Appendix — Stewart v. United States (No. 06-1508)

ORIGINAL

FILED

MAR 2, 2004

L. Larry Propes, Clerk

Columbia, SC

UNITED STATES DiSTRICT COURT

FOR THE DISTRICT OF SOUTH CAROLINA

COLUMBIA DIVISION

UNITED STATES OF AMERICA) CRIMINAL

NUMBER 3.03-1088

) 18 U.S.C. § 1343

) 18 U.S.C. §

11950(h)

v. ) 18U.S.C. §2

)

WILLIAM LUTHER STEWART, | )

a/k/a Luke Stewart, and )

EDWIN G. BLAIR ) :

SUPERSEDING INDICTMENT

MAXIMUM SENTENCE THIS COUNT

FINE OF $250,000.00 (18 U.S. C. § 3571)

AND/OR IMPRISONMENT FOR 5 YEARS

AND A TERM OF SUPERVISED RELEASE

OF 3 YEARS (18 U.S. C. § 3583)

SPECIAL ASSESSMENT $100.00

(18 U.S. C. § 3013)

COUNT |

THE GRAND JURY CHARGES:

~

28

. Onor before February 1999, in the District of

South Carolina and elsewhere, WILLIAM

LUTHER STEWART, also know as Luke

Stewart, and EDWIN G. BLAIR did devise and

intend to devise a scheme and artifice to defraud

and obtain money be means of false and

fraudulent pretenses, representations, and

promises.

BACKGROUND

. On or about November 13, 1998 Media Fusion,

Corp. was converted to Media Fusion, LLC, a

Texas limited liability company. WILLIAM

LUTHER STEWART was Chairman and Chief

Scientist. EDWIN G. BLAIR was President.

. On April 23, 1999, an account was opened at

Compass Bank, Dallas, Texas, in the name of

Media Fusion, LLC.

SCHEME TO DEFRAUD

It was part of the scheme to defraud that

WILLIAM LUTHER STEWART and EDWIN

G. BLAIR falsely represented that Media Fusion

had developed a method of power line

communication technology to provide voice,

video, and data communications over the electric

power grid.

. It was a further part of the scheme to defraud that

WILLIAM LUTHER STEWART and EDWIN

G. BLAIR falsely represented that Media Fusion

had completed the design and laboratory testing

stages of its proprietary network system and was

29

well positioned to finalize the const™iction and

installation of its first system.

. It was a further part of the scheme to defraud that

WILLIAM LUTHER STEWART and EDWIN

G. BLAIR falsely represented WILLIAM

LUTHER STEWARTSs’ background and

experience with the Massachusetts Institution of

Technology (MIT), the Defense Advanced

Research Projects Agency (DARPA), Microsoft,

and San Diego Gas and Electric.

. It was a further part of the scheme to defraud that

WILLIAM LUTHER STEWART and EDWIN

G. BLAIR falsely represented WILLIAM

LUTHER STEWART was a nominee for the

Nobel Peace Prize.

. It was a further part of the scheme to defraud that

WILLIAM ;

LUTHER STEWART and EDWIN G. BLAIR

falsely represented that Media Fusion was

associated with, and had a laboratory at the

Stennis Space Center, National Aeronautics and

Space Administration (NASA).

. It was a further part of the scheme to defraud that

WILLIAM LUTHER STEWART and EDWIN

G. BLAIR falsely represented that money

received from SCANA would be spent testing the

power line communication technology.

Specifically, transmitting a continuous tone over

the electrical grid in excess of 500 miles without

regeneration by November 30, 1999.

30

10. On or about March 5, 1999, in the District of

South Carolina and elsewhere EDWIN G. BLAIR

and WILLIAM LUTHER STEWART, for the

purpose of executing the aforesaid scheme to

defraud, did cause to be transmitted by means of

wire in interstate commerce from Dallas, Texas,

to Columbia, South Carolina, to Texas, a fax

containing monthly milestones and budget for

Media Fusion; in violation of Title 18, United

States Code, Sections 1343 and 2.

MAXIMUM SENTENCE THIS COUNT

FINE OF $250,000.00 (18 U.S. C. § 3571)

AND/OR IMPRISONMENT FOR 5 YEARS

AND A TERM OF SUPERVISED RELEASE

OF 3 YEARS (18 U.S. C. § 3583)

SPECIAL ASSESSMENT $100.00

(18 U.S. C. § 3013)

31

COUNT 2 |

THE GRAND JURY FURTHER CHARGES:

1. The Grand Jury realleges and incorporates

by reference four through nine of Count

One as constituting a scheme to defraud.

2. On or about March 19, 1999, in the

District of South Carolina and elsewhere,

EDWIN G. BLAIR and WILLIAM

LUTHER STEWART, for the purpose of

executing the aforesaid scheme to

defraud, did cause to be transmitted by

means of wire in Interstate commerce

from Dallas, Texas, to Columbia, South

Carolina, a letter addressed to Jim

Burwell, General manager, representing

that media Fusion was “setting up our first

control center at Stennis and will have

offices as NASA working with the

Mississippi Enterprise for Technology”

with two proposals attached; In violation

of Title 18, United States Code, Sections

1343 and 2.

MAXIMUM SENTENCE THIS COUNT

FINE OF $250,000.00 (18 U.S. C. § 3571)

AND/OR IMPRISONMENT FOR 5 YEARS

AND A TERM OF SUPERVISED RELEASE

OF 3 YEARS (18 U.S. C. § 3583)

SPECIAL ASSESSMENT $100.00

(18 US. C. § 3013)

COUNT 3

THE GRAND JURY FURTHER CHARGES:

l.

The Grand Jury realleges and incorporates

by reference four through nine of Count

One as constituting a scheme to defraud.

On or about April 7, 1999, in the District

of South Carolina and elsewhere, EDWIN

G. BLAIR and WILLIAM LUTHER

STEWART, for the purpose of executing

the aforesaid scheme to defraud, did cause

to be transmitted by wire in interstate

commerce from Dallas, Texas, to

Columbia, South Carolina, a letter

addressed to Robert E. Long, General

manager, representing that “based on the

investment proposals submitted to

SCANA, Media Fusion technology will

be ready for commercialization at the end

of twelve months from date of funding;”

In violation of Title 18, United States

Code, Sections 1343 and 2.

MAXIMUM SENTENCE THIS COUNT

FINE OF $250,000.00 (18 U.S. C. § 3571)

AND/OR IMPRISONMENT FOR 5 YEARS

AND A TERM OF SUPERVISED RELEASE

OF 3 YEARS (18 U.S. C. § 3583)

SPECIAL ASSESSMENT $100.00

(18 USS. C. § 3013)

33

COUNT 4 |

THE GRAND JURY FURTHER CHARGES:

1. The Grand Jury realleges and incorporates

by reference four through nine of Count

One as constituting a scheme to defraud.

2. On or about April 23, 1999, in the District

of South Carolina and elsewhere, EDWIN

G. BLAIR and WILLIAM LUTHER

STEWART, for the purpose of executing

the aforesaid scheme to defraud, did cause

to be transmitted by wire in interstate

commerce from Dallas, Texas, to

Columbia, South Carolina, an e-mail

message identifying Media Fusion’s bank

and account number so money could be

sent by wire; In violation of Title 18,

United States Code, Sections 1343 and 2.

