Petition for Writ of Certiorari — Cheng v. United States

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: | Supreme Court, U.S,

9.1190 |e

O2- Vics | DEC 28 1992

No. | OFFICE OS THE CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

PAUL S. CHENG,

Petitioner,

Vv.

UNITED STATES OF AMERICA

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

ABBE DAVID LOWELL

(Counsel of Record)

SUSAN B. SMITH

NANETTE L. DAVIS

Brand & Lowell

(A Professional Corporation)

923 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 662-9700

December 28, 1992

Balmar Legal Publishing Services, Washington, D.C., (202) 682-9800

QUESTIONS PRESENTED

I. Whether, in light of this Court’s decisions in Schaffer

v. United States, Dunn v. United States, and In re Winship,

multiple convictions for the interstate transportation of funds

obtained by fraud may stand where the Fifth Circuit allowed the

government to aggregate the evidence in order to prove an

essential element of each of the charged offenses, but separate

the charges for the purposes of conviction and punishment.

I]. Whether the Fifth Circuit’s conclusion that a jury

could reasonably infer Cheng’s criminal intent and causation of

the transfers from his purported oversight of business affairs of

the company and general awareness of the stock purchases

underlying the transfers can stand as a matter of law, where the

inference is contradicted by the undisputed evidence that Chen g

did not know the method of funding of the stock purchases or

cause the transfers, and where such an inference results in the

imposition of vicarious criminal liability and an ex post facto

application of the interstate transportation of stolen property

Statute.

PARTIES TO THE PROCEEDING BELOW

The parties to the proceedings below are:

United States of America

Paul Sau-Ki Cheng

Simon Edward Heath

NT ee eee ee

ill

TABLE OF CONTENTS

QUESTIONS PRESENTED ............. i

PARTIES TO THE PROCEEDING BELOW .... il

I gs yl Sg ue WR aw We 6 l

AS ee a l

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED .............

COURSE OF PROCEEDINGS ...........

FACTUAL BACKGROUND ............

REASONS FOR GRANTING THE WRIT

Poe A ee Pee ae a ee 6

I. THE FIFTH CIRCUIT’S AFFIRMANCE

OF CHENG’S FOUR CONVICTIONS

UNDER 18 U.S.C. § 2314, ON A THEORY

OF AGGREGATION OF PROOF FOR

SEPARATELY-CHARGED COUNTS,

HEIGHTENS THE CONFLICT AMONG

THE CIRCUITS AS TO THE

PERMISSIBILITY AND METHOD

OF AGGREGATING PROOF UNDER

fo Oy ee oe 6

-—& WwW NY NH

A. The Fifth Circuit’s Decision Creates a

Conflict Among the Circuits in Their

Application of the Schaffer Aggregation

Principle in § 2314 Cases ........ 8

Il.

B. The Fifth Circuit’s Decision to

Allow Aggregation of Proof for

Separately-Charged Offenses Violates

This Court’s Decisions in

Dunn v. United States and

SO I a ie ers CON Fe

THE FIFTH CIRCUIT’S AFFIRMANCE

OF CHENG’S CONVICTIONS UNDER

§ 2314 WHEN THE ONLY EVIDENCE

OF KNOWLEDGE AND CAUSATION

OF THE TRANSPORTATION WAS

CHENG’S BUSINESS OVERSIGHT OF

A LARGE COMPANY IS AN ISSUE OF

EXCEPTIONALIMPORTANCE .....

A. Cheng’s Convictions Under § 2314

Violated His Constitutional Right to

ol | Rte ee ee

B. The Inference Drawn by the Fifth Circuit

Essentially Allowed Cheng to Be Convicted

on the Impermissible Basis of Vicarious

Co EE oi SEES

1. Section 2314 is not a criminal statute

that permits the imposition of vicarious

2. Imposition of vicarious criminal

liability is especially egregious in

a case, like the instant one, where

the penalty is substantial

I ee ee

3. Imposition of Vicarious Criminal

Liability on Cheng Violated the

Bx Post FactoCiause ........

CONCLUSION

APPENDIX A

APPENDIX B

APPENDIX C

Countenance of the Imposition of

Vicarious Criminal Liability on

Corporate Heads Like Cheng Will

Chill the Legitimate Conduct of

Corporate Executives .......-.

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ae in kt tik oe ee oe ee ir ee ee Oe ee ee ee

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a Ee (a ot eae he A he! oe oe! er ie Oe, ee Se et oe, oe

19a

2la

TABLE OF AUTHORITIES

Cases Page(s)

Bouie v. Columbia, 378 U.S.347 .......... 25

County Court of Ulster County,

New York v. Allen,

Oe tes SPEED nc ee wes 18

Dunn v. United States, 284 U.S. 390

fo Se ee i, 14, 15, 16

Francis v. Franklin, 471 U.S.307

Cn ea a oy ok eG a Wo 18

In re Winship, 397 U.S. 358

Dee ee ee ee es gk Se, i, 13, 14, 15, 16

Jackson v. Virginia, 443 U.S. 307

CE oe Ok ae Gg ee ee eee rary 17

Marks v. United States, 430 U.S. 188

De Pe tn ee eee i ig eve we 24

Morissette v. United States, 342 U.S. 246

| RE EEO sca et ay nena oo. sent 23, 24

Patterson v. New York, 432 U.S. 197

I a ies eae he ee ee i Sor’ 14

People v. Jackson, 440 N.W.2d 39

Se I a lag eo ie 4 bows 2]

People v. Lieber, 146 Cal. App. 2d Supp.

