would have

ultimately discovered the evidence without

the immunized testimony and therefore, the

Gregorys' motion was due to be denied

because they did not demonstrate that the

government relied upon their immunized

testimony. The Court's language in that

regard is as follows:

",..that there were adequate sources

outside of that testimony that would

have led to what the Government

ultimately did in its indictment.

=)7J-

And though it might have paralleled

in some instances the testimony that

you gave, that does not mean the

Government relied on your testimony

to come by those sources, and this

Court so hoJds. So be ready to go

to trial Monday. I deny the motion.

This Court is adjourned.” (Tr.

Hearing 3/5/82, p. 210; appendix

"Exhibit A" attached).

Di iti , 1

The Eleventh Circuit affirmed "the

holding of District Court in all respects as

to the evidence considered." The Appellate

Court however could find no precedent for

the District Court's procedure of limiting

the government's burden to addressing only

the matters addressed by the Gregorys.

Therefore, the convictions were vacated and

the cases remanded

"...£0r the limited purpose of allowing

the District Court to ascertain whether

the portions of the government's

evidence at trial not challenged by the

Gregorys and the evidence before the

grand jury, not formerly considered by

the District Court, were in fact

‘derived from a legitimate source

wholly independent of the compeiled

testimony: Kastigar, 406 U.S. at 460,

92 S.Ct. at 1664." United States vy.

«i R=

Gregory, 730 F.2d 692 (llth Cafes

1984),

I. Original Federal Jurisdictj

The District Court had jurisdiction

pursuant to 18 U.S.C., Section 3231.

~19~

ARGUMENT

By affirming the trial court as to the

evidence considered, the Eleventh Circuit

sanctioned a hearing in which:

A. The wrong party was obliged to

Carry the initial burden of proof,.4

B. No finding was made that the

challenged evidence came from a

legitimate independent source, and

C. The Court applied an unconstitu-

tional standard for determining

"use" of immunized testimony.

The Gregorys challenged the evidence which

most closely paralleled their immunized

testimony. If certiorari is denied, the

evidence previously challenged will not be

dealt with on remand. Thus, the Gregorys

will have never had a proper hearing as to

the majority of the questionable evidence.

The importance of this petition is compounded

because if this Court does not intervene, the

14 the Eleventh Circuit cured this

error in its instructions on remand. It is

mentioned here to demonstrate the degree to

which the District Court departed from the

usual and accepted course of legal proceedings.

-20-

same constitutional defects will permeate

the hearing on remand. Thus, this Court is

being asked to correct serious

constitutional violations which have already

occurred and to prevent the same violations

from being repeated in the immediate

foreseeable future.

ARGUMENT I.

The lower courts failed to impose

Kastigar's requirement that the

government demonstrate an independent

source even for the evidence challenged

by the defendants.

The philosophical basis for legiti-

mizing testimony compelled pursuant to 18

U.S.C., 6002 is that the total prohibition

against prosecutorial use mandated in

Kastigar v, United States, 406 U.S. 441, 32

L.Ed. 2d 212, 92 S.Ct. 1653, reh den 408

U.S. 931, 33 L.Ed. 2d 345, 92 S.Ct. 2478

(1972), will assure that the accused and

the prosecution are left in substantially

the same position as if the accused had

-21-

exercised his Fifth Amendment privilege.

The protection of the accused comes from the

prosecution's burden of proving a legitimate

source for all of its evidence. This Court

in Kastigar explained the burden as follows:

"This burden of proof, which we reaf-

firm aS appropriate, is not limited to

a negation of taint; rather, it imposes

on the prosecution the affirmative duty

to prove that the evidence it proposes

to use is derived from a legitimate

source wholly independent of the

compelled testimony.

This is a very substantial protection,

commensurate with that resulting from

invoking the privilege itself...This

Statute (18 U.S.C. 6002) which operates

after a witness has given incriminatory

testimony, affords the same protection

(as the Fifth Amendment) by assuring

that the compelled testimony can in no

way lead to the infliction of criminal

penalties." (at 226).

The lower courts did not find that the

prosecution's evidence came from legitimate

independent sources. Rather, the District

Court found:

"Based on what I have heard in con-

nection with all of this evidence, it

abundantly appears to this Court that

there were adequate sources outside of

that testimony that would have lead to

>on

what the Government ultimately did in

its indictment. And though it might

have paralleled in some instances the

testimony that you gave, that does

not mean the Government relied on your

testimony to come by those sources, and

this Court so holds. So be ready to go

to trial Monday. I deny the Motion.

This Court is adjourned." (Hearing

3/5/82, p. 210; ¢ependix "Exhibit A"

attached hereto) (emphasis added)

The court was not at liberty to speculate as

to what the prosecution would have found.

The purpose of the hearing was to insure

that the government's evidence came from

independent sources. That was not done.

Even if the prosecution's sources would

have led to the indictment if the immunized

testimony was "used" as a short cut in the

investigation the indictment must be

dismissed. The inquiry conducted by the

ree ee ee ee cree ee ee ee ee ee ee ee ee ee ee ee ee

The Eleventh Circuit ruled that the

District Court's finding of fact was not

clearly erroneous (Gregory, appendix B, p.

2767, n.2). Perhaps not, but the focus of

the inquiry was clearly erroneous because it

focused on what the government would have

found not how they found what they did.

Nowhere does the District Court say that the

government's evidence came from wholly

independent sources.

«93

lower courts fails to insure that the Fifth

Amendment rights of one testifying under a

grant of immunity are protected. The Fifth

Amendment requires, at a minimum that the

defendants get a new hearing as to all of

the evidence.

ARGUMENT II.

The lower courts' interpretation of

what constitutes an impermissible use

of immunized testimony fails to protect

the Fifth Amendment rights of the

defendants.

This Court balanced the citizen's Fifth

Amendment right to refuse to incriminate

himself against society's right to compel

testimony pursuant to 18 U.S.C. Section 6002

by ruling that the immunity afforded by the

Statute is coextensive with the Fifth

Amendment, Kastigar v. United States, supra,

The Court mandated that comprehensive

safeguards be employed to insure that the

individual and the prosecution remain in

substantially the same position as if the

-24~

individual had refused to testify. In

rejecting the argument that it was

impossible to compel testimony under 18

U.S.C., 6002 and protect the Fifth

Amendment, this Court stated:

"Petitioners argue that use and

derivative-use immunity will not

adequately protect a witness from

various possible incriminating uses of

the compelled testimony: for example,

the prosecutor or other law enforcement

officials may obtain leads, names of

witnesses, or other information not

otherwise available that might result

in a prosecution. It will be difficult

and perhaps impossible, the argument

goes, to identify, by testimony or

cross examination, the subtle ways in

which the compelled testimony may

disadvantage a witness, especially in

the jurisdiction granting the immunity.

This argument presupposes that the

statute's prohibition will prove

impossible to enforce. The statute

provides a sweeping proscription of any

use, direct or indirect of the

compelled testimony and any information

derived therefrom:

'No testimony or other information

compelled under the order (or any use,

direct or indirectly derived from such

testimony or other information) may be

used against the witness in any

Criminal case...’

=

This total prohibition on use provides

a comprehensive safeguard barring the

use of compelled testimony as an

‘investigatory lead', and also barring

the use of any evidence obtained by

focusing investigation on a witness as

a result of his compelled disclosures.

(at 459-460)

The Gregorys have not been afforded the

comprehensive safeguards mandated by

Kastigar. In ruling that the immunized

testimony had not been “used", the District

Court erroneously explained to the Gregorys:

"I think you may have travelled under a

misapprehension, though you may not.

The fact that you get immunity does not

preclude anyone from listening to that

or being present or having it available

and studying it. What they are

precluded from doing is using it in any

way." (Tr. Hearing 3/5/82, p. 209;

appendix "Exhibit A" attached hereto).

Obviously, listening to immunized testimony,

having it available and studying it is a

prohibited use under Kastigar. By affirming

the District Court, the opinion of the

Eleventh Circuit conflicts with Kastigar and

its progeny (see e.g. United States v.

Nemes, 555 F.2d 51, 55 (2nd Cir., 1977);

oe

United States vy, Beery, 678 F.2d 856, 863

n.5 (10th Cir., 1982) and United States y,

McDaniel, 482 F.2d 305, 311 (8th Cir.,

1973).

The importance of this error cannot be

exaggerated. The lower courts have defined

"use" in such a way that the government can

circumvent the Fifth Amendment. Suppose the

accused is granted Section 6002 immunity by

one of the District Courts in the Eleventh

Circuit. Must his attorney advise him that,

if he testifies, the government can read,

listen to and study his testimony? If he

does not testify he goes to jail for

contempt. If he lies he is guilty of

perjury. The client might then ask: "What

happened to my right not to incriminate

myself?" It would be hard to explain how he

had not been forced to incriminate himself

when the people who were investigating him

studied his testimony and then obtained his

oF

indictment based on matters discussed in the

immunized testimony.

Perhaps if there was no interaction

between those investigating the accused and

those exposed to immunized testimony,

precautions could be taken to prevent a

Fifth Amendment violation. Where, as here,

those exposed to the testimony are active in

the investigation the privilege against

self-incrimination is dependent upon the

government's ability to unring the bell.