MAXIMUM SENTENCE THIS COUNT

FINE OF $250,000.00 (18 U.S. C. § 3571)

AND/OR IMPRISONMENT FOR 5 YEARS

AND A TERM OF SUPERVISED RELEASE

OF 3 YEARS (18 U.S. C. § 3583)

SPECIAL ASSESSMENT $100.00

(18 U.S. C. § 3013)

34

COUNT 5

THE GRAND JURY FURTHER CHARGES:

1. The Grand Jury realleges and incorporates

by reference four through nine of Count

One as constituting a scheme to defraud.

2. On or about April 26, 1999, in the District

of South Carolina and elsewhere, EDWIN

G. BLAIR and WILLIAM LUTHER

STEWART, for the purpose of executing

the aforesaid scheme to defraud, did cause

to be transmitted by wire in interstate

commerce from Columbia, South

Carolina, to Texas $1,000,000.00;

In violation of Title 18, United States

Code, Sections 1343 and 2.

MAXIMUM SENTENCE THIS COUNT

FINE OF $250,000.00 (18 U.S. C. § 3571)

AND/OR IMPRISONMENT FOR 5 YEARS

AND A TERM OF SUPERVISED RELEASE

OF 5 YEARS (18 USS. C. § 3583)

SPECIAL ASSESSMENT $100.00

(18 U.S. C. § 3013)

Bs

COUNT 6

THE GRAND JURY FURTHER CHARGES:

1. The Grand Jury realleges and incorporates

by reference four through nine of Count

One as constituting a scheme to defraud.

2. On or about June 27, 1999, in the District

of South Carolina and elsewhere, EDWIN

G. BLAIR and WILLIAM LUTHER

STEWART, for the purpose of executing

the aforesaid scheme to defraud, did cause

to be transmitted by wire in interstate

commerce from Dallas, Texas, to

Columbia, South Carolina, an e-mail

message asking for an additional

$1,000,000.00 before July 1, 1999; In

violation of Title 18, United States Code,

Sections 1343 and 2.

MAXIMUM SENTENCE THIS COUNT

FINE OF $250,000.00 (18 U.S. C. § 3571)

AND/OR IMPRISONMENT FOR 5 YEARS

AND A TERM OF SUPERVISED RELEASE

OF 3 YEARS (18 U.S. C. § 3583)

SPECIAL ASSESSMENT $100.00

(18 U.S. C. § 3013)

36

COUNT 7

THE GRAND JURY FURTHER CHARGES:

l.

From on or about April 28, 1999, though

on or about July 30, 1999, in the District

of South Carolina and elsewhere,

WILLIAM LUTHER STEWART, and

EDWIN G. BLAIR unlawfully,

knowingly, and willfully did conspire to

conduct and attempt to conduct a financial

transaction effecting interstate commerce

which involved the proceeds of some

form of specified unlawful activity, that

is, wire fraud in violation of Title 18,

United States Code, Section 1343, with

the intent to promote the carrying on of

the specified unlawful activity; In

violation of Title 18, United States Code,

Section 1956(h).

A True BILL

s/Marie W. Carter

FOREMAN

S/ J. Strom Thurmond, Jr.

J. STROM THURMOND, JR. (EWR)

UNITED STATES ATTORNEY

37

COUNT 7, DROPPED AT TRIAL.

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF SOUTH CAROLINA

COLUMBIA DIVISION

UNITED STATES OF AMERICA ) CRIMINAL NO.

) 3:03-1088

v. )

)

) VERDICT

WILLIAM LUTHER STEWART, _)

a/k/a Luke Stewart )

DEFENDANT. ) FEB && 2005

) LARRY W.

PROPES

CLERK

COLUMBIA, SC

38

, As to Count 1, we, the jury, unanimously find

Defendant William Luther Stewart

Not Guilty

__x__ Guilty

2. As to Count 2, we, the jury, unanimously find

Defendant William Luther Stewart

___x__ Not Guilty

Guilty

2. As to Count 3, we, the jury, unanimously find

Defendant William Luther Stewart

__x__Not Guilty

Guilty

4. As to Count 4, we, the jury, unanimously find

Defendant William Luther Stewart

__x_ Not Guilty

Guilty

2 As to Count 5, we, the jury, unanimously find

Defendant William Luther Stewart

___x__ Not Guilty

Guilty

6. As to Count 6, we, the jury, unanimously find

Defendant William Luther Stewart

__x__ Not Guilty

Guilty

United States District Court

DISTRICT OF SOUTH CAROLINA

UNITED STATES OF AMERICA

JUDGMENT OF ACQUITTAL

CASE NUMBER

3:03cr1088(02)

¥.

EDWIN G. BLAIR

The Defendant was found not guilty. IT IS ORDERED that

the defendant is acquitted, discharged, and any bond

exonerated.

s/Cameron McGowan Currie

Signature of Judicial Officer

4]

1.

Petitioner’s Appeal to the United States Court of Appeals,

Fourth Circuit

JURISDICTIONAL STATEMENT

This appeal is properly before this Court pursuant to 28

U.S.C. § 1291, which gives the Court jurisdiction over

appeals from criminal convictions in the United States

District Courts.

STATEMENT OF THE ISSUES

I. Was there sufficient evidence from which a reasonable

jury could find Defendant Stewart guilty on the charges

contained in Count I alleging wire fraud

II. Did the District Court err by admitting evidence of

correspondence written on behalf of NASA and the United

States Attorney for the Southern District of Mississippi to a

co-defendant regarding statements contained in a Web page

allegedly misrepresenting a relationship between NASA and

Media Fusion for the limited purpose of notice when there

was no evidence that Stewart made any alleged

misrepresentations after the date of the letters

III. Did the District Court err in finding that the amount of

loss for purpose of calculating the Sentencing Guidelines

was $1 million, when Stewart was acquitted of the count

alleging wire fraud pertaining to the $1 million.

STATEMENT OF THE CASE

Stewart and a co-defendant Ed Blair were indicted on

March 2, 2004, in a Superseding Indictment alleging Six

Counts of wire fraud in violation of 18 U.S.C. § 1343 and

One Count of Money Laundering in violation of U.S.C. §

1956(h). Prior to trial, the money laundering count was

dismissed and Stewart and Blair were tried on the six wire

fraud counts. The jury acquitted Ed Blair on all counts and

found Stewart not guilty on Counts II through VI. The jury

returned a verdict of guilty on Count I. Stewart filed a post-

trial motion for judgment of acquittal under Rule 29, Fed. R.

Crim. P., or in the alternative for a new trial under Rule 33,

Fed. R. Crim. P. The district court denied both motions and

sentenced Stewart to a term of imprisonment of 30 months.

Judgment was entered on May 6, 2005 and on this same date

the Clerk of Court filed a Notice of Appeal on behalf of

Stewart at the direction of the district court. The District

Court allowed Stewart to remain on bond pending this

appeal.

STATEMENT OF THE FACTS

Appellant Luke Stewart was a shareholder and the

chief scientist of Media Fusion, LLC, a Texas limited

liability corporation (hereinafter “Media Fusion”). Media

Fusion had an impressive cast on its board of directors,

including Terry McCauliff, former Chairman of the

Democratic National Committee, Bob Livingston, former

Chairman of the House Ways and Means Committee and

retired Rear Admiral James J. Carey. In addition, Media

Fusion had also assenibled a powerful cadre of lobbyists,

many inside the Washington Beltway, to work with Stewart

43

and Blair. (JA 102, Il. 16-25 to 108, Il. 1-19; 122, Il. 7-25 to

123, ll. 1-15).