910, 304 P.2d 869 (Cal. App. Dep’t.

ee ee 21

People v. Regan, 95 Cal. App. 3d Supp. 1,

157 Cal. Rptr. 62 (Cal. App. Dep’t

ee ee ee 21, 22

People v. Vogel, 46 Cal. 2d 798, 299 P.2d 850

Ca SO oe rh ae ees es oo ee 24

Vii

Schaffer v. United States, 362 U.S. 511

State v. Beaudry, 365 N.W.2d 593

(Wis. 1985)

Steckler v. United States, 7 F.2d 59

¢ Ce >.) EP ar ee ae

Thompson v. City of Louisville,

362 U.S. 199 (1960) ......-..--

Tot v. United States, 319 U.S. 463

Ps ae cee ee 8 eee es

United States v. Banco Cafetero Panama,

797 F.2d 1154 (2d Cir. 1986) .....

United States v. Carter, 804 F.2d 508

Le A

United States v. Dotterweich,

320 U.S. 277 (1943) ........---

United States v. Drebin, 557 F.2d 1316

(9th Cir. 1977), cert. denied,

436 U.S. 904 (1978) ........---

United States v. Freeman, 619 F.2d 1112

(5th Cir.), cert. denied,

450 U.S. 910 (1980) ........-.--

United States v. Heath, 970 F.2d 1397

‘2S SS, ) 2 ee

United States v. Honey, 680 F.2d 1228

PP AUD pk ee ee te es

United States v. Lagerquist, 724 F.2d 693

SS ee a

United States v. Levy, 579 F.2d 1332

(5th Cir. 1978), cert. denied,

ts SPT) we ee

se So ee on oe ee ee ee ee ee

.i, 7, 8, 9, 10, 13

TEs 21

Vili

United States v. Markus, 555 F. Supp. 375

(D.N.J. 1983), aff'd, 721 F.2d 442

ee Bo se Se ae ee 8, 10

United States v. Martin, 800 F.2d 560

RTS os gk a kk we ww we 4 9

United States v. Mize, 756 F.2d 353

(Sth Cir. 1985), cert denied,

SR) ee 16

United States v. Poole, 557 F.2d 531

SE OUD Go ok h 6 4. 6) 40 6 a6 0 0 7,15

United States v. Smith, 692 F.2d 658

(10th Cir. 1982), cert. denied,

= Ee Rd. | )

United States v. Solomon, 422 F.2d 1110

(7th Cir.), cert. denied,

er koko ws fae ws 21

United States v. Tutino, 883 F.2d 1125

(2d Cir. 1989), cert. denied,

oe eee 8,13

United States v. United States Gypsum,

ge A 0s | 21, 23

STATUTES:

i 8 Fa fer ee ee ae 11,12

18 U.S.C. § 2314 (1970 & Supp. 1992) ...... passim

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pS Ew roe arr aa rr ee 3

hs SE gk ec te hee 6 ne 2

fk & eS Pe ee en eee 24

MISCELLANEOUS:

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LaFave & Scott, Criminal Law § 3.9 at 255

Gs < 2s Saw ek A ee SS

No.

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1992

PAUL S. CHENG,

Petitioner,

UNITED STATES OF AMERICA

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Paul S. Cheng respectfully petitions this Court for a writ of

certiorari to review the judgment of the United States Court of

Appeals for the Fifth Circuit in this case.

OPINIONS BELOW

The opinion of the Fifth Circuit, United States v. Heath, is

reported at 970 F.2d 1397 (Sth Cir. 1992). 1-19a.! A sup-

plemental opinion issued by the Court denying the petition for

panel rehearing is reported at 1992 WL 338020 (Sth Cir. Nov.

19, 1992). 22-23a.

JURISDICTION

The jurisdiction of the Court is timely invoked under 28

U.S.C. § 1254(1). The Fifth Circuit entered its judgment on

: “___a.” refers to the appendix to this petition for a writ of certiorari.

August 20, 1992. 1-19a. The Fifth Circuit denied petitioner’s

petition for panel rehearing and suggestion for rehearing en banc

on September 29, 1992. 20-21a.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Fifth Amendment to the United States Constitution

provides in pertinent part, “No person shall . . . be deprived of

life, liberty, or property, without due process of law ....” U.S.

Const. Amend. V. Article I, Section Nine of the United States

Constitution holds that “[n]o ex post facto law shall be passed.”

U.S. Const. Art. I, § 9. The relevant statutory provision, 18

U.S.C. § 2314, states,

Whoever transports, transmits, or transfers in inter-

State or foreign commerce any goods, wares, mer-

chandise, securities or money, of the value of $5,000

or more, knowing the same to have been stolen,

converted or taken by fraud .. . [s]hall be fined not

more than $10,000 or imprisoned not more than ten

years or both.