That cannot be done. Nor can the Fifth

Amendment rights of the Gregorys be

protected in this fact situation. The

Gregorys are entitled, at the very least, to

a new hearing with the concept of "use"

properly defined and applied to all of the

evidence.

-28-

ARGUMENT IIT,

The application of correct legal

principals to the undisputed facts

reveals that the defendants Fifth

Amendment rights can only be protected

by a dismissal of the indictment.

The undisputed facts render the

government's burden of proof under Kastigar

nondischargeable, Those facts are:

1. The FBI and FDIC were actively

investigating the Gregorys in anticipation

of criminal proceedings when the Gregorys

gave immunized testimony. United States

Ve. Gregory, appendix "Exhibit B" at 2766.

2. The testimony came at an early

stage of the investigation and related to

matters ultimately charged in the indict-

ment. (Testimony 7/26/78; indictment

5/30/80; R. 1, and Gregory, supra).

3. Several FDIC representatives inclu-

ding Lamar Kelly, who was active inthe

Criminal investigation, listened to the

immunized testimony. (Tr. Hearing 3/4/82,

p. 186, 187 and Def. exhibit 1 to said

hearing; Hearing 3/5/82, p. 31).

4. No precautions were taken to insu-

late the investigation from the immunized

testimony. (Tr. Hearing 3/5/82, p. 44, 45,

63, 64, 188, 205, 208).

5. After the immunized testimony, the

FDIC representatives in question partici-

pated extensively in the investigation and

prosecution of the Gregorys. (Adkinson Tr.

=29-

Hearing 3/4/82, p. 159, 166, 175; Blouin Tr.

Hearing 3/5/82, p. 29-34; Doher Tr. Hearing

3/5/82, p. 43, 46-48; Kelly Tr. Hearing

3/5/82, p. 7-10).

6. None of the FDIC representatives

remember the substance of the immunized

testimony or what they subsequently told the

FBI. (Please see authority for paragraph

number 5 above).

7. After hearing the immunized

testimony, Lamar Kelly functioned as an

agent of the Department of Justice or the

United States Attorney's Office in order to

fully assist the prosecution in the prepara-

tion cf its case against the Gregorys.

(Def. exhibit l; Tr. Hearing 3/4/82).

8. 65% of the FBI 302 reports were

taken after the immunized testimony. (Def.

exhibit 2; Tr. Hearing 3/4/82).

Admittedly, the FDIC personnel denied

that the immunized testimony was used but

those denials carry no logical force. The

hearing was held three and one-half years

after the immunized testimony. The

witnesses did not remember the substance of

the immunized testimony or what they told

the FBI.1® Therefore, there was no factual

basis from which they could admit or deny

-30-

repetition or other use of the testimony.

If I do not remember what I heard and I do

not remember what I said, can I effectively

deny that I said what I heard?

In United States v, McDaniel, 482 F.2d

305 (8th Cir., 1973), the United States

Attorney read the defendants' immunized

testimony before the indictment but after

all of the prosecution's trial evidence was

obtained. In dismissing the indictment the

Court noted various ways in which the

immunized testimony could have been used:

"Such use could conceivably include

assistance in focusing the investiga-

tion, deciding to initiate prosecution,

refusing to plea-bargain, interpreting

evidence, planning cross-examination,

and otherwise generally planning trial

Strategy." (at 311)

In McDaniel, as here, the prosecution denied

that it used the immunized testimony. In

16 (Adkinson Tr. Hearing 3/4/82, p.

159, 166, 175; Blouin Tr. 3/5/82, p. 29-34;

Doher 3/5/82, p. 43, 46-48; Kelly Tr.

3/5/82, p. 7-10).

=)

response, the Court stated:

"..we Cannot escape the conclusion

that the testimony could not be wholly

obliterated from the prosecutor's

mind..." (at 312)

Nor could the immunized testimony be wholly

obliterated from the minds of the investiga-

tors in the case at bar. They did not even

know they were supposed to attempt to obli-

terate the protected testimony. It would be

coincidental beyond belief if, in their

numerous FBI interviews after exposure to

the immunized testimony, nothing that was

learned from the immunized testimony was

"used" as prohibited by Kastigar.

The government has not shown, and

cannot possibly show, that Lamar Kelly

learned nothing from the immunized testimony

that helped him form opinions, analyze

documents or understand transactions, For

example, eleven months after the immunized

testimony Lamar Kelly expressed the

following opinion to the grand jury:

~3%=

"Now, I think that a review of the

bankruptcy proceeding and events which

have taken place since these dates that

I mentioned here disclosed that Mr. and

Mrs. Gregory did not have a separate

and distinct worth. The corporations

had intercompany transfers. They owed

each other money to such a degree that

Mr. and Mrs. Gregory have filed

petitions in bankruptcy which say

specifically that their assets are not

Capable of separation at the present

time. And they have not been separated

Since the date they filed those

petitions. But there is no doubt that

in my judgment, Mr. and Mrs. Gregory

did not have separate and distinct

wocth, and they had not had that

separate and distinct worth at the time

they obtained these loans." (Def.

exhibit 3; Hearing 3/4/82, p. 147).

Certainly, his opinion was buttressed by, if

not based upon, the following immunized

testimony:

"O:

ror oO-,

How much cash did A.L.M. receive?

There was $227,000.00.

Can you tell us how that cash was

disposed of?

Yes, Sir.

Would you please do so?

There was approximately $80,000.00 paid

back to either E. A. or Vonna Jo

Gregory, I don't remember which way it

went on the thing. It was through our

family, a loan that had been made.

There was approximately $80,000.00 then

loaned to us. There was some

-33-

$20,000.00 or around $25,000.00, I

think, paid back to Jodi's Carrousel,

Inc., which had been loaned from them."

(Tr. Hearing 3/4/82, Def. exhibit l, p.

40, 41).

And there have been transfers of funds,

as I understand it, back and forth

between the various corporations?

Yes, sir.

And not all of these transfers have

been evidenced by promissory notes?

I didn't hear that.

I say, not all of these transfers have

been evidenced by promissory notes, Is

that correct.

No. A physical note?

Right.

That's correct." (Tr. Hearing 3/4/82,

Def. exhibit 1, p. 70, 71).

How the proceeds of these loans at the

Eastern Shore National Bank --

Our companies constantly have intercor-

porate loans, and on that particular

day, I just right off the top of my

head, I don't know. Our record cards

would reflect the in and out of all

funds, whatever the disbursements might

have been.

In the inter-company loans, the

companies did not sign promissory

notes? When Gregory Motors, for

instance, would borrow money from Faith

Investment, aS an example, was a

promissory note signed?

Not always, no." (Tr. Hearing 3/4/82,

Def. exhibit l, p. 118, 119).

yo

The government has not shown why Agall,

Whitehead, Liggon and McCollister,!’ among

others, were interviewed for the first time

after the immunized testimony (Tr. Hearing

3/4/82, Def. exhibit 2). The source of this

evidence is said to be review of bank

records in April of 1978 or before July of

1978 (United States y, Gregory, appendix

"Exhibit B", p. 2767 n.2). Certainly, the

investigators had the bank records in April

of 1978 but those records pertained to

thousands of transactions. They would not

reveal which Wilcox County Bank borrowers

had personal dealings with the Gregorys.

After the immunized testimony, Wilcox County

Bank borrowers who were creditors of the

Gregorys were interviewed. Certainly, the

The government's theory was that

the Gregorys were able to misapply bank

funds by causing these men to borrow from

the Wilcox County Bank and then borrowing

money from them. Liggon and McCollister are

mentioned in the indictment. All four of

them testified at trial.

~35-

discussion of Gregory creditors in the

immunized testimony helped focus the

investigation on Wilcox County Bank

borrowers who were creditors of the

Gregorys.

The Fifth Amendment prohibits a person

from being compelled to be a witness against

himself in a criminal case. While under

criminal investigation and in the presence

of government investigators, the Gregorys

were called upon to give potentially incri~

minating testimony. Before they testified

their lawyer explained in open court that

thirty-nine criminal indictments had been

returned against them and dismissed. He

requested that everyone have a "clear under-

standing" that his clients would "enjoy use

immunity against any direct or indirect use

of their testimony here and in any

subsequent criminal proceeding." No one

objected and the judge granted the immunity.

(Tr. Hearing 3/4/82, Def. exhibit 1, p. 9).

-36-

None of the government personnel] left the

courtroom. Instead, they listened and took

notes while the Gregorys testified about

matters pertaining to the criminal investi-

gation. Subsequently, individuals and

transactions described in the immunized

testimony were investigated for the first

time.

The Gregorys were rightfully advised by

counsel that the Fifth Amendment provided

them a substantial protection. They were

undoubtedly told that they could testify

fully and truthfully without fear of their

testimony being used against them either

directly or indirectly. The lower courts

have made a mockery of that advice. The

courts have told the Gregorys that the

government can listen to and study their

immunized testimony. They have also told

the Gregorys that the government had sources

that would have led to the discovery of the

Same evidence and therefore the Gregorys'

my

Fifth Amendment rights were not violated.