Their goal was to commercialize Stewart’s patented

technology that enables electrical power grids to transmit

voice and data communications. Such power line

communication faces a number of technical obstacles, the

most significant being the interference of transformers that

prevent a communication signal from being transmitted from

a power grid to an individual’s home or business without

disturbance. The Media Fusion technology solved the typical

problems with power line communications by inscribing data

into the magnetic wave surrounding the electrical grid. (JA

516, Il. $22).

This advanced sub-carrier modulation technology

(ASCM), as Stewart named it, is protected by a patent issued

by the United States Patent Office that was ultimately

obtained by Media Fusion. (JA 446, ll. 6-16; 795 to 813).

Power line communication technology has been a passion

for Stewart. He has spent years analyzing, developing and

testing various technical approaches to solving the problems

facing power line communication. Stewart conducted testing

of his revolutionary approach to solving the well known

problems created by transformer interference in Guatemala.

(JA 580, ll. 2-25 to 582, Il. 1-16; 589, ll. 2-19). However,

Stewart had never successfully integrated all components of

his solution to power line communication. Stewart’s solution

though integrated various components that had been

previously tested and proven in various applications. (JA

582, Il. 24-25 to 585, Il. 1-20).

in an effort to bring this technology to market,

Stewart, Ed Blair and Stewart’s former fiancé Kathryn

44

‘

a eel

Scoggins Travis, met with a venture capital firm in Dallas,

Texas. This firm, MG Capital, first sent Stewart to the

Massachusetts Institute of Technology (“MIT”) to meet with

scientist to have his technology “vetted” for a determination

of whether it was commercially feasible before deciding to

devote its resources toward raising capital for Stewart and

Blair. Following this “vetting,” MG Capital representatives

agreed to raise capital on behalf of Stewart and Blair’s start-

up company. Scoggins Travis in a collaborative effort with

MG Capital representatives and Stewart and Blair prepared a

Power Point presentation to be used to introduce Stewart’s

technology to prospective investors. (JA 586, ll. 6-25 to 588,

ll. 1-20).

In addition, retired Rear Admiral Carey, who had in

1997 provided Stewart and Scoggins Travis with an entre’ to

an international symposium on power line communication,

began a government relations effort in Washington to obtain

federal funding and other support for Stewart’s technology.

Carey assembled a total of 17 lobbyists who assisted with

this effort. (JA 102, 1. 25 to 108, Il. 1-22; 113, Il. 15-25 to

116, tl. 1-20).

Jim Johnson, a former high level staff member of

Senator Trent Lott of Mississippi, was one of the members

of this lobbying team and worked with Media Fusion and

their efforts to obtain coveted administrative and research

space at NASA’s Stennis Space Center, in Gulfport

Mississippi. Senator Lott was instrumental in having a

business incubator established at Stennis for start up

companies like Media Fusion to receive technological

assistance from NASA scientist. Media Fusion leased

administrative office space through a corporation named

Mississippi Enterprises for Technology at the Stennis Space

Center (MET). In addition, Media Fusion identified

additional space for the construction of a $25 million a

research laboratory (JA 108, Il. 23-25 to 109, Il. 1-12; 86, Il.

3-25 to 87, ll. 1-25). Jim Johnson, the former Lott staffer,

was also a lobbyist with SCANA, a South Carolina based

electric, gas and nuclear utility holding company. Johnson

introduced Stewart, Blair and Admiral Carey to SCANA’s

government relations executives in Washington, D.C. The

purpose of this initial meeting was to expose SCANA to the

Media Fusion business opportunity. In this initial meeting,

SCANA’s Jim Burwell and George Bullwinkle met with

Luke Stewart, Ed Blair and Admiral Carey. (JA 117, ll. 6-25

to 120, Il. 1-7).

At this meeting, Stewart wore the security clearance

badge issued to him for access to the Stennis Space Center.

(JA 141, ll. 16-21; 786). In addition, Mr. Bullwinkle claims

to have received a draft document that contained the content

of Media Fusion’s website at either this initial meeting or at

another meeting prior to SCANA loaning money to Media

Fusion. This document states that Media Fusion “has

completed the design, laboratory testing stages of its

proprietary network system and is well positioned to finalize

the construction, installation testing its first system by the

end of 1999. A first generation prototype is being

constructed at the John C. Stennis Space Center in Gulfport,

Mississippi with the cooperation of NASA. ..The cost of the

build-out is about 15 to 25 million.” (JA 692, ll. 13-25 to

703, ll. 1-3) Bullwinkle could not recall who provided a

copy of this draft content of Media Fusion’s web page and

specifically could not state whether Stewart in fact had given

46

this draft document to him. (JA 714, Il. 18-25 to 715, Il. 1-6).

However, the document differed significantly from the final

version that was ultimately posted on the Media Fusion web

site. (JA 711-714, ll. 1-17).

After the initial meeting with Messrs. Burwell and

Bullwinkle, Stewart and Blair traveled to Columbia, South

Carolina and met with Bob Long, head of business

development at SCANA, Burwell and Oscie Brown, who at

the time was a general manager in charge of

telecommunications at SCANA. (JA 300, Il. 14-25).

Again, during this meeting, Stewart wore his Stennis

security badge issued to him on behalf of Media Fusion for

access to the NASA Stennis Space Center. (JA 301, Il. 2-9).

In addition, Blair made a comment during this meeting that

Stewart “would be a Nobel peace prize winner by this

discovery in the technology that he had.” (JA 301, Il. 3-9).

Prior to the meeting, Long had also printed out a

number of pages from the Media Fusion web page which

included statements that “Media Fusion has completed the

design and lab testing stages of its proprietary network

system.” (JA 298, Il. 9-25 to 300, Il. 1-16). The printed web

page also stated that “The power grid contains line noise

which degrades signals, load and balances which disrupt

communications and transformers which screw up

harmonics and make signals difficult to control. Media

Fusion’s technology overcomes these obstacles.” (JA 299, II.

18-23).

After the February 22 meeting, Blair continued to

have communications with Bob Long and other

representatives from SCANA regarding SCANA’;s interest in

participating financially with Media Fusion’s efforts to

47

commercialize its technology. As part of this process, an

attorney from SCANA, Randolph Mahan, drafted and had

executed a Mutual Non-Obligation and Non-Disclosure

Agreement. (JA 405, Il. 17-25 to 407, Il. 1-15).

The mutual Non-Disclosure and Non-Obligation

Agreement provided that either party may disclose

confidential information and that any such disclosure shall

not obligate Media Fusion or SCANA to pay any money or

to enter into any business relationship. (JA 424, Il. 5-25 to

429, ll. 1-18). In addition, the Agreement provides

“communications of any kind should not be relied upon as a

basis for taking any action, foregoing any opportunity or

incurring costs.” (JA 426, il. 1-6). The effective date of this

Agreement was March 4, 1999. (JA 422, Il. 24-25).

Following the execution of this Agreement on March

6, 1999, Ed Blair forwarded a faxed transmission to Bob

Long setting forth monthly technology milestones for Media

Fusion along with a science budget. (JA 772-785). The

Monthly Milestones clearly indicated that Media Fusion was

seeking funding in order to begin the construction of the

primary lab at the Stennis Space Center, fund government

relations efforts, purchase server and switching equipment,

hire senior engineers and begin construction of a control

center.” Id.

After receiving the Monthly Milestone and Budget

information, SCANA representatives met with Luke Stewart

and Ed Blair on April 15, 1999, at SCANA’s headquarters in

Columbia, South Carolina.

During this meeting, Stewart again wore his security

clearance badge issued to him on behalf of Media Fusion by

NASA security at Stennis Space Center. Stewart and Blair

48

met with senior management at SCANA to further explore

SCANA’s interest in Media Fusion.