18 U.S.C. § 2314 (1970 & Supp. 1992).

STATEMENT OF THE CASE

This appeal involves Cheng’s four convictions under the

National Stolen Property Act, codified at 18 U.S.C. § 2314, for

the interstate transportation of funds allegedly obtained by

fraud. Cheng was charged with ten counts of interstate transpor-

tation of funds, but was acquitted on five counts and the jury

hung on one count.? In order to sustain a conviction under

§ 2314, the government must prove that: (1) the funds were

valued at $5,000 or more; (2) the defendant transported or

. Specifically, the jury convicted Cheng on Counts 9, 10, 12, and 14;

acquitted him on Counts 8, 11, 13, 15, 17; and hung as to Count 16.

caused the funds to be transported in interstate or foreign com-

merce; and (3) the defendant acted knowingly and willfully. At

trial and on appeal, Cheng argued, inter alia, that the govern-

ment could not — and did not — prove beyond a reasonable

doubt that the transferred funds were those allegedly obtained

by fraud unless the government aggregated the proof for all

counts and then applied that aggregated proof to each individual

count. Cheng also argued that there was no evidence that he

knew or caused the funds to be transported in interstate com-

merce.

COURSE OF PROCEEDINGS

On August 15, 1990, a jury in the Northern District of

Texas acquitted co-defendants Paul Cheng and Ed Heath on four

counts of interstate transportation of fraudulent funds; convicted

them on two counts of bank fraud, one count of wire fraud, one

count of misapplication, two counts of false entry, and four

counts of interstate transportation; and failed to reach a verdict

on the conspiracy count and one count of interstate transporta-

tion. The jury also acquitted Cheng on one count of interstate

transportation, on which it convicted Heath. On January 17,

1991, the district court, the Honorable Robert B. Maloney

presiding, sentenced Cheng to a total of thirty years of imprison-

ment, and Heath to twenty years, and ordered restitution. As to

the § 2314 counts, Cheng was sentenced to ten years per count,

with the sentences on the last three counts to run concurrently

to that on the first § 2314 count, resulting in ten years’ imprison-

ment on the § 2314 counts. Cheng and Heath appealed their

convictions, properly invoking the Fifth Circuit’s jurisdiction

pursuant to 28 U.S.C. § 1291.

On August 20, 1992, a panel of the Fifth Circuit ordered

the vacatur of the conviction on one count of bank fraud as

multiplicitous, remanding for resentencing on the remaining

count of bank fraud, and affirmed the remaining convictions.

On September 29, 1992, the Fifth Circuit denied Cheng’s peti-

tion for rehearing and suggestion for rehearing en banc. On

November 19, 1992, the Fifth Circuit sua sponte supplemented

its denial of Cheng’s petition for panel rehearing, addressing

Cheng’s contention that the district court had constructively

amended the indictment by giving a jury instruction that would

permit the jury to convict Cheng on the basis of an affiliation

with the savings-and-loan not charged in the indictment.

FACTUAL BACKGROUND

Cheng and Heath were founders of a successful real estate

development company, Pacific Realty Corporation (“PRC”),

that subsequently acquired a Texas thrift, Guaranty Federal

Savings and Loan Association (“GFSL”). 2a. In 1985, PRC,

then a subsidiary of GFSL, sold a piece of property, “Ponte

Vedra,” in an exclusive Florida beach area to an Arizona

developer, Don Farris. 2a.; $.R.27:126,144-47;28:39.3 GFSL

loaned Farris funds to purchase Ponte Vedra, and assisted him

in its financing by having PRC purchase from him a valuable

tract in Phoenix, thereby providing Farris with funds to establish

an interest reserve for the Ponte Vedra loan. 2a.

Ben Romero, an officer of PRC, was assigned to obtain an

appraisal on Ponte Vedra. 3a. In carrying out this task, and

without Cheng’s or Heath’s knowledge, Romero gave false

information to the appraisers regarding the height and design of

the planned buildings — stating that the buildings would be built

as twin highrise towers.* $.R.24:77. The appraisers initially

3 This citation refers to Transcript Volume 27 at pages 126, 144-47. The

record below is cited in accordance with the format employed in the Fifth

Circuit, and will be employed in this petition to refer to transcript citations.

4 The Fifth Circuit’s rendition of the facts are fashioned in such a way

as to lead the reader to the inexorable conclusion that Cheng and Heath were

undoubtedly guilty of the alleged fraud. That conclusion, however, rests upon

a statement of facts that distorts the record below. For example, two espe-

cially crucial facts are omitted from the Fifth Circuit’s statement of facts.

balked at issuing the appraisal at the value requested by Romero,

because the number of units contained in the highrise towers

would not support the valuation. See 3a. They ultimately issued

the appraisal, based not on the highrise plan, but instead based

on Romero’s false representation that the zoning regulations

governing the permissible density of units would allow the

number of units necessary to meet the desired value. 3-4a. The

appraiser testified at trial that, although he had certified to the

contrary in the appraisal, he knew that the zoning regulations

would not permit the building of the necessary number of units.>

S.R.15:108-46.

After the Ponte Vedra transaction, as part of a long-term

diversification plan, for which PRC chief financial officer Ralph

Kuhns was hired to implement, PRC purchased stock in a

national chain of motor inns. S.R.11:59-70. Kuhns chose,

without Cheng’s knowledge, to fund the purchases from an

account that held the Ponte Vedra proceeds. S.R.11:53.

Appellants’ interstate transportation convictions arise from the

wire transfers made to complete these stock purchases.