Had the fact situation arisen in the

Second, Eighth or Tenth Circuits, it is safe

to assume the indictments would have been

dismissed (see e.g. United States vy, Nemes,

555 F.2d 51 (2nd Cir. 1977); United States

vy. Beery, 678 F.2d 856 (10th Cir., 1982);

United States v.McDaniel, 482 F.2d 305 (8th

Cir., 1973). Citizens in the Eleventh

Circuit are entitled to the same Fifth

Amendment rights as citizens of other

circuits.

CONCLUSION

The lower courts have failed to provide

the Gregorys with the substantial safeauards

promised by this Court to those who testify

under a grant of immunity. Only this

Court's intervention will prevent the lower

courts from applying the same unconstitu-

tional principals at the hearing on remand.

Therefore, your petitioner respectfully

=3@-

request that this Honorable Court grant the

petition and issue a writ of certiorari to

the United States Court of Appeals for the

Eleventh Circuit.

Respectfully submitted,

MORGAN & BURNS

Attorneys for Petitioners

ig” BA

PETER F. “BURNS

Post Office Box 1583

Mobile, Alabama 36633

(205) 432-0612

-39-

EXHIBIT A

IN THE UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

UNITED STATES OF AMERICA, *

Plaintiff, * CIVIL ACTION NO,

VS: * CR 80-00025

E. A. GREGORY AND VONNA °

JO GREGORY,

.

Defendants.

On March 5, 1982, the District Court

denied the Gregory motion to dismiss the

indictment based upon improper use of

immunized testimony. The following

quotation appears in the transcript of the

hearing of March 5, 1982 at pages 209 and

210:

"THE COURT: Any rebuttal?

MR. GREGORY: Your Honor, we don't have any

rebuttal, but we are ready, if you want us

to, to make our closing statement --

THE COURT: The Court doesn't need any

1A

closing statements. I will let yov reserve

your closing arguments and your reference to

the law to the Court of Appeals. This Court

has heard two days of testimony in this

matter, and in those two days of testimony

the only immunized testimony that was

presented to the Court was the transcript of

the first meeting of the creditors. I think

you may have travelled under a

misapprehension, though you may not. The

fact that you get immunity deus not preclude

anyone from listening to that or being

present or having it available and studying

it. What they are precluded from doing is

using it in any way. Basically the

testimony that was given at the Bankruptcy

hearing dealt with matters and things that

were averred in the Petition of Bankruptcy,

all of which is a public record and

available to anyone for their use or study.

That portion of that testimony for the

selection of the committee is not immunized

2A

testimony. The only immunized testimony was

the testimony that you specifically gave and

the testimony that Vonna Jo Gregory

specifically gave. Based on what I have

heard in connection with all of this

evidence, it abundantly appears to this

Court that there were adequate sources

outside of that testimony that would have

led to what the Government ultimately did in

its indictment. And though it might have

paralleled in some instances the testimony

that you gave, that does not mean the

Government relied on your testimony to come

by those sources, and this Court so holds.

So be ready to go to trial Monday. I deny

the Motion. This Court is adjourned,"

3A

EXHIBIT B

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

V.

E. A. GREGORY, VONNA JO GREGORY,

G. W. ATKINSON and ROBERT T.

SPURLOCK, JR.,

Defendants-Appellants.

Nos. 82-7145, 82-7152

United States Court of Appeals,

Eleventh Circuit

April 23, 1984

Defendants were convicted before the

United States District Court for the

Southern District of Alabama, Robert E,

Varner, Chief Judge, of conspiracy to

misapply bank funds, make false statements

to banks and commit wire fraud, with two

defendants also convicted of substantive

counts of misapplication of bank funds, and

defendants appealed. The Court of Appeals,

Roney, Circuit Judge, held that: (1) trial

court should have considered whether

1B

evidence not challenged by defendants was

fruit of prior immunized testimony in

bankruptcy proceeding; (2) claimed

violations of Jury Selection Act, including

failure to prepare alphabetical list of

names taken from master jury wheel, did not

require dismissal of indictment; (3)

admission of temporary cease and desist

entered by Federal Deposit Insurance

Corporation was not abuse of discretion; and

(4) evidence supported convictions.

Affirmed in part and vacated and

remanded in part with directions.

1. Criminal Law 1158(4)

In light of the Government's

independent sources for evidence presented

at trial, independent sources for

information revealed in immunized testimony

given in bankruptcy proceeding and testimony

that immunized testimony had not been used

in the investigation, conclusion that the

2B

Government showed independent, legitimate

sources for the evidence claimed to be

improperly tainted was not clearly

erroneous, Bankr.Code, 11 U.S.C.A. Section

344; 18 U.S.C.A. Section 6002.

2. Criminal Law 1181

Since defendants, who had given

immunized testimony in bankruptcy

proceedings, could not be presumed to have

knowledge of all the evidence presented to

grand jury or employed in Government's

investigation in instant criminal

proceeding, a ruling only on those items

identified by defendants as having been

revealed in bankruptcy proceeding was not

sufficient anc remand was necessary to allow

the court to ascertain whether a portion of

the Government's evidence used at trial and

not challenged and evidence before the grand

jury were in fact derived from legitimate

sources wholly independent of the compelled

3B

testimony. Bankr.Code, 11 U.S.C.A. Section

344; 18 U.S.C.A. Section 6002.

3. Grand Jury 36.8

Phrase "criminal case" in statute

prohibiting use of immunized testimony in

any Criminal case includes grand jury

proceedings as well as trial. 18 U.S.C.A.

Section 6002.

See publication Words and Phrases

for other judicial constructions

and definitions.

4. Grand Jury 2-1/2

Jury 33(1.1)

Substantial violation of Jury Selection

Act will be found only when two important

general principles are frustrated, those

principles being random selection of juror

names and use of objective criteria for

determination of the disqualifications

excuses, exemptions, and exclusions. 28

U.S.C.A. Sections 1861-1869.

4B

5. Grand Jury 2-1/2

Jury 33(1.1)

Mere technical deviations from

requirements of Jury Selection Act or even a

number of them are insufficient if they do

not frustrate the obtaining of jury lists

that represent a cross section of the

relevant community and do not result in

impermissible forms of discrimination and

arbitrariness, 28 U.S.C.A. Sections 1861l-

1869.

6. Grand Jury 2-1/2

Under Jury Selection Act, it is the

master jury wheel and not the actual grand

jury which must be geographically

proportional. 28 U.S.C.A. Section

1863 (b) (3).

7. Grand Jury 2-1/2

Although residents of Mobile County,

Alabama were the most numerous on the

venire, the venire was substantially

5B

proportional geographically as Mobile County

is the most populus county in the district

from which master jury wheel is selected

under Jury Selection Act. 28 U.S.C.A.

Section 1863(b) (3).

8. Grand Jury 2-1/2

A party claiming violation of Jury

Selection Act by disproportionate

representation of a particular group in the

jury selection process must show a

substantial disparity between that group's

representation in the selection process and

its representation in the general

population. 28 U.S.C.A. Section 1863(b) (3).

9. Grand Jury 2-1/2

Venires or grand juries need not

reflect county populations exactiy. 28

U.S.C.A. Section 1863(b) (3).

10. Grand Jury 2-1/2

Although methods used in grand jury

selection may have resulted in venires that

6B

were not statistically random, there was not

violation of Jury Selection Act absent

showing that procedure resulted in

discriminatory selection of jurors or

otherwise prevented jury panels from

consisting of fair cross sections of the

community. 28 U.S.C.A. Section 1863(b) (3).

ll. Grand Jury 2-1/2

There were no substantive violations of

Jury Selection Act requiring dismissal of

indictment notwithstanding failure to

prepare alphabetical list of names taken

from master jury wheel, failure to execute

affidavits indicating that the clerk

verified accuracy of county voter

registration lists as opposed to relying on

spot checks, want of certificate of

appropriate county official indicating that

all registered voters had been considered in

the selection process, want of document

verifying that order to produce 70 names for

7B

grand jury venire was carried out as

specified, failure to systematically process

completed juror qualifications forms and

failure to retain county voter registration

list used in constructing master jury wheel,

there being no allegation of any

discrimination, either by design or effect.

28 U.S.C.A. Sections 1861-1869.

12. Criminal Law 1144.13(3,5)

In reviewing sufficiency of the

evidence, the appellate court views the

evidence in the light most favorable to the

government and makes all reasonable

inferences with support of the verdict.

13. Banks and Banking 509

While valid consent of board of

directors of the bank is the defense to

misapplication of bank funds, the board

cannot validate a fraud on the bank and,

thus, if coconspirators intend to defraud,

approval of the board is no longer material

8B

to whether there was a misapplication. 18

U.S.C.A. Sections 371, 656.

14. Conspiracy 11

That bank directors may have reviewed

subject transactions at some point did not

absolve coconspirators from culpability for

misapplication of bank's funds, particularly

where evidence showed that defendants'

control of the bank was the moving force

behind many of the board's actions. 18

U.S.C.A. Sections 371, 656.

15. Conspiracy 47(3)

Although defendants spouses' intent to

injure bank, which they controlled could not

be directly proved through actions which

were against bank rules or outside their

authority, there was sufficient evidence of

their intent to support conviction of

conspiracy to misapply bank funds in view of

the knowing, voluntary actions of spouses

which tended to injure the bank, including

9B

evidence that in establishing correspondent

accounts the board was not informed of

extent of spouses' dealings with the

proposed correspondent banks, was not

informed that state banking department had

disapproved of separate lines of credit for

each spouse or that spouses' corporations,

which performed services for bank, was to

receive a commission. 18 U.S.C.A. SEctions

371, 656.