At this meeting, Stewart and Blair presented a Power

Point presentation stating that Media Fusion has “completed

proprietary system design and lab testing.” In addition, the

Power Point presentation provides some background

information on Stewart. Under this section the power point

has a category called “Related Experience” and simply lists

the following: Massachusetts Institute of Technology,

DARPA (which is the think tank for the United States

Department of Defense), Microsoft, San Diego Gas and

Electric and Claritek. Other than listing this information,

there is no evidence that Stewart or Blair expanded upon

Stewart’s related experience. (JA 32, Il. 12-25 to 34, Il. 1-

10). However, in a subsequent deposition given by Stewart

to SCANA attorneys in Texas, Stewart explained his

connections with these entities. (JA 450-452, 458-459).

Also, on or about April 12, 1999, just days prior to the

meeting, order begin the construction of the primary lab at

the Stennis Space Center, fund government relations efforts,

purchase server and switching equipment, hire senior

engineers and begin construction of a control center.” Id.

SCANA received a resume of Stewart from Media

Fusion which listed under the heading “Honorable

Mentions” Nobel Nominee List for Medicine 1990. (JA 308,

ll. 19-25).

During these initial meetings, SCANA through its

point person Bob Long, was aware that the individual

components of the Media Fusion technology had previously

been tested but that a complete integration had never before

49

been proven. (JA 355, ll. 14-19). In order to prove or roll-out

the Media Fusion technology, Media Fusion was seeking to

raise $145 million broken down into three phases: phase one

required $25 million to “prove a tone” within 180 days;

phase two would require $45 million to complete a system

integration with in-home testing and phase three would

require $80 million to employ the technology to one million

customers. (JA 357, Il. 8-20).

SCANA was unwilling to invest the total $145

million needed for the three phases of the project. However,

SCANA did agree to loan Media Fusion one million dollars

pursuant to an unsecured note for a period of 120 days dated

April 26, 1999. (JA 315, ll. 14-25). SCANA would then

conduct a due diligence science review of the technology

before deciding to invest additional funds. In addition,

SCANA and Media Fusion executed a letter of intent

simultaneously with the note wherein SCANA agreed to

raise approximately $65 million to complete phases one and

two of the project if the due diligence science review was

satisfactory. (JA 316-324, 322, Il. 8-21).

SCANA wired one million dollars to Media Fusion

on or about April 26, 1999. Two days following the wire

transfer, on April 28, 1999, Stewart and Blair met with

executives from ITC Delta Com, a telecommunications

company in which SCANA had a substantial investment and

on whose board SCANA’s chairman also served. The

meeting was arranged at SCANA’s request. Following the

April 28 meeting with ITC Delta Com, SCANA executives

internally decided to walk away or abort the Media Fusion

venture, without telling Media Fusion. (JA 326, Il. 2-7; Il.

23-25, 327, ll. 1-3, Il. 15-22). However, rather than

50

immediately walking away from this venture SCANA

purported to go forward with its “due diligence” examination

of the Media Fusion technology by retaining an expert to

briefly vet Stewart’s technology. In addition, SCANA

officials traveled to Stennis Space Center to inspect the site

at Stennis.

George Bullwinkle testified that there was nothing at

Stennis that raised any “red flags” as to Media Fusion’s prior

representations about their relationship with NASA or

presence at Stennis. (JA 720 Il 13-25; 721 11 1-5). SCANA

however refused to fund the additional $24 million needed

for the phase one tone test set forth in the original letter of

intent. SCANA however, agreed to remain a strategic partner

with Media Fusion and assist Media Fusion with in-kind

contributions of services as well as government relations

lobbying work in an effort to obtain additional funding for

the initial tone test. (JA 788, 789).

Ultimately, Media Fusion was unable to raise the

additional money required to do the tone test. When

SCANA’s note initially came due, SCANA renewed the note

for an additional time. (JA 790). When SCANA demanded

payment on the note, Stewart had been ousted from Media

Fusion and Blair, Carey and others were attempting to

license the ASM patent. (JA 507, Il. 23-25 to 509, Il. 1-15;

793). Media Fusion did not re-pay SCANA and SCANA

sued Media Fusion and obtained a judgment in United States

District Court in South Carolina. During post-judgment

collection efforts, SCANA’s lawyers deposed Stewart in

supplemental proceedings. During this deposition, Stewart

was questioned about prior statements he had made

pertaining to his patented technology to transmit voice and

51

data over an electrical grid. In this deposition, Stewart stated

that “his technology works up to the point of the transformer,

and we’re still working on how to grid it.” (JA 461, Il. 6-11).

Subsequently, Stewart was confronted by an FBI agent

unannounced and asked about this deposition testimony.

Stewart explained to the agent that he misspoke; that he was

supposed to have been afforded an opportunity to proof the

deposition and make changes but that had not occurred. Had

that occurred he would have changed that statement. (JA

733, ll. 2-19). Stewart also told the agent that “the

technology should work and the math and physics were

sound.” (JA 732, ll. 4-6).

SUMMARY OF ARGUMENT

There was insufficient evidence presented at trial

from which a reasonable jury could find Stewart guilty on

Count I beyond a reasonable doubt, when the jury acquitted

Stewart of the remaining five counts based upon the same

allegations 1n the Indictment. In addition, the District Court

abused its discretion by admitting correspondence by NASA

officials claiming that Stewart misrepresented Media

Fusion’s relationship with NASA. This evidence was

admitted solely for the purpose of notice, yet there was no

evidence that Stewart continued to make the alleged

misrepresentations after receipt of the letter. Lastly, the

District Court erred by finding that the loss amount for

purposes of the sentencing guidelines is $1 million, when

Stewart was acquitted of the $1 million fraud claim.

ARGUMENTS

I. THE DISTRICT COURT ERRED IN FINDING THAT

52

THERE WAS SUFFICIENT EVIDENCE FROM WHICH

A REASONABLE JURY COULD FIND THAT STEWART

IS GUILTY BEYOND A REASONABLE DOUBT

A. Standard of Review

_ This Court reviews, de novo,a denial of a Rule 29

motion for judgment of acquittal. United States v. Alerre,

430 F.3d 681 (4 Cir.2005); United States v. Rvan-Webster,

353 F.3d 353, 359 (4th Cir.2003). In so doing, the Court is

obliged to sustain a guilty verdict if, viewing the evidence in

the light most favorable to the Government, it is supported

by "substantial evidence." United States v. Burgos, 94 F.3d

849, 862 (4th Cir.1996) (en banc) (citing. Glasser v. United

States, 315 U.S. 60, 80, 62 S. Ct. 457, 86 L. Ed. 680 (1942)).

"Substantial evidence" is “evidence that a reasonable finder

of fact could accept as adequate and sufficient to support a

conclusion of a defendant's guilt beyond a reasonable

doubt." Jd.

B. Argument

Count I of the Indictment, for which Stewart was

convicted, referenced the fax transmission dated March 3,

1999, and transmitted from Ed Blair to Bob Long containing

the Media Fusion technology Monthly Milestones and

Science Budget on March 6, 1999. (JA 302, Il. 17-25 to 303,

1. 1). The jury acquitted Stewart of Counts II through VI.