First, the Fifth Circuit makes no mention of the unwavering testimony of Ben

Romero, the PRC vice-president who admitted to giving the false information

to support the appraisal. Romero testified both before the grand jury and at

trial that Cheng and Heath had no involvement whatsoever in the process of

obtaining the false appraisal. $.R.23:94-5; 24:68; 24:82. Second, the only

evidence linking Cheng and Heath with the fraudulent appraisal, the core of

all their convictions, was that of a witness, Connie Elfenbein, whose story

changed and became more inculpatory with each official rendition. At trial,

Elfenbein testified to a purported meeting between Cheng, Heath, and

Romero about the appraisal, $.R.12:123;13:64, a meeting (1) whose occur-

rence the evidence showed was physically impossible because Heath was

away on business, (2) which the participants denied having occurred, and (3)

to which no other person could testify had occurred. The lengths to which

the Fifth Circuit went in order to uphold the convictions underscores the

difficulty of a savings-and-loan defendant in getting a fair hearing in this

climate.

> The government chose not to indict the appraisers in this case.

As to these transfers, there was no direct evidence either

that Cheng caused the transfers to be made from the account

containing the tainted funds, or that he even knew of these

transfers. See 9a. Rather, the defense proved at trial that (1)

Kuhns, PRC’s chief financial officer, not Cheng, had sole con-

trol and responsibility for choosing the funding source of the

transfers, S.R.11:53; (2) Kuhns had three accounts from which

to choose, which allowed access to millions in untainted funds,

S.R.28:75; (3) Cheng’s signature did not appear on any of the

paperwork involving the wire transfers, $.R.11:59-70; and (4)

Cheng had no involvement in or knowledge that the transfers

had occurred, much less the source of those funds.

REASONS FOR GRANTING

THE WRIT OF CERTIORARI

I. THE FIFTH CIRCUIT’S AFFIRMANCE OF

CHENG’S FOUR CONVICTIONS UNDER 18

U.S.C. § 2314, ON A THEORY OF AGGREGATION

OF PROOF FOR SEPARATELY-CHARGED

COUNTS, HEIGHTENS THE CONFLICT AMONG

THE CIRCUITS AS TO THE PERMISSIBILITY

AND METHOD OF AGGREGATING PROOF

UNDER § 2314.

In order to uphold Paul Cheng’s coavictions on four counts

of interstate transportation of fraudulently-obtained funds under

18 U.S.C. § 2314,° the Fifth Circuit relied upon a theory of

aggregation of proof that other Circuits have rejected as an

Whoever transports, transmits, or transfers in interstate or foreign

commerce any goods, wares, merchandise, securities or money, of the

value of $5,000 or more, knowing the same to have been stolen,

converted or taken by fraud . . . [s]hall be fined not more than $10,000

or imprisoned not more than ten years or both.

18 U.S.C. § 2314 (1970 & Supp. 1992).

impermissible application of this Court’s decision in Schaffer v.

United States, 362 U.S. 511 (1960). The Fifth Circuit ag-

gregated the proof as to ten counts of § 2314 in order to prove

the fraudulent nature of the transported funds in each separate-

ly-charged count. 7-9a. The Fifth Circuit agreed that the

government could not prove that the funds in each of the

separately-charged transfers were funds derived from allegedly

fraudulent activities — an essential element of each of the

ten § 2314 counts. 9a. Despite this lack of proof, the Fifth

Circuit upheld Cheng’s four convictions under § 2314, stating,

“We are satisfied that, having proved beyond areasonable doubt

that the aggregate taken from the account exceeded the amount

of clean funds available, the Government met its burden.” Jd.

(emphasis added). The Fifth Circuit’s aggregation of proof for

ten separately-charged offenses relieved the government from

having to prove an essential element of § 2314 as to each

separately-charged offense — conflicting with well-settled

precedent of other circuit courts and the Supreme Court.

7 The Fifth Circuit distinguished two of its previous decisions addressing

similar proof problems in § 2314 cases: United States v. Poole, 557 F.2d 531

(Sth Cir. 1977), and United States v. Levy, 579 F.2d 1332 (Sth Cir. 1978), cert.

denied, 440 U.S. 920 (1979). In Poole, the Fifth Circuit reversed the convic-

tions under § 2314 because the defendant’s account contained sufficient

other, legitimate funds to cover the transfers, and, therefore, the government

did not prove that each transfer contained fraudulently-obtained funds. 557

F.2d at 535-36. In Levy, there was no doubt that insufficient clean funds

existed in the account to cover each of the transfers. 579 F.2d at 1336-37. In

contrast, in the instant case, the panel admitted that the government could not

trace each transfer to tainted funds, because sufficient clean funds existed to

cover each transfer. The Fifth Circuit’s ability to distinguish Poole and Levy

from the facts of the instant case hinged upon the notion, challenged here,

that the wire transfers may be aggregated for the purposes of proof, rather

than treating them as separately-charged counts.

A. The Fifth Circuit’s Decision Creates a Conflict

Among the Circuits in Their Application of the

Schaffer Aggregation Principle in § 2314 Cases.

The Fifth Circuit’s decision in Cheng’s case is a wide

departure from other Circuits’ application of the aggregation

principle first announced in Schaffer v. United States, 362 U.S.

511 (1960). In Schaffer, this Court held that, in cases where

individual shipments of goods amounted to a value less than the

jurisdictional limit of $5,000 in § 2314, the government could

permissibly aggregate the value of separate shipments in a single

count in order to satisfy this limit “where the shipments have

enough relationship so that they may properly be charged as a

single offense.”® Courts interpreting Schaffer have, until recent-

ly, consistently applied its aggregation principle in § 2314 cases?

— and others dismissing indictments where separate counts

have charged less than the jurisdictional amounts,!° and uphold-

® The Schaffer defendants were charged with three counts of interstate

transportation of stolen property, each count covering multiple shipments

over a several-month period. 362 U.S. at 513, 518-19. The Court found that,

within each count, shipments occurring over a several-month period were

properly aggregated. /d. at 517-18.