16. Banks and Banking 509

There was sufficient evidence to

conclude that although defendant spouses had

sold their controlling stock interest in

bank they were "connected" with the bank,

for purpose of prosecution for misapplying

bank funds, in that they retained a security

interest in the stock that buyer defaulted,

that spouses retained voting rights on

matters affecting capitalization and that

bank had a heavy concentration of loans to

10B

spouses and, in any event, there was

evidence warranting inference that buyer

allowed bank to extend loans to spouses'

corporations because of his personal debt to

the spouses. 18 U.S.C.A. Section 656.

See publication Words and Phrases

for other judicial constructions

and definitions,

17. Banks and Banking 509

Conviction of vice-president/secretary

of board .of directors of bank for

misapplying bank funds was supported by

evidence that he generally managed day-to-

day affairs, received a loan from second

bank before instant bank purchased

participations in loans from that bank,

obtained unsecured loans from bank at time

he already had outstanding debts an signed

notes for loans to former owners although he

was aware of Federal Deposit Insurance

Corporation warnings about concentrations of

credit with former owners. 18 U.S.C.A.

Sections 371, 656.

11B

18. Banks and Banking 509

Evidence that bank vice-president went

to sister state, received check and

transmitted funds was sufficient to infer

that vice-president was a knowing

participant in scheme to misapply bank

funds. 18 U.S.C.A. Section 371, 656.

19. Banks and Banking 509

There was no abuse of discretion in

adnietin cease and desist order entered by

Federal Deposit Insurance Corporation, as

order was within time frame of indictment

charging misapplication of bank funds and

was part of general background of

controversy between defendants and the

agency, defense was that financial affairs

Crumbled when agency cut off defendants’

credit and order issued the day after last

bank loan to defendants' corporation and

court considered order's relevance in

12B

chambers with counsel. 18 U.S.C.A. Sections

371, 656.

20. Criminal Law 674

There was no abuse of discretion in

admission and later exclusion of check kite

where, at time the evidence was excluded the

jury, in prosecution for misapplication of

bank funds, had heard witness' testimony

that defendants were not conducting a check

kite, Federal Deposit Insurance Corporation's

examiner had not given his opinion as to

check kiting and court gave prompt curative

instruction. 18 U.S.C.A. Section 371, 656.

21. Criminal Law 675

There was no error in excluding certain

evidence of defendants' prior credit and

employment history where such evidence, even

if relevant to the defense, was cumulative.

22. Criminal Law 1148

To warrant reversal for abuse of

13B

discretion in decision whether to sever

defendants, defendants bear burden of

showing specific and compelling prejudice.

23. Criminal Law 1166(6)

There was no showing of prejudice in

joinder of defendant's prosecution for

conspiracy to misapply bank funds, make

false statements to banks and commit wire

fraud, and substantive misapplication of

bank funds, 18 U.S.C.A. Sections 2, 371,

656, 1014, 1343.

24. Criminal Law 951(1), 977(1)

If within seven days of verdict the

trial court orally extended the time for

moving for judgment of acquittal and for new

trial, it did not lose jurisdiction over the

motion because its ruling was not reduced to

writing within that seven-day period. Fed.

Rules Cr.Proc.Rules 299(c), 33, 18 U.S.C.A.

14B

25. Criminal Law 753.2(8)

In considering a motion for judgment of

acquittal, the evidence must be considered

in the light most favorable to the

government, together with ail inferences

reasonably drawn from the facts, to

determine whether there is substantial

evidence from which a jury could reasonably

find guilt beyond a reasonable doubt.

26. Criminal Law 753.2(5)

Where evidence was sufficient to

sustain convictions it is improper to grant

motions for judgment of acquittal.

27. Criminal Law 91l

Grant or denial of a motion for new

trial rests in the sound discretion of the

trial court.

Appeals from the United States District

Court for the Southern District of Alabama.

15B

Before GODBOLD, Chief Judge, RONEY and

SMITH*, Circuit Judges.

RONEY, Circuit Judge:

E. A. Gregory, Vonna Jo Gregory, G. W.

Atkinson and Robert T. Spurlock appeal their

convictions for a conspiracy to misapply

bank funds, make false statements to banks

and commit wire fraud, in violation of 18

U.S.C.A. Sections 371, 656, 1014 and 1343.

The Gregorys and Atkinson also appeal their

convictions for substantive counts of

misapplication of bank funds, 18 U.S.C.A.

Sections 656, 2. They challenge (1) the

Government's use of immunized testimony

given by the Gregorys at a bankruptcy

creditors' meeting, (2) the procedures used

to select the grand jury, (3) the

*Honorable Edward S. Smith, U.S. Circuit

Judge for the Federal Circuit, sitting by

designation.

16B

sufficiency of the evidence supporting their

convictions, (4) evidentiary rulings by the

trial court, (5) the court's denial of

severance for Atkinson and Spurlock, and (6)

the court's denial of motions for new trial

and acquittal. We vacate the Gregorys'

convictions, and remand for a hearing to

afford the Government an opportunity to show

that all of its evidence not formerly

examined by the district court was derived

from legitimate, independent sources. We

affirm as to all other issues.

The conspiracy alleged in this case

concerns events which occurred while E. A.

Gregory and Vonna Jo Gregory controlled an

Alabama Bank. The Gregorys purchased a

controlling interest in the Bank of Camden

(Alabama) in November, 1975. Both were

elected to the Board of Directors, and Mr.

Gregory became Chairman of the Board. The

bank was renamed Wilcox County Bank (Bank).

While the Gregorys held a controlling

17B

interest in the Bank, defendant G. W.

Atkinson was the Secretary to the Board of

Directors and a Vice-President of the Bank.

Defendant Robert T. Spurlock, Jr., was a

Vice-President of the Bank and became a

member of the Board. The criminal charges

of conspiracy to misapply bank funds, make

false statements and commit wire fraud grew

out of transactions between the Wilcox

County Bank and the Gregorys, their

corporations, and their associates, which

involved the Bank's (1) purchase of

participations in loans from other banks

which had loaned money to the Gregorys and

their corporations; (2) opening of

correspondent bank accounts with banks which

were controlled by or hand loaned money to

the Gregorys, (3) purchase of goods and

services from the Gregorys and their

corporations; (4) loans to associates of the

Gregorys who lived outside the Bank's

trading area; and (5) loans to the Gregorys

18B

themselves.

The substantive counts of

misapplication of bank funds involve loans

made by the Bank to Gregory-owned

corporations after the Gregorys sold their

bank stock to Mr. and Mrs. Mark Lyons III on

April 8, 1977. The Gregorys retained voting

rights in matters affecting capitalization

of the Bank. Mr. Lyons was then elected

Chairman of the Board, and he also became

Executive Vice-President and a member of the

loan committee. Between April 15, 1977, and

May 10, 1977, the Bank made ten loans to

corporations owned by the Gregorys, for a

total of $864,000. These loans were

approved by the Board of Directors or by the

loan committee and also by Lyons.

The facts will be developed further in

this opinion as it discusses the defendants'

various contentions on appeal.

19B

I, Government's Use of Gregory's

Bankruptcy Testimony

On June 19, 1978, after all the events

which gave rise to the criminal charges, the

Gregorys filed for relief under Chapter XII

of the Bankruptcy Act. Other corporations

owned principally by the Gregorys filed for

relief under Chapter XI. At the first

meeting of creditors, on July 26, 1978, the

Gregorys testified individually and as

representatives of the corporations. They

requested and were granted immunity under 18

U.S.C.A. Section 6002, which provides that

no such testimony "or other information

compelled under the order (or any

information directly or indirectly derived

from such testimony or other information)

may be used against the witness in any

Criminal case," with inapplicable exception.

11 U.S.C.A. Section 344, formerly 1l

20B

U.S.C.A. Section 25(a) (10) .4

The FBI and FDIC were actively investigating

the Gregorys in anticipation of criminal

proceedings when the bankruptcy meeting took

place.

The testimony concerned the finances of

the Gregorys and their corporations. FDIC

personnel, along with representatives of 23

other creditors, attended the meeting.

Before trial, the defendants moved to

dismiss the indictment, claiming that

prosecution of the case had been tainted by

the Government's exposure to immunized

testimony given by the Gregorys at the

Section 1] U.S.C.A. Section 344, formerly

section 7(a)(10) of the Bankruptcy Act, 11

U.S.C.A. Section 25(a)(10), provides:

Immunity for persons required to submit

to examination, to testify, or to provide

information in a case under this title may

be granted under part V of title 18.

Pub.L. 95-598, Nov. 6, 1978, 92 Stat.

2565.

Section 6002 of Title 18 provides for

immunity in court compelled testimony.

21B

creditors' meeting. The trial court denied

this motion on March 5, 1982, after a |

hearing. On appeal, the defendants ask this

Court to vacate their convictions and render

a judgment dismissing the indictment,

arguing (1) the trial judge improperly

shifted to them the burden of proving that

the immunized testimony was used, and (2)

the immunized testimony was used in the

investigation and prosecution of the case.