Count II referenced a letter dated March 19, 1999, addressed

to Jim Burwell representing that Media Fusion was “setting

up our first control center at Stennis and we will have offices

at NASA working with the Mississippi Enterprise for

Technology” with two proposals attached. Count III

referenced a letter addressed to Robert E. Long, General

Manager, representing that “based on the investment

proposal submitted to SCANA, Media Fusion technology

will be ready for commercialization at the end of 12 months

from date of funding.” Count IV is an e-mail message

identifying Media Fusion’s bank account and numbers so

money could be sent by wire. Count V is the actual one

million dollar wire transfer from SCANA’s bank account to

Media Fusion’s account and Count VI references an e-mail

message asking for an additional one million dollars before

July 1, 1999, sent from Media Fusion to SCANA.

In order for Stewart to be found guilty of wire fraud

in violation of 18 U.S.C. § 1343, the government was

required to prove the following elements beyond a

reasonabie doubt:

0 (1) A scheme to defraud;

0 (2) Use of an interstate wire in furtherance of the

scheme; and

}

0 (3) A material statement or omission in furtherance

of the scheme.

At trial, the government failed to present substantial

evidence from which a jury could find the existence of all

three elements of the wire fraud charges alleged in Count I

of the Indictment beyond a reasonable doubt. A scheme to

defraud includes any plan or course of action intended to

deceive or cheat someone out of money or property by

means of false or fraudulent pretenses, representations or

promises. Furthermore, the government was required to

54

prove beyond a reasonable doubt that Stewart intended to

defraud, that is Stewart acted knowingly and with the

specific intent to deceive someone, ordinarily for the purpose

of causing some financial loss to another or bringing about

some financial gain to oneself at the expense of another. The

evidence presented at trial established that Defendant

Stewart had designed patented technology to allow the

transmission of voice, data and other communications over

the power line grid. The witnesses uniformly agreed that this

technology was a passion of the Defendant Stewart and that

his purpose was to fully develop this technology and to make

it a commercial success.

At trial, the government conceded the existence of

the technology, but charged that Stewart overstated the status

of the development of the technology in an effort to obtain

funds for further research. However, the evidence

contradicted this theory. In fact, the single count that the jury

returned a verdict of guilty alleged that a document entitled

“Monthly Milestones and Budget for Media Fusion.” was

faxed from Texas to South Carolina. This document clearly

establishes that significant research remained to be done.

The government also failed to prove that the wire

transmission charged in Count I of the Indictment was in

furtherance of the scheme to defraud that involved the

specific material misrepresentations alleged in Paragraphs 4

through 9 of the Indictment. The government further failed

to prove that the representations in Paragraphs 4 through 9

were both material and false.

As an initial matter, the wire transmission charged in

Count I was faxed from Texas to South Carolina on March

6, 1999. The alleged representations contained in Paragraphs

55

6, 7 and 9 of the Indictment were made after March 6, 1999,

and would therefore have been unrelated to the wire

transmission charged in Count I.

Paragraph 4 of the Indictment alleges that Defendant

Stewart “falsely represented that Media Fusion had

developed a method of power line communication

technology to provide voice, video and data communications

over the electric power grid.” This statement was proven to

be utterly true at trial. Defendant Stewart introduced into

evidence the patent that was issued by the United States

Patent Office for this technology. (JA 795-812). This

patented technology is for a method to transmit voice, data,

and video over the power grid. In fact, no one claimed that

Stewart did not develop a method of power line

communication. The question raised at trial was whether this

method had previously been proven to work. However,

SCANA witnesses acknowledged that Stewart’s power line

communication solution had never been fully integrated and

operated. Burwell acknowledged that Stewart stated that the

technology needed to be tested on a power grid for full scale

operations. Long conceded that Stewart represented that

components of the technology had been tested but that the

system had never been integrated. (JA 355, Il. 14-19). Again,

the evidence established that the allegation of paragraph 4

was a true statement.

Paragraph 5 of the Indictment alleges that Defendant

Stewart falsely represented that Media Fusion had completed

the design and laboratory testing stages of its “proprietary

network system” and “was well positioned to finalize the

construction and installation of its first system.” There was

no evidence submitted at the trial that Stewart had not

56

completed the design and laboratory testing stages of its

proprietary network system. First, the government did not

produce any testimony about what the “proprietary network

system” referenced in paragraph was. Government witness

Kate Scoggins Travis testified that Stewart had a working

computer model of a routing system. (JA 583, Il. 5-22). This

was the only testimony about the existence or non-existence

of a proprietary network system. Furthermore, Bob Long

testified that Stewart told him that elements of the overall

technology had been tested, but that the system had never

been integrated. (JA 355, ll. 14-19). Therefore, the

“proprietary network system” could not have been the fully

integrated functioning transmission of communications over

a power grid. There was simply no evidence that the

representation pertaining to a proprietary network system

was false. In addition, the statement that Media Fusion was

“well positioned to finalize the construction and installation

of its first system” was not proven to be false. In fact,

George Bullwinkle admitted that Media Fusion’s lack of a

laboratory facility at Stennis did not raise any “red flags”

following their visit to Stennis. (JA 720, Il. 13-25 to 721, ll.

15).

Paragraph 6 of the Indictment alleges that Stewart

falsely represented his background and experience with

MIT, DARPA, Microsoft and San Diego Gas & Electric.

These references are set forth in the Power Point

presentation presented to SCANA on April 15, 1999. There

were no witnesses who testified that this Power Point

presentation was made to anyone prior to April 15, 1999, or

that the statements about Stewart’s related experience were

made to anyone at SCANA prior to March 6, 1999. In

57

——

———

addition, there was no evidence presented as to exactly what |

Stewart claimed his affiliation with MIT, DARPA, Microsoft .

and/or San Diego Gas & Electric was other than the

references contained in the power point presentation.

Subsequently, in Stewart’s civil deposition, he explained his

experience with the entities listed. (JA 450-452; 458-459).

There were no witnesses who testified that Stewart

contradicted the explanation given in the civil deposition at

any point in time. Again, the government did not prove that

these representations were false nor did the government

prove that the representations were material.

Paragraph 7 of the Indictment alleges that Stewart

falsely represented that he was a nominee for the Nobel

Peace Prize. Stewart’s resume contains a reference under

“Honorable Mentions” that he was on the nominee list for

the Nobel Prize in medicine. Stewart’s resume was faxed to

SCANA on April 12, 1999. There was no evidence presented

that this resume was even prepared prior to March 6, 1999.

The only SCANA witness to testify about any comments

pertaining to a Nobel prize prior to March 6 was Bob Long

who stated that Blair made “a comment that Luke would be a

Nobel Peace Prize winner by this discovery in this

technology that he had.” (JA 301, Il 2-9) Clearly, this was

not a statement of fact, but a prediction of a future event.

Moreover, there was further evidence that Stewart traveled

to Europe for the purpose of attending a meeting to be

considered for the Nobel Prize. (JA 94, Il. 23-25 to 95, Il. 1-

10; 508, ll. 5-13). Again, the government’s burden was to

prove that this representation was false and there was no

evidence presented to establish such falsity or materiality.

Paragraph 8 of the Indictment charges that Stewart

58

falsely represented that Media Fusion was associated with,

and had a laboratory at Stennis Space Center. These

statements are referenced in the draft marketing document

that Bullwinkle testified that obtained prior to SCANA

making the loan on April 26, 1999. Bullwinkle did not,

however, testify that he obtained the prior to March 6, 1999.

Moreover, the only SCANA representatives that Stewart met

with prior to March 6 1999, were Bullwinkle, Long and

Burwell. Bullwinkle and Long visited Stennis Space Center

and testified that there observations as to Media Fusions

presence there matched their expectations.

Paragraph 9 of the Indictment claims that Stewart

falsely represented that money received from SCANA would

be spent testing the power line communication technology.