? Typically, the aggregation principle is applied to the issue of the

jurisdictional amount of $5,000 delimited by § 2314. See, e.g., United States

v. Drebin, 557 F.2d 1316, 1328 n.19 (9th Cir. 1977), cert. denied, 436 U.S.

904 (1978) (“value of the [bootleg] films in each count could properly be

aggregated to satisfy the $5,000 requirement, since their transportation was

charged as a single offense”). However, the aggregation principle has been

applied in non-§ 2314 cases as well. For example, in United States v. Tutino,

883 F.2d 1125, 1141 (2d Cir. 1989), cert. denied, 493 U.S. 1081, 1082 (1990),

the court held that two heroin sales were properly aggregated in one count

under Schaffer because they were part of a single continuing scheme to

defraud.

10 E.g., United States v. Markus, 555 F. Supp. 375 (D.N.J. 1983), aff d,

721 F.2d 442 (3d Cir. 1983) (twenty-count indictment dismissed where none

of checks exceeded $5,000 statutory limit).

ing convictions where one count properly charged multiple,

related shipments. !!

The circuit courts’ faithful adherence to Schaffer is well-

illustrated by the Eighth Circuit’s decision in United States v.

Lagerquist, 724 F.2d 693 (1984), reversing five convictions and

dismissing the indictment charging five violations of § 2314 for

the transportation of five checks in interstate commerce, because

each check had a value of less than $ 5,000. There, the court

stated,

As none of the individual checks satisfied the $5,000

requirement of section 2314, the government sought

to aggregate the value of the checks. This is an

acceptable procedure provided the separate transac-

tions that give rise to liability are substantially related,

and that they are “charged as a single offense.” .... In

this case, although Lagerquist transported five checks

with a combined value in excess of $5,000, none of

the counts standing alone satisfied the jurisdictional

amount required in 18 U.S.C. § 2314. Accordingly

we hold that the district court lacked jurisdiction to

entertain this suit.

Id. at 694-95 (quoting Schaffer v. United States, 362 U.S. at

517); see also United States v. Honey, 680 F.2d 1228 (8th Cir.

1982) (“{T]}here was sufficient relationship in the three transac-

tions here involved to warrant their inclusion in a single count

and that their value could properly be aggregated in reaching the

jurisdictional amount.”). Because the government charged the

u E.g., United States v. Martin, 800 F.2d 560 (6th Cir. 1986) (two bank

checks sent within eight days of each other from same account to same person

properly charged in one § 2314 count); United States v. Smith, 692 F.2d 658

(10th Cir. 1982), cert. denied, 459 U.S. 1200 (1983) (upholding aggregation

of value of items of stolen property charged in one § 2314 count).

defendants with ter separate counts of § 2314, the Fifth Circuit

improperly aggregated the proof. !2

The conflict among the circuits highlighted by the Cheng

decision was foreshadowed by the Ninth Circuit’s decision in

United States v. Carter, 804 F.2d 508 (9th Cir. 1986). There,

“the government divided 124 shipments of stolen record albums

into five counts which each include a series of related transac-

tions and which each meet the jurisdictional amount. While all

the shipments are part of one overall scheme, the government is

not limited to charging only one count of violating § 2314.” Jd.

at 511. In dissent, Judge Reinhardt argued that Schaffer required

that, “once having combined a series of shipments into a single

count on the basis of some logical relationship among them, the

government must combine ail shipments having that same

relationship.” Jd. at 520 (emphasis in original). Judge Rein-

hardt concluded that, therefore, the government could have

properly charged only two counts — all shipments to Boston in

one count and all shipments to Chicago in a separate count. /d.

The Cheng court (and arguably the Carter court) creates a

split in the circuits by running afoul of the Schaffer principle in

permitting both (1) the aggregation of funds for the purpose of

proving that, for each of ten separately-charged counts, the

funds transported in interstate commerce were those funds al-

legedly obtained by fraud, and (2) the conviction and punish-

ment for more than one § 2314 offense on the basis of aggregated

proof.!3 In Cheng, there were ten wire transfers from an account

12 Asin Lagerquist, none of the § 2314 counts in Cheng’s indictment

incorporated by reference any of the other § 2314 counts, as allowed by Fed.

R. Cr. Pr. 7(c)(1). Therefore, “*[bJecause the government chose not to utilize

this method of aggregation in the indictment, it is not now available * * * on

appeal.” Lagerquist, 724 F.2d at 695 n.5 (quoting United States v. Markus,

721 F.2d 442, 444 (3d Cir. 1983)).

'3 ‘The issue addressed by the Cheng court is that left open in the district

court’s opinion in Honey:

that contained so-called “tainted” funds commingled with un-

tainted funds. Each wire transfer was in an amount less than the

total amount of clean funds in the account. During argument on

the motion for judgment of acquittal and in their appellate briefs,

Cheng and his co-defendant argued that the government could

not prove beyond areasonable doubt thateach transfer contained

tainted funds.!4 Cheng further noted that the government’s

argument (and ultimately the court’s ruling) presupposed that,

as to each transfer, clean funds had already been exhausted,

leaving only tainted funds for that transfer. While such a

supposition might be acceptable in civil forfeiture cases, }5

Cheng argued that, in a criminal case where the burden of proof

rests squarely upon the government, such an assumption gives

If the United States Attorney here had chosen to prosecute Mr. Honey

for the three shipments (each of a value under $5,000) in three separate

counts of the indictment, another question would arise: if the value of

the property in each of the three counts could be aggregated for the

purpose of reaching the $5,000 jurisdictional amount (because under

section 2311 said property was referred to “in a single indictment”),

would it be proper to permit that person to be convicted of three separate

crimes under section 2314 with the possibility of a three-fold increase

in the sentence? As indicated, we do not need to answer this question

because the prosecutor aggregated the three shipments within one count

of the indictment and, therefore, Mr. Honey has been convicted of only

one crime and must be sentenced accordingly.