The allocation of the burden of proof

where a defendant claims the Government is

attempting to improperly use immunized

testimony was set forth in Murphy v.

Waterfront Commission, 378 U.S. 52, 84 S.Ct.

1594, 12 L.Ed.2d 678 (1964) which held that:

Once a defendant demonstrates that he

has testified, under a state grant of

immunity, to matters related to the

federal prosecution, the federal

authorities have the burden of showing

that their evidence is not tainted by

establishing that they had an

independent, legitimate sources for the

disputed evidence.

378 U.S. at 79 n. 18, 84 S.Ct. at 1609 n.

22B

18. This was reaffirmed in Kastigar v.

United States, 406 U.S. 441, 460, 92 S.Ct.

1653, 1664, 32 L.Ed.2d 212 (1972), where the

Supreme Court further observed that this

burden "is not limited to a negation of

taint; rather, it imposes on the prosecution

the affirmative duty to prove that the

evidence it proposes to use is derived from

a legitimate source wholly independent of

the compelled testimony." 406 U.S. at 460,

92 S.Ct. at 1664.

[1, 2] The Gregorys contend that the

district court placed a greater threshold

burden on them than that required by

Kastigar and its progeny by requiring them

to "point out specifically--testimony that

[they] gave that wa subject to immunity,

and how that testimony, and where that

testimony, subsequent shows up... OF... was

presented to the Grand Jury or came to the

attention of the Grand Jury." The court

proceeding to require the Government to

23B

establish a legitimate, independent source

for each of the items identified by the

defendants. Our review of the testimony

below indicates that the Government met its

burden as to those items. 2

The Gregorys' objections to evidence

they claimed the Government had derived from

immunized testimony, and the Government's

responses as to the sources of the

testimony, are as follows:

1. Branum's testimony about loans to

McCollister and Don,

Response: Sources for investigation

were record reviews conducted before July

26, 1978.

2. Liggon's testimony.

Response: Sources were record reviews

in April, 1978, and leads from those

reviews.

3. Whitehead's testimony.

Response: Sources was a review of the

Bank's files in April, 1978,

4. Parrent's testimony about Gregory

loans and participation at the Bank of East

Alabama,

Response: Source was a review of

records at the Bank of East Alabama in

April, 1978,

5. Don's testimony.

Mayfield's testimony about inter-

corporate transfers,

McCollister's testimony.

Mrs. Gregory's testimony during

Ccross-examination about Don loan and

Mississippi Bank,

Response: Sources were interviews and

(Footnote 2 continued on following page)

24B

= es wee

(Footnote 2 continued) :

record reviews conducted before July 26,

1978.

The Government thus demonstrated

independent, legitimate sources for the

specific items at trial allegedly derived

from the immunized testimony.

To show the immunized testimony had not

been used as an investigatory lead, the

Government pointed to these sources for

information contained in the immunized

testimony:

1. Immunized testimony about Charles

Whitehead (loan recipient).

Response: Source was a review made on

April 10, 1978 of the records of the Bank's

commercial loans.

2. Immunized testimony about ALM,

Inc., the sale of the Sheraton and

distribution of sale proceeds.

Response: Source was April 10, 1978

review of the Bank's commercial loans, which

led to a review of other ALM-related

documents.

3. Immunized testimony about

intercorporate loans and transfers of

assets.

Response: Source was an FDIC review of

Gregory-related checking accounts at various

banks prior to July 26, 1978.

4, Immunized testimony about judgments

obtained by the FDIC against the Gregorys

and their corporations.

Response: The FDIC knew of these

judgments independently of the immunized

testimony.

5. Immunized testimony about

commissions received from Centennial Life

Insurance Company.

Response: Source was a review on April

13, 1978 of expenses paid by the Bank to the

Gregorys and related companies.

Government witnesses also testified

(Footnote 2 continued on following page)

25B

We affirm the holding of the district court

in all respects as to the evidence

considered,

By limiting the evidentiary materials

thus identified for examination for taint at

the outset, however, the court relieved the

Government of a portions of its “heavy

burden of proving that all of the evidence

it [used] was derived from legitmate

independent sources." 406 U.S. at 461-62,

92 S.Ct. at 4665-66.

[3] Section 6002 speaks to use of the

immunized testimony against the witness in

(Footnote 2 continued):

that the Gregory's immunized testimony was

not used,

In light of the Government's (1)

independent sources for the evidence

presented at trial, (2) indewendent sources

for the information revealed in the

immunized testimony, and (3) witnesses who

testified that the immunized testimony had

not been used in the investigation the trial

court's conicusion that the Government

Showed independent, legitimate sources for

evidence claimed by the Gregorys to be

improperly tainted was not Clearly

erroneous,

26B

"any criminal case," and thus prohibits its

use in the grand jury proceedings as well as

at trial. United States v, Beery, 678 F.2d

856, 860 (10th Cir. 1982); United States vy.

Hinton, 543 F.2d 1002, 1009 (2d Cir. 1976),

cert. denied, 430 U.S. 982, 97 S.Ct. 1677,

52 L.Ed.2d 376 (1977); United States vy.

Kurzer, 534 F.2d 511 (2d Cir. 1976). The

defendants could not be presumed to have

knowledge of all of the evidence presented

to the grand jury or employed inthe

Government's investigation. Under such

circumstances, a ruling only on those items

identified by the defendants is not

sufficient. No cases have been cited to

this Court in which the procedure employed

by the district court in this case was

followed, and we find no support for

affirmance of that practice in light of

Kastigar, and this Court's application of

Kastigar in United States v. Seiffert, 463

27B

F.2d 1089 (5th Cir. 1972). On the contrary,

in Seiffert, this Court remanded in order

that the Government might "show how it

acquired all of the evidence admitted

below." 463 F.2d at 1092 (emphasis added).

In the case before us remand is necessary

for the limited purpose of allowing the

district court to ascertain whether the

portions of the Government's evidence at

trial not challenged by the Gregorys and the

evidence before the grand jury, not formerly

considered by the district court, were in

fact “derived from a legitmate source wholly

independent of the compelled testimony."

Kastigar, 406 U.S. at 460, 92 S.Ct. 1664.

If the Government can affirmatively make

such a showing, the Gregorys' convictions

must stand. If the evidence presented to

the grand jury and at trial is not found to

have been properly derived from legitimate

independent sources, then the indictment

must be dismissed or a new trial ordered,

28B

depending on whether the Government fails to

prove independent sources for its grand jury

evidence, or only for its trial evidence,

unless the error is held harmless beyond a

reasonable doubt. If the Government

sustains its burden of proof, or if use of

the prohibited evidence is found to be

harmless, then the convictions should be

reinstated. See United States y. Beery, 678

F.2d at 863.

II. Jury Selection Act

Defendants contend the indictment should

have been dismissed because the procedures

attending the selection of the grand jury

that indicted them did not comply with

certain procedural requirements of the Jury

Selection Act of 1968, 28 U.S.C.A. Sections

1861-1869, and the Local Plan (Plan of the

United States District Court for the

Southern District of Alabama for the Random

Selection of Grand and Petit Jurors).

29B

Defendants moved to dismiss the

indictment and submitted nine affidavits.

The affidavits focused on conversations with

the district court clerk to the effect that

the clerk (1) had not prepared the

alphabetical list of names taken from the

master jury wheel; (2) had not executed

affidavits indicating he had verified the

accuracy of the county voter registration

lists used to construct the master jury

wheel but had performed spot checks to

verify those voter registration lists; (3)

did not possess the certificate of the

appropriate Mobile County official

indicating that all registered voters had

been considered in the selection process;

(4) did not possess a document verifying that

his March 27, 1979, order to the Mobile Data

Center to preduce 70 names for a grand jury

venire was Carried out as the order

specified; (5) did not systematically —

process completed juror qualification forms;

30B

and (6) did not retain the 1976 Mobile

County voter registration list, which was

one source of data used to construct the

master jury wheel, and it could not be

reproduced.

The district court assumed the nine

affidavits accompanying the motion to be

true, but rejected defendants’ claim that

the ommissions amounted to a "substantial"

failure to comply with the Act: "All of the

defects which the defendants point to are

technical deviations from the Act and the

local plan..."

This Court recently construed the Jury

Selection and Service Act in United States

vy. Bearden, 659 F.2d 590 (5th Cir. Unit B

1981), cert. denied, 456 U.S. 936, 102 S.Ct.

1993, 72 L.Ed.2d 456 (1982). In Bearden,

the clerk had violated the Act or local plan

by selecting the starting number arbitrarily

rather than randomly, by failing to post

public notices of selection procedures, and

31B

by improperly excusing or disqualifying

individuals from qualified jury wheels, and

by granting permanent rather than temporary

excusals to persons summoned for jury

service. The court held that none of these

violations constituted a "substantial"

failure to comply with the Act or local

plan.

{[4, 5] We held that the alleged viola-

tions must be weighed against the underlying

principles of the Act. A substantial viola-

tions of the Act will be found only when two

important general principles are frustrated:

(1) random selection of juror names and (2)

use of objective criteria for determination

of disqualifications, excuses, exemptions,

and exclusions. Mere "technical" deviations

from the Act or even a number of them are

insufficient if they do not frustrate the

obtaining of jury lists that represent a

cross section of the relevant community and

32B

co not result in impermissible forms of

discrimination and arbitrariness.