This representation is derived from the April 26, 1999, letter

of intent and without question postdates the March 5, 1999,

facsimile transmission referenced in Count I of the

Indictment. Again, the government failed to prove the falsity

of this statement. As established through the overwhelming

evidence at trial, the April 26, 1999, letter of intent by and

between SCANA and Media Fusion stated that the money

would be spent “towards” testing. Furthermore, SCANA’s

witnesses including George Bullwinkle testified that

SCANA anticipated that the money would be used to raise

additional money. (JA 721, Il. 6-10). In-addition, the

undisputed testimony was that “Phase I” of the project

involved transmitting a continuous tone over the electrical

grid in excess of 500 miles and that this would cost $25

million. Lastly, this representation was undeniably made

after March 6, 1999.

In addition, the government cannot rely upon the

59

faxed document containing Monthly Milestones and Budget

for Media Fusion referenced in Count I of the Indictment as

the material false misrepresentation. The Indictment does not

allege that this fax transmission itself was false. Rather,

Paragraph 10 of the Indictment alleges that this fax

transmission was transmitted for the purpose of executing

the scheme to defraud.

Lastly, there was no evidence presented from which a

jury could have found that Defendant Stewart caused the fax

transmission referenced in Count I to be sent. The evidence

established that Ed Blair faxed the monthly milestones and

budget to Bob Long. No one testified that Luke Stewart

knew of the existence of such document, created such

document or caused such document to be faxed to anyone. In

fact, as to the budget information, the evidence established

that Ed Blair, in consultation with Stewart, prepared the

budget.

Furthermore, witness Jesse Hanger testified that Ed

Blair stated that he did not have “confidence” in the numbers

contained in the budget. However, no one testified about

Stewart’s state of mind or knowledge about the budget

figures or even the monthly milestone issues. (JA 480 Il 23-

25 to 482 Il 1-9)

The government cannot rely upon other alleged

misrepresentations that were not charged in the Indictment to

support the jury’s verdict on Count I. Defendant Stewart is

guaranteed the right to have the charges against him

presented to a Grand Jury. To uphold Stewart’s conviction

based upon the evidence in this record would necessarily

require this Court to broaden the charges contained in the

Indictment. This will amount to an impermissible variance in

60

violation of Stewart’s constitutional nghts. Because the

government failed to present substantial evidence from

which a reasonable jury could find Defendant Stewart guilty

~ of charges alleged in Count I, this Court should enter

judgment of acquittal.

0 Il. THE DISTRICT COURT ABUSED ITS

DISCRETION BY ADMITTING EVIDENCE OF

CORRESPONDENCE WRITTEN ON BEHALF OF NASA

AND THE UNITED STATES ATTORNEY FOR THE

SOUTHERN DISTRICT OF MISSISSIPPI TO BLAIR

O

QO a. Standard of Review

A district court's evidentiary rulings are reviewed

under the abuse of discretion standard." United States v.

Grimmond, 137 F.3d 823, 831 (4th Cir. 1998).

b. Argument

The government was allowed to introduce, over

objection, a letter dated July 23, 1999 from a NASA attorney

to Ed Blair complaining that Media Fusion 1s advertising a

working relationship with NASA that does not exist. The

letter references statements from a web site that are allegedly

“flagrantly untrue.” (JA 785 A, B). The letter states that such

statements on your web site are representative of false claims

that have been made by your company in its press releases

and in meetings, conversations with, and materials provided

to congressional offices. According to several of these

offices which have contacted NASA, your vice president of

Technology and Chief Scientist, William “Luke” Stewart,

61

'

had been the primary source of such statement.” (JA 785 A,

B) In addition, the government was allowed to introduce a

letter from the United States Attorney for the South District

of Mississippi to Blair stating that the “Attorney General of

the United States has determined that your company is

engaging 1n acts or practices which constitute conduce

prohibited by section 310 of the National Aeronautics and

Space Act by conveying the impression on your internet web

sites that your business and products have some connection

with or endorsement from the National Aeronautic and

Space Administration (NASA) that does not in fact exist.”

(JA 785 C). The district court admitted these letters with a

limited instruction that they could be used as evidence of

notice.

Stewart objected to the introduction of these letters

on three grounds. First, the letters contain references and

quoted statements from a web site which does not exist nor

were copies of the challenged statements saved or been

produced and therefore the references to such a website in

these letters violates the best evidence rule. Second, the

letters were not relevant, because they were written after

SCANA had made the loan to Media Fusion and there was

no evidence that Stewart continued to make such

representations after Media Fusion received these letters.

Third, the letters should have been excluded under

Fed.R.Evid. 403 because the probative value was

substantially outweighed by the danger of unfair prejudice.

(JA 256 II.7-25 to 343 Il 1-19)

The best evidence rule provides that "[t]o prove the

content of a writing, recording, or photograph, the original

writing, recording, or photograph is required, except as

62

otherwise provided in these rules or by Act of Congress."

Fed.R.Evid. 1002. The district court upheld Stewart’s

objection regarding testimony as to the contents of website

under the best evidence rule, but refused to redact that

language referencing the web page. Such limiting instruction

was not sufficient. Further, there was no evidence

establishing that the statements that were the subject of

NASA’s complaints to Media Fusion were ever made to or

observed by SCANA. In addition, there was no evidence that

Stewart continued to make statements similar to the ones

complained.of by NASA to SCANA or anyone else

following receipt of either the July 23, 1999 or September 2,

1999 letters. As a result the letters and testimony about the

letters were not relevant to notice as to any issue in the trial.

Moreover, to the extent that there was any probative value, it

was outweighed by the danger of unfair prejudice. See, Fed.

R. Evid. 403; Old Chief v. United States, 519 U.S. 172, 180,

117 S. Ct. 644, 136 L.Ed.2d 574 (1997) (Unfair prejudice

"speaks to the capacity of some concededly relevant

evidence to lure the fact finder into declaring guilt on a

ground different from proof specific to the offense

charged."); United States v. Mohr, 318 F.3d 613, 619-20 (4th

Cir.2003) (Rule 403 requires suppression of evidence that

results in unfair prejudice--prejudice that damages an

opponent for reasons other than its probative value). The

District Court therefore abused its discretion in admitting

this evidence.

CQ II. THE DISTRICT COURT ERRED IN FINDING

THAT THE AMOUNT OF LOSS FOR PURPOSE OF

CALCULATING THE SENTENCING GUIDELINES WAS

63

$1 MILLION

QO

0 a. Standard of Review

The District Court's interpretation of the term "loss,"

as used in the guidelines, is reviewed de novo; its calculation

of the loss under the correct interpretation 1s reviewed for

clear error. United States v. Hughes, 401 F.3d 540 (4 Cir.

2005); United States v. Miller, 316 F.3d 495, 498 (4th

Cir.2003)

b. Argument

Stewart was given an |] point enhancement for a loss

exceeding $800,000 but less than $1.5 million under

U.S.S.G. 2F1.1(b)(1)(L) because “the facts in this case

reflect that, based on the defendant’s fraudulent

representations to SCANA Corp., they agreed to loan Media

Fusion $1 million.” (JA 916) Stewart objected to this

enhancement on the basis that Stewart was acquitted of

Count V of the Indictment which alleged the $1 million loan

proceeds transfer from SCANA to Media Fusion. (JA 907).

“Offense” is defined in Section 1B1 application note 1(h) as

“the offense of conviction and all relevant conduct under

1B1.3.” The offense of conviction in this instance is Count I.