542 F. Supp. 129, 134 (D. Ark. 1981).

" ) Cheng’s case, the government had the choice of charging the § 2314

counts under the wire fraud statute, 18 U.S.C. § 1343. To the extent that the

government cannot charge the transportations under another criminal statute,

and the requirement of proving the transportation of commingled funds

borders on the impossible for the government, this problem is one to be

addressed by Congress, and not one to be addressed by the courts via judicial

reconstruction.

15 See, e.g., United States v. Banco Cafetero Panama, 797 F.2d 1154,

1160 (2d Cir. 1986) (discussed infra at 12).

to the government, rather than to the defendant, the benefit of

the doubt as to whether the funds were actually tainted.!®

In Cheng’s case, the Fifth Circuit relied on Banco Cafetero,

797 F.2d at 1158, for the proposition that the government could

not trace the tainted funds to each transfer because “money is

fungible.” 9a. In Banco Cafetero, the Second Circuit found

that, in a civil forfeiture proceeding, the defendants’ assets —

bank deposits — were not immune from forfeiture where the

funds were commingled with clean funds in the bank account.

The court accepted the government’s position, which relied

upon accounting principles similar to those advanced by the

government in the instant case, stating that “the Government’s

position is sufficiently correct to enable it to prevail on this

appeal.” Jd. at 1159.

However, in reaching this conclusion, the court em-

phasized that, in forfeiture cases, Congress explicitly placed on

the defendant the risk of uncertainty created by the need to trace

tainted funds commingled with clean funds:

Obviously few cases will present facts that neatly

match untainted deposits with withdrawals, and the

real question therefore becomes which side bears the

risk of the inevitable uncertainty that will arise in most

'© The government's difficulties in proving the § 2314 counts arose, in

part, from the nature of the “stolen property” in the instant case — money

deposited into a bank account and later transferred by wire. Section 2314 is

obviously much more easily applied to the more typical case of stolen goods

transported by motor vehicle across state lines. Indeed, one wonders why the

government did not charge the ten transfers under the more logical of

available statutes, the wire fraud statute, 18 U.S.C. § 1343. Perhaps the

prosecutors chose to charge under § 2314 because of the ten-year exposure

per count (rather than the five-year exposure under § 1343) or because of the

lack of evidence connecting the wire transfers with the alleged scheme to

defraud. Whatever the reason, the government should not be permitted to

multiply charges in order to increase a defendant’s exposure, without also

being required to prove each element of every charged offense.

cases. Congress has answered that question in the

Government’s favor by assigning it a lenient burden

of proof in obtaining forfeiture of ‘traceable proceeds’

of drug transactions.

Id. at 1160. Thus, the government need only satisfy a probable

cause standard to establish a prima facie case for forfeiture in

drug cases. Jd. In stark contrast, in Cheng’s case a probable

cause quantum of evidence simply has no application in satis-

fying the elements of a § 2314 offense — the government must

prove each element beyond a reasonable doubt. See In re

Winship, 397 U.S. 358, 363 (1970), discussed at § B. infra. Had

the Second Circuit been the appellate court deciding Cheng, it

undoubtedly would reject both the government’s theories and

the Fifth Circuit’s aggregation theory because of the heightened

burden of proof in § 2314 offenses.

This Court now has before it an issue ripe for resolution —

that of the circuit courts’ split on the bounds of the Schaffer

limiting principles. This principle, as articulated in the Schaffer

opinion, should be easily and uniformly applied by the lower

courts for all elements of § 2314 and other statutory provisions

that are subject to aggregation. However, some courts are now

interpreting Schaffer in ways that obliterate its meaning. Most

important, without this Court’s intervention, the circuit courts

will continue inconsistently to convict defendants depending

upon the court’s particular view of the bounds of permissible

aggregation under Schaffer.

Clarification by this Court is especially important now

because of the variety of cases to which the aggregation prin-

ciple is being applied — for example, cases requiring the tracing

of funds, like Cheng, and drug cases that provide for very serious

sentences, even for first time offenders, see, e.g., Tutino, 883

F.2d at 1141 (discussed in note nine above). In short, the time

is ripe for this Court to rule definitively that, under Schaffer,

aggregation of proof — whatever the element, whatever the

statute — 1s permissible if, and only if, the transportations are

sufficiently related to be properly joined in one offense, and if

the offenses are charged in one offense.

B. The Fifth Circuit’s Decision to Allow Aggregation

of Proof for Separately-Charged Offenses Vio-

lates This Court’s Decisions in Dunn v. United

States and In re Winship.