[6-9] Defendants contend that the acts

of noncompliance in this case frustrated the

goal of random selection of jurors in that

Mobile County was overrepresented in the

grand jury that indicted them. This

apparent geographical disparity did not

result in a substantial failure to comply

with the Act. First, it is the master jury

wheel, not the actual grand jury, which must

be geographically proportional. Under the

Act, the local plan “shall ensure that each

county, parish, or similar political

subdivision within the district...is

substantially proportionally represented in

the master jury wheel for that judicial

district:" 28 U.S.C.A. Section 1863(b) (3).

Second, the grand jury venire in this case,

comprising 70 individuals, was substantially

proportional geographically. Although

residents of Mobile County were the most

33B

numerous on the venire, Mobile County is

Clearly the most populous county in the

district. A Party claiming disproportionate

representation of a particular group ina

jury selection process must show a

substantial disparity between that group's

representation in the general population.

See, e.g. United States v, Brummitt, 665

F.2d 521, 528-30 (5th Cir. 1981) (Hispanic

Americans), cert. denied, 456 U.S. 977, 102

S.Ct. 2244, 72 L.Ed.2d 852 (1982); United

States v,. Hawkins, 661 F.2d 436, 442-43 (5th

Cir. Unit B 1981) (residents of divisions

within judicial district), cert. denied, 456

U.S. 991, 102 S.Ct. 2274, 2967, 73 L.Ed.2d

1287 (1982); United States v, Goff, 509 F.2d

825, 826-27 (5th Cir.) (blacks and

indigents), cert, denied, 423 U.S. 857, 96

S.Ct. 109, 46 L.Ed.2d 83 (1975). The

counties in this case were "substantially

proportionally represented". 28 U.S.C.A.

Section 1863(b)(3). Venires or grand juries

34B

need not reflect county populations exactly.

See United States v, Hawkins, 661 F.2d at

442-43,

{10} The Court noted in Bearden,

"Congress did not intend for ‘random

selection’ under the Act to be defined as

‘statistical randomness'..." 659 F.2d at

602. "It is sufficient for the purpose of

this legislation if the plan adopts some

system of selection that affords no room for

impermissible discrimination against

individuals or groups." S.Rep. No. 891,

90th Cong., lst Sess. 16 n. 9 (1967),

U.S.Code Cong. & Admin.News 1968, p. 1792,

quoted in Bearden, 659 F.2d at 602. While

the methods used here may have resulted in

venires that were not statistically random,

there has been no showing that they resulted

in discriminatory selection of jurors or

otherwise prevented jury panels from

consisting of fair cross-sections of the

community.

35B

{11]) The failure to prepare an

alphabetical list of names drawn from the

master jury wheel (28 U.S.C.A. 1864(a);

Local Plan pp. 7-8), the names that formed

the tentative qualified jury wheel, had no

impact on the names drawn from the master

jury wheel. The people whose names were

selected if not exempted, excused, or

disqualified, were placed on the qualified

jury wheel. Whether the qualified wheel was

arranged alphabetically was immaterial to

random selection, for the selection of names

from that wheel to construct venires was

done by computer according to a random

formula. The failure to prepare the

alphabetical list, to the extent it affected

the process, affected all counties and

potential] jurors equally, and was not a

substantial violation of the Act. See

United States vy. Evans, 526 F.2d 701, 705-06

(Sth Cir. 1976)(no substantial violation of

Act where alphabetical lists and Jury

36B

Selection Report were not prepared).

The nonexistence of the alphabetical

list made it impossible for the clerk to

enter notations concerning exemption,

excusal, or disqualification next to the

names of those excluded from service. This

was also technical violation which did not

give rise to impermissible discrimination.

Although the clerk failed to verify county

voter registration lists, there is no

allegation that the clerk's "spot checks" of

these lists were discriminatory, either by

design or by effect. The failure to possess

(1) a certificate of a Mobile County

official indicating that all registered

voters had been considered in the selection

process, (2) a document verifying precise

compliance with the March 27, 1979, order to

the Mobile Data Center for a 70-person

venire, and (3) the 1976 Mobile Cnaike voter

registration list, absent any proof of

underlying substantive irregularities, was

37B

also a purely technical violation of the

Act and Local Plan.

Because the procedure in this case did

not result ina "substantial failure to

comply with the Act", or otherwise prevent

jury panels from consisting of fair cross-

sections of the community, we affirm the

district court's refusal to dismiss the

indictment on this basis.

III. Sufficiency of the Evidence

(12] All of the defendants claim the

evidence was insufficient to support their

convictions. In reviewing the sufficiency

of the evidence, we must view the evidence

in the light most favorable to the

Government, and make all reasonable

inferences in support of the jury verdict.

Glasser v, United States, 315 U.S. 60, 80,

62 S.Ct. 457, 469, 86 L.Ed. 680 (1942);

United States vy, Davis, 679 F.2d 845, 852

(lith Cir. 1982), Cert. denied, -- US. ---,

103 S.Ct. 11198, 75 L.Ed.2d 441 (1983).

3 8B

A. The Gregorys

Conspiracy to Misapply Bank Funds

The conspiracy alleged in this case

involved various transactions between the

Bank and the Gregorys, their corporations,

and their friends and associates during the

time the Gregorys owned a controlling

interest in the Bank. The evidence of these

transactions presented by the Government is

summarized as follows:

1. Participation in Loans

On February 7, 1976, the Bank

purchased participations in loans of

$498,741.98 from the Bank of East Alabama.

That bank had lent the Gregorys and their

corporations $676,500 in 1975 and $993,500

in 1976, including a $150,000 loan to

Atkinson, secured by the Bank stock. The

minutes of the directors' meetings do not

show that the Gregorys revealed their

connection with Bank of East Alabama to the

498

Board,

2. Correspondent Banking Relationships

The Bank opened correspondent

accounts with

(a) Southern National Bank of

Birmingham on 11-11-75. It had lent Mrs,

Gregory $350,000 the day before, taking a

security interest in the Bank stock,

(b) First Bank of Macon an

Chilton County Bank on 11-11-75. Both were

Gregory-controlled banks.

(c) Charter National Bank on 3-22-76.

Mrs. Gregory had borrowed $55,000 there in

February, and aggregate Gregory borrowings

there since 1972 exceeded $2 miilion.

(d) First National Bank of

Pensacola on 4-8-77. The Gregorys had

$500,000 loans outstanding there.

(e) Mississippi Bank on 4-8-77.

The Gregorys had $250,000 in outstanding

loans.

40B

3. Purchase of Goods and Services from

the GregorysS and their corporations

(a) The Bank paid $15,000 to

Gregory-owned Faith Investment Company

(Gregory owned) for "Customer Appreciation

Day", a country and western show.

(b) The show was catered by Sea

Ranch Restaurant (Gregory-owned).

(c) Stationery, supplies and a

$2500 flag pole were purchased from Faith

Investment Co,

(d) Gregory Motors leased a car

and a sign to the Bank.

(e) The Bank paid Gregorys $25,000

for private plane travel from January through

August of 1976.

(f) The Bank paid Gregory $50,000

for property he had purchased for $25,000

one year earlier, and which he had leased

to t. pank at $325 per month.

4. Loans to Out-of-Territory

41B

Associates of Gregory

(a) Gregory arranged for Norman

DeWeese to borrow money in order to purchase

stock in Gregory companies.

(b) On April 8, 1977, Gregory

arranged for a $25,000 unsecured loan for

Bill Agall, his in-house accountant.

Gregory later purchased Bank stock from

Agall.

(c) Also on April 8, 1977, Gregory

made arrangements for a $25,000 unsecured

loan to Tom Mayfield, his comptroller. When

Mayfield and his wife had borrowed $7,500

from the Bank only a week earlier, it

required that he pledge home furnishings,

appliances and a car as collateral.

(d) In December, 1976, the

Gregorys arranged for Charles Whitehead to

borrow $100,000 from the Bank for 3 months.

Whitehead was prepared to pay the loan off

when Gregory borrowed $100,000 from

Whitehead, assuring him that his Bank note

42B

would be renewed, which it was.

(e)} On March 30, 1977, Dr. Don,

Spurlock's father-in-law, borrowed $25,000

from the bank. Don testified before the

grand jury that in April, 1977, he loaned

$25,000 to a Gregory corporation. Also in

April, 1977, at Gregory's suggestion, Don

borrowed $150,000 from the Bank and

purchased a certificate of deposit at the

Mississippi Bank. In October 1977, Don

arranged for Spurlock to cash in the

certificate and loan the proceeds to Gregory

Motors.

(f) On June 17, 1977, Rolphe

McCollister of Baton Rouge borrowed $100,000

from the Bank. Gregory knew the Bank had

made the loan. Two weeks later the

Gregorys borrowed $100,000 from

McCollister.

5. Loans to the Gregorys

(a) By February of 1977, Mr. and

Mrs. Gregory each had loans totalling

43B

$226,000 from the Bank which equalled the

lega] lending limit for each of them. They

had been aware since the summer of 1976 that

both the State Banking Department and FDIC

did not think they were entitled to separate

lines of credit because they had not

demonstrated the ability to individually

service their debts. As of February, 1977,

their loans represented 99.4% of the Bank's

Capital structure.