In Count I, there is no dollar amount of loss alleged. The

dollar amount for which a loss is alleged is contained in

Count V for which Stewart was acquitted. In addition, the $1

million cannot be applied to Stewart’s sentencing guideline

range under the rubric of “relevant conduct.” The alleged $1

million loss was specifically charged in Count V, considered

64

and rejected by the jury. Furthermore, the government has

not contended that any other defendant, beyond Defendant

Blair who was also acquitted of Count V, defrauded SCANA

of the $1 million. Therefore, the relevant conduct provision

pertaining to jointly undertaken criminal activity 1s simply

inapplicable.

Furthermore, to the extent the Court can consider

conduct for which Stewart was found not guilty, the

government must prove such conduct by a preponderance of

evidence. Here, the government was required to prove that

SCANA lost money as a result of the offense of conviction.

First, SCANA prior to receiving the Monthly Milestones and

Science Budget on March 6, 1999, drafted and executed a

Mutual Non-Disclosure and No Obligation Agreement. This

Agreement specifically provided that “communications of

any kind should not be relied upon as a basis for taking any

action, foregoing any opportunity or incurring costs.” (JA

426, ll. 1-6). SCANA therefore could not and did not rely on

the March 6, 1999, fax transmission to make the loan to

Media Fusion. Second, even after SCANA’s science review,

visit to Stennis and full background investigation of Media

Fusion and Stewart, SCANA continued to remain a

“strategic partner in the investigation of this technology,”

according to an internal memorandum written to George

Bullwinkle by Randy Mahan dated June 25, 1999. (JA 788).

In addition, as of August 26, 1999, SCANA extended the

payment date for the note and did not call the note due until

January 26, 2000. (JA 790-794). There was no evidence that

Defendant Stewart caused Media Fusion to fail to repay the

loan. In fact, the evidence shows that Media Fusion raised

additional capital and could have paid the note if its

65

i.

management chose to do so. Stewart had been ousted by the

Board of Directors by then. _

In addition, the evidence established that the $1

million loaned to Media Fusion, LLC was used for

legitimate business expenses, including the payment of

salaries and lobbying fees received by people who were not

even alleged to have been involved in an illegal scheme to

defraud. Pursuant to Application Note 3(E), to Section

2B1.1, Stewart was entitled to a credit against the loss for the

fair market value of services rendered by the defendant and

other persons working in concert with the defendant.

Clearly, substantial effort was put forth by the Media Fusion

government relations firm and other Media Fusion

employees in an attempt to commercialize Defendant’s

technology. As the evidence established, SCANA remained

a “strategic” partner with Media Fusion while Media Fusion

used the proceeds from the $1 million loan to further both

companies’ interests. If these efforts had been successful,

SCANA stood to reap billions from its initial loan. The fact

that these efforts failed to result in a material gain to

SCANA does not mean that these services were worthless.

The District Court erred by failing to give Stewart credit for

the value of these efforts.

CONCLUSION

Appellant Stewart respectfully requests that his

conviction be vacated and judgment of acquittal be entered

as to Count I. Alternatively, Stewart request a reversal of his

conviction based upon the District Court’s evidentiary

rulings and a remand for a new trial or for an order vacating

66

Stewart’s sentence with instructions for re-sentencing based

upon a proper application of the sentencing guidelines.

Respectfully submitted,

James M. Griffin

Law Office of James Mixon Griffin

1116 Blanding Street, Suite 200

Columbia, South Carolina 29201

(803) 744-0800

Attorney for Appellant

Columbia, South Carolina February 23, 2006

67

CERTIFICATE OF COMPLIANCE

This Brief of Appellant has been prepared using:

Microsoft Word;

Times New Roman,

14 Point Type Space.

EXCLUSIVE of the Table of Contents, Table of

Authorities, and the Certificate of Filing and Service, this

Brief contains _ pages.

[ understand that a material misrepresentation can

result in the Court’s striking the brief and imposing

sanctions. If the Court so directs, I will provide an electronic

version of the Brief and/or a copy of the word or line

printout.

/s/ James M. Griffin

Signature of Filing Party

68

CERTIFICATE OF FILING AND SERVICE

I hereby certify that on this 23 day of February

2006, | filed with the Clerk’s Office of the United States

Court of Appeals for the Fourth Circuit, via hand-delivery,

the required number of copies of the Brief of Appellant and

Joint Appendix, and I further certify that I served, UPS

Ground Transportation the required copies upon:

Dean A Eichelberger

OFFICE OF THE U.S. ATTORNEY

1441 Main Street

Suite 500

Columbia, South Carolina 29201

Counsel for Appellee —

The necessary filing and service upon Counsel were

performed in accordance with the instructions given me by

counsel in this case.

/s/

THE LEX GROUP

1108 East Main Street

Suite-1400

Richmond, VA 23209

69

Fourth Circuit Appeals Court Opinion (Unpublished)

09: 30 JUN 16, 2006 ID: US COURT OF RPF'ERLS

TEL NO: 916-2796 #48584 FRGE: 1/17

United States Court of Appeals for the

Fourth Circuit

TO: James Mixon Griffin

Office: Fax Number: $1(803) 7440805 Phone

From: Barbara Rowe Phone 804-916-2704

Description: Number of Pages: 17

Time Sent: Friday, Jun 16, 2006 0 9:2 3 A.M.

JUDGEMENT FILED:

JUDGMENT FILED: J une 1 6, 2006 UNITED

STATES COURT OF APPEALS for the Fourth

Circuit No. 05-4493 CR-03-1088-CMC

UNITED STATES OF AMERICA Plaintiff —

Appellee

v.

WILLIAM LUTHER STEWART, a/ k / a Luke

Stewart Defendant - Appellant

Appeal from the United States District Court for the

District of South Carolina at Columbia ....................

In accordance with the written opinion of this Court

filed this day, the Court affirms the judgment of the

District Court.

70

A certified copy of this judgment will be provided to

the District Court upon issuance of the mandate. The

judgment will take effect upon issuance of the

mandate.

/s/ Patricia S. Connor

CLERK

71

UNPUBLISHED UNITED STATES COURT OF

APPEALS FOR THE FOURTH CIRCUIT UNITED

STATES OF AMERICA, versus Plaintiff - Appellee,

WILLIAM LUTHER STEWART, a/k/a Luke Stewart,

Defendant - Appellant. Appeal from the United States

District Court for the District of South Carolina, at

Columbia. Cameron McGowan Curmne, District Judge. (CR-

03-1088-CMC) Submitted: May 16, 2006 Decided: June

16, 2006 Before NIEMEYER and KING, Circuit Judges,

and HAMILTON, Senior Circuit Judge. Affirmed by

unpublished per curiam opinion. James M. Griffin,

Columbia, South Carolina, for Appellant. Reginald I.

Lloyd, United States Attorney, Dean A. Eichelberger,

Assistant United States Attorney, OFFICE OF THE

UNITED STATES ATTORNEY, Columbia, South

Carolina, for Appellee. Unpublished opinions are not

binding precedent in this circuit. See Local Rule 36 (c).

PER CURIAM: William Luther Stewart was convicted of

wire fraud, in violation of 18 U.S.C. §1343 and 2, and the

district court sentenced him to 30 months' impnsonment.

The indictment charged that through a scheme and artifice

to defraud, Stewart, together with his colleague, Edwin G.