A decision by this Court to allow aggregation for the

purposes of proof, but separation of charges for the purposes of

conviction and punishment, would condone a violation of fun-

damental principles of constitutional criminal procedure — that

the government must prove beyond a reasonable doubt every

essential element of each charged offense, see, e.g., Jn re Win-

ship, 397 U.S. 358, 363 (1970)); Patterson v. New York, 432

U.S. 197,210 (1977); and that each count be treated as if charged

in a separate indictment. Dunn v. United States, 284 U.S. 390,

393 (1932).

In Dunn, the defendant argued that he could not consistent-

ly have been acquitted on two counts but convicted on a third

count where the evidence was identical as to all three counts,

and that therefore his conviction should be reversed. This Court

disagreed, finding that, because each count is to be considered

as if separately charged, consistency in a verdict is not neces-

sary.!7 Jd. The Court further stated,

‘The most that can be said in such cases is that the

verdict shows that either in the acquittal or the con-

viction the jury did not speak their real conclusions,

but that does not show that they were not convinced

of the defendant’s guilt. We interpret the acquittal as

no more than their assumption of a power which they

The Court noted that if the counts upon which Dunn was acquitted

were charged in separate indictments and tried first, Dunn could not have

argued a res judicata effect in a subsequent trial on the remaining count. /d.

at 393.

had no right to exercise, but to which they were

disposed through lenity.’... That the verdict may

have been the result of compromise, or of a mistake

on the part of the jury is possible. But verdicts cannot

be upset by speculation or inquiry into such matters.

Id. at 393-94 (quoting Steckler v. United States, 7 F.2d 59, 60

(2d Cir. 1925)).

It cannot be gainsaid that an essential element of a § 2314

offense is that the funds transported in interstate commerce be

stolen, converted, or taken by fraud. See, e.g., United States v.

Freeman, 619 F.2d 1112, 1118 (Sth Cir. 1980), cert. denied, 450

U.S. 910 (1981). In Cheng’s case, the Fifth Circuit conceded

that the government could not satisfy this element as to the

individual transfers, 9a., but then upheld the appellants’ multiple

convictions on an aggregation of proof theory, stating, “It defies

logic to require that the Government trace these tainted funds

through each transfer. Such proof is impossible because money

is fungible. ... The impossibility of such proof, however, does

not render the convictions invalid.” /d. Such an aggregation of

proof would have been permissible only if Cheng had been

charged with one count of violating § 2314. Because he was

charged and tried on ten counts, the Fifth Circuit’s decision

cannot stand in light of the principles delimited in Dunn and

Winship.18

- Cheng argued in his rehearing requests that the Fifth Circuit panel

erred in declaring that the fungiole nature of money renders proof impossible.

Reh. Br. at 8-9. Cheng demonstrated that the Fifth Circuit’s respective

analyses in United States v. Poole and United States v. Levy did not find

controlling the fungible nature of money. The prosecutors in Levy were able

to prove that the transferred funds were tainted despite the fungibility of

money; thus, the Fifth Circuit upheld the convictions. 579 F.2d at 1336-37.

The prosecutors in Poole could not; the Fifth Circuit reversed Poole’s

convictions. 557 F.2d at 535-36. In Cheng’s case, the impossibility was not

one of logic, but of proof — a direct result of the government's charging

Strategy.

In complete disregard of the Dunn and Winship principles,

to sustain a savings-and-loan conviction, the Fifth Circuit al-

lowed the evidence for the transfers to be aggregated to satisfy

the proof requirements as to ten separately-charged transfers

because the court recognized the obvious — that the proof failed

as to each of the separate transfers.!9 9a. Such an approach

permitted the Fifth Circuit to dodge other, equally problematic

issues such as the government’s urging that the court apply a

“first-in, first-out” or “lowest intermediate average balance”

method to determine whether tainted or untainted funds were

transferred.2° However, the Fifth Circuit’s approach conflicts

with this Court’s admonition that “each count in an indictment

is regarded as if separately charged.” Dunn, 284 U.S. at 393.

This Court should not countenance the Fifth Circuit’s

treatment of the § 2314 charges as one count for the purposes of

proving an essential element of the offense, but as separate

counts for the purposes of determining the number of convic-

tions and sentencing.*! The government could not prove that the

‘9 In doing so, however, the Fifth Circuit de facto constructively

amended the indictment for the purposes of proof as to the funds’ illegal

character, which should have been grounds for per se reversal. See, e.g.,

United States v. Mize, 756 F.2d 353, 355 (Sth Cir. 1985), cert. denied, 484

U.S. 943 (1987) (reversal “automatic” where jury “permitted to convict the

defendant on a factual basis that effectively modified an essential element of

the offenses charged”). Not surprisingly, the Fifth Circuit does not cite to any

authority for its novel holding.

20 The court may have avoided these methods because of the wild

speculation about the jury’s verdicts on the § 2314 counts the government

was required to engage in in order to justify these methods. See G. Br. at

18-19. The jury’s verdict does not support the government’s argument,

however, because the jury convicted Cheng of Count 10 and acquitted him

on Count 1 1 — transfers that were made the same day when the funds in the

account had to be the same. See Record Excerpts at 53; Indictment at 20.

Should this Court allow the convictions to stand on an aggregation of

proof theory, then the Court should — at the very least — remand with

transferred funds were tainted only because it decided to pile on

charges and indict Cheng on ten separate counts. The Fifth

Circuit’s opinion manifests nothing more than a post hoc attempt

to correct the government’s disadvantageous Charging strategy.

Once the government charged the transfers in ten separate

counts, the government should have been absolutely precluded

from aggregating them in order to satisfy an essential element

of the offense, and then splitting them again to convict and

punish. Fidelity to § 2314 and the due process clause requires

no less.