(13) The Gregorys claim that because

the participations, correspondent accounts,

expenses payments and loans were approved by

the Board of Directors, there was no

misapplication of bank funds under 18 U.S.

C.A. Section 656. While the valid consent

of the Board of Directors is a defense to

misapplication, the Board cannot validate a

fraud on the bank. United States vy,

Salinas, 654 F.2d 319, 328 (5th Cir.1981)

Overruled in part on other ground, United

States v. Adamson, 700 F.2d 953 (5th Cir.

44B

Unit B 1983); United States vy, Beran, 546

F.2d 1316, 1321 (8th Cir. 1976). Thus, if

the coconspirators had an intent to defraud,

"approval of the board of directors is no

longer material to whether there was a

misapplication of bank funds." Salinas, 654

F.2d at 328 (quoting Beran, 546 F.2d at

1321).

[14] The intent of the conspirators is

a question of fact for the jury, and the

jury in this case found a specific intent to

injure and defraud the bank. That the

directors may have reviewed the transactions

at some point does not absolve the

coconspirators from culpability for

misapplication of the bank's funds,

particularly here where the evidence showed

that the Gregorys were the moving force

behind many of the Board's actions.

[15] We recognize that this is an

unusual case, in that the Gregorys' intent

to injure the bank cannot be directly proven

45B

through actions which were against bank

rules or outside their authority. There was

sufficient evidence of their intent, however,

from the knowing, voluntary actions of the

Gregorys which tended to injure the bank.

Pe eer Te Se Se ee ee ee ee ee

See United States vy. Adamson, 700 F.2d 953,

965 (5th Cir. Unit B 1983) (the appropriate

mens rea standard for Section 656 is

knowledge); United States vs, Southers, 583

F.2d 1302 (5th Cir. 1978). In addition,

there was testimony to the effect the (1)

the bank president was required to call

Gregory every day, (2) loan officers could

not Joan more than $45,000 without Gregory's

approval, (3) the Board was not informed,

in establishing correspondent accounts, of

the extent of the Gregorys' dealings with

the proposed correspondent banks, (4) the

Board was not informed that the State

Banking Department disapproved of separate

lines of credit for each of the Gregorys,

and (5) the Board was not informed that

46B

Faith Investment Company was to receive a

commission from the country and western show.

Although some of this testimony was

disputed, there was sufficient evidence from

this testimony and the Gregorys' actions to

allow the jury to conclude that they

knowingly participated in fraudulent

transactions.

Specific Counts of Misapplication

Aside from the conspiracy count, the

Gregorys were convicted of eight counts of

misapplication of bank funds involving loans

made by the Bank to Gregory-owned corpor-

ations after April 8, 1977, when the

Gregorys sold their stock in the bank to Mr.

and Mrs. Mark Lyons, III.

The Gregorys argue that there was

insufficient evidence to show that after

April 8, 1977, they maintained a

"connection" with the bank as requred by 18

U.S.C.A. Section 656, which provides:

47B

Whoever, being an officer,

director, agent or employee of, or

connected in any capacity with any

Federal Reserve bank, member bank,

national bank, or insured bank...

embezzles, abstracts, purlions or

willfully misapplies any of the moneys,

funds or credits or such bank... shall

be fined not more than $5,000 or

imprisoned not more than five years, or

both...

18 U.S.C.A. Section 656 (emphasis added).

The statute does not define those who

are "connected" with the bank. The

Government argues that the Gregorys were

"connected" within the meaning of Section

656 in three ways. First, in the sale of

stock to Lyons, the Gregorys received a

promissory note from Lyons calling for 360

monthly payments of $8,834.94 each, and

granting a security interest in 31,000

Shares of stock. Lyons was thus obligated

to pay the Gregorys over $8.000 per month,

and he defaulted on this obligation in less

than a year. Second, in the sale, the

Gregorys retained voting rights in the

31,000 shares of stock on any matter

48B

affecting capitalization of the bank.

Third, the bank had a heavy concentration of

loans to the Gregorys.

Although these precise "connections"

with a bank have not been previously

considered, Similar "connections" have

placed defendants within the ambit of

Section 656. In Garrett vy United States,

396 F.2d 489 (5th Cir.) cert. denied, 393

U.S. 952, 89 S.Ct. 374, 21 L.Ed.2d 364

(1968), the Court held that defendants who

had purchased a controlling interest in the

bank, directed that it be placed in the name

of their corporation and in the name of an

associate, and caused four of their

employees and associates to be elected to

the seven-member board of directors, were

"connected" with the bank for purposes of

Section 656. The Court noted that the

defendants had been active in bank affairs

in securing the purchase of mortgages and in

increasing the bank's deposits. See also

49B

United States vy, Fulton, 640 F.2d 1104 (9th

Cir. 1981) (employee of bank's wholly owned

Subsidiary mortgage company); United States

vs. Edick, 432 F.2d 350 (4th Cir. 1970)

(department manager in the subsidiary of a

holding company which held a controlling

interest in the bank).

{16] Thus, there was sufficient

evidence from the jury to conclude that the

Gregorys were "connected" within the

contemplation of the statute. In addition,

the evidence supported a conviction under

the theory that the Gregorys aided and

abetted Lyons, an officer, director and

majority stockholder, in misapplying bank

funds. The jury could have inferred that

Lyons allowed the bank to extend loans to

the Gregory corporations because of his

personal debt to the Gregorys.

B. Atkinson

G. W. Atkinson argues the evidence is

insufficient to support his convictions for

50B

conspiracy and six counts of misapplication

of bank funds, While the Gregorys held a

controlling interest in the Bank, Atkinson

became the Secretary to the Board of

Directors in August, 1976, and a Vice-

President of the Bank in November, 1976. He

worked at Faith Investment Company in

Pensacola.

[17] Although Atkinson claims he

exerted no control over the Bank's

decisions, the evidence showed that he

generally managed the day-to-day affairs of

the Bank. His position clearly gave him

knowledge of, and participation in, the

actions of the Gregorys during their control

of the Bank. In addition, Atkinson received

a $150,000 loan from the Bank of East

Alabama before the Bank purchased

participations in loans from that bank. On

April 5, 1977, Atkinson borrowed $50,000

unsecured from the Bank. He already had

$255,000 in outstanding debts at that time.

51B

The evidence was sufficient to connect

Atkinson to the conspiracy.

Regarding the substantive

misapplication counts, Atkinson signed notes

for some of the loans from the Bank to

Gregory corporations totalling $714,000 in

the month following the bank sale. Atkinson

testified that he had no hesitation signing

these loans as a corporate officer although

he was aware of the FDIC warnings about

concentrations of credit with the Gregorys.

Despite Atkinson's argument that he intended

only to make legal loans, the jury could

infer from his actions that he intentionally

aided in the misapplication of bank funds.

C. Spurlock

Spurlock challenges the evidence

supporting his conspiracy conviction.

Spurlock was hired by Gregory at the Chilton

County Bank in April, 1975, and was

transferred to the Bank in March, 1976 as

Vice-President. He held both of these

52B

positions until April 8, 1977, when the

Gregorys sold their controlling interest in

the Bank.

Spurlock's part in the alleged

conspiracy occurred shortly before the

Gregorys sold their stock in the Bank. The

Bank made a loan to Spurlock's father-in-

law, Dr. Horace Don, on March 30, 1977.

Spurlock approved the $150,000 loan to Don

as a member of the Board of Directors, and

Signed the cashier's check as an officer of

the Bank. Don testified that in April, at

Gregory's suggestion, Don purchased a

certificate of deposit at the Bank of

Mississippi. In October, Gregory sent

Spurlock to Iowa to visit Don. Don gave

Spurlock a sealed letter, and told him to

take it to the Mississippi Bank in Jackson,

Mississippi, where Spurlock would get a

check in his name. Don told Spurlock to

take this check to Gregory. Spurlock

received the check, took it to Pensacola,

53B

endorsed it, and gave it to Gregory. It

thus appears that Gregory received some

benefit from the loan to Spurlock's father-

in-law.

{18] Although Spurlock testified that

he did not know about the Mississippi

ce: ificate of deposit, the question of

Spurlock's intent is one fer the jury.

Although the evidence against Spurlock is

not overwhelming, the evidence that Spurlock

went to Mississippi, received the check and

transmitted the funds was sufficient for the

jury to infer that Spurlock was a knowing

participant in a scheme to misapply bank

funds.

IV. Evidentiary Rulings

A. Cease and Desist Order

{19] Contrary to defendants'

contention, the trial court's admission of a

temporary cease and desist order entered by

the FDIC was not an abuse of discretion.

First, it was issued within the time

54B

frame inthe indictment, and was part of the

general background of the controversy

between the Gregorys and the FDIC. Second,

part of the Gregorys' defense was that their

financial affairs crumbled when the FDIC cut

off their credit by cease and desist orders

which prevented them from borrowing funds.