Blair, and their company, Media Fusion, LLC, obtained a

loan of $1 million from SCANA Corporation, a company

that owns South Carolina Electric and Gas, to fund

implementation of a new technology that Stewart had

allegedly developed. In particular, Stewart was charged

with misrepresenting the fact that he had successfully

developed a technology by which to transmit voice, video,

and data over the power grid, and, to make his

representations credible, with misrepresenting his

credentials and his relationships with other major

technology companies and institutions, such as MIT,

NASA, the Defense Advanced Research Projects Agency,

Microsoft, and San Diego Gas and Electric. The indictment

72

also charged that in furtherance of the scheme, Stewart and

Blair sent a fax from Texas to SCANA in South Carolina,

which contained projected monthly milestones and a budget

for implementation of the technology. The jury found

Stewart guilty of the charge, and the district court entered a

judgment of conviction and the 30-month sentence on May

6, 2005.

On appeal, Stewart contends (1) that the evidence

was insufficient to support the verdict; (2) that the district

court abused its discretion in admitting letters from NASA

and a U.S. Attorney in Mississippi, confirming, after the

loan had already been made to Stewart, the inaccuracy of

some of Stewart’s misrepresentations; and (3) that the

district court erred in $1 million-loss figure when Stewart

was acquitted of the specific count charging that his scheme

caused the transmission of $1 million from South Carolina

to Texas. For the reasons that follow, we affirm.

|

Stewart contends first that the government failed to present

evidence sufficient to convict him, arguing that there was

no evidence that he created or directed the sending of the

fax, that he participated in the misrepresentations, and that

the misrepresentations were false. Taking the evidence in a

light most favorable to the government, however, we

believe that there was substantial evidence to support

Stewart's conviction. Even though the fax was sent by

Blair, the jury could reasonably have believed that Stewart

directed Blair to send the fax or that he assisted Blair in

doing so. Stewart and Blair were the two principals of

Media Fusion and were constant companions in obtaining

the loan from SCANA. The fax furthered the scheme to

defraud SCANA because SCANA officials requested the

financial information contained in the fax before they made

their loan and testified that they would not have loaned

73

Media Fusion the $1 million if they had known that the

technology was not ready for immediate installation. The

fax implied that it was developed and ready for installation

because the fax minimized future costs for research and

development and forecasted revenue-producing consumer

use within 12 months of the loan. In addition, the jury could

reasonably have agreed with SCANA officials who testified

that Stewart constantly led them to believe that the

technology was more fully developed than it actually was,

The officials stated that Stewart had told them that the

technology was “proven technology" capable of near-term

commercialization. THe evidence showed that in actuality,

however, Stewart had never tested the technology on a

power line to prove it could pass digital signals through

transformers. Even if the jury believed Stewart that he had

done some testing, he testified that he had only tested some

individual components of the technology, and not the

technology as a whole. In light of the testimony that

SCANA officials told Stewart they only were interested in

ready-to-market technology, the jury could have inferred an

intent to defraud from Stewart's repeated

misrepresentations. From our review of the record, we

conclude that the jury had ample evidence on which to

convict Stewart on the § 1343 charge.

If

Stewart also contends that the district court abused its

discretion in admitting into evidence a 1999 letter from

NASA and a 2000 letter from the Department of Justice

because the letters were dated after SCANA had made the

$1 million loan to Media Fusion. The government,

however, offered the letters to demonstrate that part of the

scheme included Blair's misrepresentations about Media

Fusion's relationship with NASA made to forestall SCANA

from recalling the $1 million loan. We agree that these

74

letters were relevant evidence of intent to mislead SCANA

with the "design[] to lull the victims into a false sense of

security [and] postpone their ultimate complaint to the

authorities.” United States v. Lane, 474 U.S. 438, 451-52

(1986) (quoting United States v. Maze, 414 U.S. 395, 403

(1974)). We disagree with Stewart's contention that the

letters were also unduly prejudicial because they contained

indirect evidence of matters on Media Fusion's website,

The district court agreed with Stewart in noting that the

letters’ references to information found on a website failed

the best evidence rule, The court received them, however,

for a limited purpose and not for the substantive evidence

of the content of Media Fusion's website, and in order to be

sure that the documents were received for that limited

purpose, the district court gave the jury a limiting

instruction. In these circumstances, we do not believe that

the district court abused its discretion.

II]

Finally, Stewart contends that the district court

erred in calculating the amount of Joss in determining his

sentencing guidelines range. Finding that SCANA’s $1

million loan was "the value of the money, property, or

services unlawfully taken,” U.S.S.G. § 2F1.1 App. Note 8

(Nov. 1998). the district court increased Stewart’s offense

level 11 levels, resulting in a sentencing guideline range of

30-37 months’ imprisonment. Stewart argues that because

he was not convicted of Count which charged him with

wire fraud for SCANA’s $1 million loan, the court could

not consider the amount of the loan as relevant conduct.

The jury’s acquittal, however, was based on a failure of

proof under a standard of beyond-a-reasonable-doubt, and

in sentencing, the district court need only have found the

loss of the $1 million by a preponderance of the evidence.

Accordingly, in determining the appropriate sentencing

75

guideline, the court was entitled to consider acquitted

conduct as relevant conduct. See United States v. Watts,

519 U.S. 148/ 157 (1997). Moreover, the evidence

supported the finding that $1 million was the proper

amount of loss. Application Note 8 to U.S.S.G.§ 2F1.1

(Nov. 1998) explains that in determining the loss, the court

should consider the commentary to U.S.S.G. § 2B1.1, which

provides that "Where the offense involved making a

fraudulent loan or... other unlawful conduct involving a

loan, , , the loss is to be determined under the principles set

forth in the commentary to section 2F1,1," U.S.S8.G, § 2Bl.1

App. Note 2 (Nov, 1998), The commentary to § 2F1,]

describes how the nominal loss - - in this case the amount

of the loan - - can overstate the actual loss when the

defendant has repaid some of the loan or collateralized it

with property that is not worthless. See U.S.S.G. § 2F1.1

App. Note 8 ("If a defendant fraudulently obtains a loan by

misrepresenting the value of his assets, the loss is the

amount of the loan not repaid at the time the offense is

discovered, reduced by the amount the lending institution

has recovered (or can expect to recover) from any assets

pledged to secure the loan”). The district court, however,

concluded that there were no such offsets because as of

sentencing the loan remained uncollected and because

Media Fusion had provided no collateral.

Stewart argues that SCANA was effectively a

strategic’ partner” with Media Fusion and thus recovered

some value from the loan because SCANA put the money

to use in the common enterprise "in an attempt to

commercialize defendant’s technology.” The district court,

however, reasonably found that SCANA received no

offsetting value from these efforts. The technology never

became commercially viable and never provided any

benefit to SCANA.

Because there was no repayment of the loan, no

collateral to secure its repayment, or no other expectancy to

eee

76

reduce its outstanding amount, the district court did not

clearly err in finding for sentencing that the loss was $1

million.

* K *

Accordingly, we affirm the judgment of the district

court. We dispense with oral argument because the facts

and legal contentions are adequately presented in the

materials before the court) and argument would not aid in

the decisional process,

AFFIRMED

77

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

FILED

JULY 11, 2006

No. 05-4493

CR-03-1088-CMC

UNITED STATES OF AMERICA

Plaintiff — Appellee

v.

WILLIAM LUTHER STEWART,

a/k/a Luke Stewart

Defendant - Appellant

Appellant has filed a petition for

rehearing. The Court denies the petition for

rehearing. Entered for a panel composed of

Judge Niemeyer, Judge King, and Senior

Judge Hamilton

For the Court,

/s/_ Patricia S. Connor

Clerk

78