The Government introduced the order to show

that it did not prohibit the Gregorys from

borrowing from other banks with which they

had no connection, and therefore did not

cause their ruin, Third, the order, issued

on May 11, 1977, was relevant because it was

issued the day after the last loan by the

Bank to a Gregory corporation. The jury

could infer from this that additional loans

would have been made if the order had not

prohibited them, Fourth, the prosecution

contended that because the Gregorys had to

be consulted about the order, even after

their bank stock had been sold, this showed

a "connection" with the bank under 18

55B

U.S.C.A. Section 656.

The defense referred to the order in

its closing argument, arguing that it

required the Gregorys to withdraw their

deposits from the Bank, and that certain

loans should not be considered criminal acts

because the order did not prohibit their

renewal.

Arguing that the order should not have

been admitted, defendants rely primarily on

United States y. Christo, 614 F.2d 486 (5th

Cir. 1980). The Christo, the Government

attempted to introduce certain cease and

desist orders issued by the Comptroller of

the Currency against a bank. The orders

were issued subsequent to the dates of

Crimes charged in the indictment. Although

the orders were not admitted into evidence,

the prosecutor referred to them a number of

times before the jury. The Court stated:

Standing alone, the prejudicial

effect of these orders on the jury

56B

would require reversal. In the event

government counsel desires to use Cease

and Desist Orders in its case, the

trial court should conduct a hearing,

outside the presence of the jury, to

determine the relevance, if any, of

these orders an weigh that relevance

against their highly prejudicial

nature.

614 F.2d at 495. Unlike the orders in

Christo, the order in this case was relevant

to a number of issues in the case, and this

probative value outweighed any prejudicial

effect of the order. The trial judge did

consider the order's relevance in chambers

with the attorneys. The court did not abuse

its discretion in admitting the cease and

desist orde-:.

B. Check Kite

Before calling two bankers as defense

witnesses to prove the Gregory's

creditworthiness, defendants moved to limit

cross-examination of those witnesses about a

check kite between the two banks. The court

ruled that if the defense introduced the

testimony of the two bankers to show that

57B

itl tas ei.

the Gregorys had excellent credit and bank

relations, that would open the door to proof

of the check kite, both to show problems in

bank relations dnd to show that the Gregorys

had cash flow problems,

The defense called one of the bankers

and introduced testimony about the Gregorys'

credit and repayment history. The defense

also presented testimony from Vonna Jo

Gregory that the Gregorys had never had a

check returned from accounts at the two

banks.

In their rebuttal to the defense case,

the Government started to prove the check

kite, One of the bankers was recalled to

produce documents, and an FDIC examiner

testified about the excessive use of

uncollected funds in the 2] Gregory accounts

at one of the banks. The court then

reversed its ruling on the admissibility of

the evidence, reasoning that although the

defense had opened the door to the evidence

5 8B

and it was relevant, because the evidence of

the check kite was lengthy and would be fresh

in the jury's mind at the end of the case,

it would cause prejudice and delay

outweighing its probative value. The court

then instructed the jury to disregard the

evidence,

[20] There was no abuse of discretion

in the trial court's admission and later

exclusion of the evidence of the check kite.

At the time the evidence was excluded, the

jury had heard the banker's testimony that

the Gregorys were not conducting a check

kite. The FDIC examiner had not given his

opinion, The court's instruction to the

jury to disregard the evidence cured any

prejudice,

C. Evidence of Gregorys' Credit and

Employment History

[21] The Gregorys claim the trial

court erred in excluding evidence of their

prior credit and employment history. They

59B

were not allowed to introduce (1) evidence

that they borrowed over a million dollars in

1971 and repaid it on schedule, (2) their

credit history over the course of their

ee ee

business careers, (3) their credit standing

in 1974, (4) two letters from bankers

concerning their creditworthiness, or (5)

evidence that Mrs. Gregory had worked all

her adult like. The excluded evidence was

Crucial to the Gregorys' defense, they

argue, because it showed their intent to

repay the money borrowed from the Bank.

This evidence, if relevant to the

defense, wasS cumulative. Both of the

Gregorys testified about their background

and employment history. The court admitted

evidence of numerous loans made to the

Gregorys, along with evidence that they were

not late on any loan payments until 1978.

In light of all the evidence concerning

their credit history, the exclusions by the

trial court were well within its discretion.

60B

V. Severance

Defendants claim tnat the Gregorys,

jrock and Atkinson should have had

Separate trials. The Gregorys filed a motion

for relief from prejudicial joinder on June

30, 1980, and the motion was adopted by

Spurlock and Atkinson. In the motion, the

Gregorys alleged that if severed, Spurlock

and Atkinson would give testimony beneficial

to the Gregorys. The motion to sever was

Carried with the case, but at the beginning

of trial it was not called to newtrial

judge's attention, All the defendants were

tried together,

(22, 23] To warrant reversal of a

conviction for abuse of discretion in the

decision whether to sever, the appellant

bears the burden of showing “specific and

compelling prejudice." United States vy.

Hewitt, 663 F.2d 1381, 1388-89 (llth Cir.

1981). The Gregorys have made no such

showing here.

61B

Atkinson and Spurlock claim they were

prejudiced by the evidence of the Cease and

Desist Order and the Gregorys' check kite.

It is not clear that the trial court was

presented with this ground for severance,

The record indicates the defendants moved

for a miStrial, not for a severance,

concerning the evidence of the Cease and

Desist Order. Spurlock and Atkinson adopted

the Gregorys* motion in limine concerning

the check kite, but did not move for a

severance.

On several occasions, the trial court

instructed the jury not to consider evidence

against a particular defendant unless it

pertained to that defendant. The check kite

Clearly pertained only to the Gregorys. The

Cease and Desist Order was relevant to the

prosecution of the bank officials in the

Same way it was relevant to the Gregorys'

case. Under these circumstances, Atkinson

and Spurlock have shown no specific and

62B

compelling prejudice based on the

introduction of this evidence at their

trial.

VI. Motions for Acquittal and New Trial

The trial court refused to consider the

merits of motions for acquittal and for a

new trial on the ground they were too late

and the court lacked jurisdiction,

The time for moving for acquittal and

new trial is governed by Fed.R.Crim.P. 29(c)

and 33. Rule 29(c) provides that "a motion

for judgment of acquittal may be made or

renewed within 7 days after the jury is

discharged or with such further time as the

court may fix during the 7-day period...”

Under Rule 33, a motion for new trial, based

on grounds other than newly discovered

evidence, “shall be made within 7 days after

verdict or finding of guilty or within such

further time as the court may fix during the

7-day period." The jury returned a verdict

63B

of guilty in this case on April 5, 1982,

The defendants' written motions for judgment

of acquittal and for a new trial were not

filed until April 26, 1982. Although this

was not within the 7-day period following

April 5, defendants contend the motions were

timely because they were made "within such

further time as the court may fix during the

7-day period." William J. Baxley, the

attorney for the Gregorys, filed an

affidavit stating that on April 8, 1982, the

district court orally granted an extension

of time allowing the defendants until April

26, 1982 to file their motions for acquittal

and new trial. “There was absolutely no

equivocation nor contingencies and I was

distinctly told by the Court that we would

have until April 26, 1982, to file our

motions..."

Apparently a written motion for

extension of time was filed with the clerk

of the district court in Mobile, Alabama, on

64B

April 8, 1982, but the trial judge did not

receive the motion until April 14, The

court entered a written order denying the

extensions on April 15, 1982. On April 29,

1982, the court denied a motion to

reconsider the extension, and the April 26,

motions for acquittal and new trial, stating

that it had "no jurisdiction of this matter,

the time for consideration of the motions

having lapsed."

[24] If the trial court orally granted

the extension of time within the 7-day

period, as represented in the Baxley

affidavit, it did not lose jurisdiction over

the motion merely because its ruling was not

reduced to writing with the 7-day period.

Therefore, if the extension was orally

granted, the court should have considered the

April 26 motions on the merits. Rather than

remand the case, however, we have examined

the record and determined that the court

could not have granted either motion without

65B

going outside the bounds of discretion given

it in such matters. The denial on

jurisdictional grounds was therefore

harmless error.

(25, 26] In considering a motion for

judgment of acquittal, the evidence must be

considered in the light most favorable to

the Government, together with all inferences

reasonablly drawn from the facts, to

determine whether there is substantial

evidence from which a jury could reasonably

find the defendants guilty beyond a

reasonable doubt. United States vy,

Martinez, 486 F.2d 15 (5th Cir.1973).

Because the evidence is sufficient to

sustain the convictions in this case, see

Part II1], Supra, it would have been

improper for the trial court to grant the

defendants' motions for judgments of

acquittal.

{27] The grant or denial of a motion

for new trial rests in the sound discretion

66B

of the trial court. United States v. Riley,

544 F.2d 237 (5th Cir. 1976), cert. denied,

430 U.S. 932, 97 S.Ct. 1554, 51 L.Ed.2d 777

(1977). Although this standard provides

some latitude for the district court to

either grant or deny a new trial without

meriting reversal on appeal, any grant of a

new trial on the grounds asserted inthis

case would not withstand review under the

abuse of discretion standard. Most of the

grounds for new trial set forth inthe

defendants' motion have been addressed on

this appeal, and the other grounds asserted

are without merit. Remand to the trial

court for consideration of the motion for

acquittal or new trial is therefore

unnecessary.

AFFIRMED IN PART and VACATED and

REMANDED IN PART WITH DIRECTIONS,

67B