Il. THE FIFTH CIRCUIT’S AFFIRMANCE OF

CHENG’S CONVICTIONS UNDER § 2314 WHEN

THE ONLY EVIDENCE OF KNOWLEDGE AND

CAUSATION OF THE TRANSPORTATION WAS

CHENG’S BUSINESS OVERSIGHT OF A LARGE

COMPANY IS AN ISSUE OF EXCEPTIONAL IM-

PORTANCE.

A. Cheng’s Convictions Under § 2314 Violated His

Constitutional Right to Due Process.

This Court in Jackson v. Virginia, 443 U.S. 307, 313-14

(1979), affirmed that “the due process standard recognized in

Winship constitutionally protects an accused against a convic-

tion except upon evidence that is sufficient fairly to support a

conclusion that every element of the crime has been established

beyond a reasonable doubt.” The Fifth Circuit rejected Cheng’s

argument that he neither knew nor caused the transfers of funds

allegedly obtained by fraud, stating that “[v]iewed in the light

most favorable to the verdict, the evidence established that

Cheng oversaw the financial affairs of PRC[22] and was aware

of the stock purchases. In this light, the evidence permits the

instructions to the district court to resentence, treating the § 2314 convictions

as one for the purposes of sentencing.

22 This conclusion itself rests upon multiple inferences: the evidence did

not demonstrate that Cheng oversaw the financial affairs of PRC. Rather,

inference that he understood how those purchases would be paid

for.”23 9a. Such a conclusion disregards the overwhelming

evidence contradicting the very point on which the Fifth Circuit

states that an inference was reasonably drawn by the jury.

This Court has stated that “[a] permissive inference violates

the Due Process Clause only if the suggested conclusion is not

one that reason and common sense justify in light of the proven

facts before the jury.” Francis v. Franklin, 471 U.S.307, 314-25

(1985) (citing County Court of Ulster County, New York v.

Allen, 442 U.S. 157-63 (1979)); see also Thompson v. City of

Louisville, 362 U.S. 199, 206 (1960); Tot v. United States, 319

U.S. 463, 467 (1943). Moreover, as the trial court’s instructions

quoted in Ulster make clear,

The presumption or presumptions is effective only so

long as there is no substantial evidence contradicting

the conclusion flowing from the presumption and the

presumption is said to disappear when such contradic-

Cheng’s testimony touched little if at all on his general knowledge of PRC’s

many financial transactions, focusing primarily on transactions relating to

Ponte Vedra. S.R.28:67-75. Even if the government did prove that Cheng

had a general working knowledge of PRC finances, no inference can be

drawn that he actually knew of the source of funds for the stock purchases at

issue. Ed Heath testified at trial to the magnitude of the PRC operation — at

the time of the Ponte Vedra transaction, PRC operated the thirteenth largest

real estate development business in the country, managing sixty properties

in forty-seven cities and twenty-three states across the country, and employ-

ing thirty developers and over 800 staff members. S.R.29:149-152. Because

of the magnitude of the operation, the overwhelming evidence that Cheng

did not know of the funding for the stock purchases, and Kuhns’s respon-

sibility for the financial affairs of PRC, including the specific funding for

these stock purchases, the Fifth Circuit’s inference is wholly unreasonable.

3 This theory was never presented to the jury — either in instructions

or in the government’s argument. Of course, if the government had evidence

to show that Cheng knew of the stock purchases, surely it would have

presented it at trial.

tory evidence is adduced. ... The presumption . . .

may be rebutted by any evidence or lack of evidence

in the case.

Ulster, id. at 161 n.20 (quoting trial court transcript at 743, 760).

As shown below, the Fifth Circuit’s conclusion that the jury

could reasonable infer Cheng’s knowledge (and implicitly

causation) is not justified in light of the proven facts and,

therefore, does not comport with due process.

In Cheng’s case, there was no direct evidence that Cheng

either knew, transported, or caused to be transported the funds

allegedly obtained by fraud, as the government properly con-

ceded in its appellate brief, G. Br. at 23, and the Fifth Circuit

acknowledged in its opinion. 9a. Nor did the government

introduce any evidence to rebut the following proof at trial: (1)

that the PRC chief financial officer, not Cheng, had sole control

and responsibility for choosing the funding source of the trans-

fers, $.R.11:53; (2) that the chief financial officer had three

accounts from which to choose, which allowed access to $28.3

million in untainted funds, $.R.28:75; (3) that Cheng’s signature

did not appear on any of the paperwork involving the wire

transfers, $.R.11:59-70; and (4) that Cheng had no involvement

in or knowledge that the transfers had occurred, much less the

source from which they came, S.R.11:58:28:71. Equally sig-

nificant is the government’s failure to question Cheng what-

soever about his knowledge of, or role in, the transfers.

Ralph Kuhns, PRC’s chief financial officer and a govern-

ment witness, testified that he was solely responsible for deter-

mining how the stock purchases would be funded. S.R.11:53.

He did not, and could not, testify that he had any Communica-

tions with Cheng whatsoever that would contradict the evidence

that Cheng had no knowledge of the stock purchases. Nor did

the government produce any evidence to show that Kuhns was

following a customary business practice to use the specific PRC

account to fund the purchases. Kuhns could have funded the

stocks purchases from a brokerage account containing three

million dollars in cash and securities or a fifteen million dollar

PRC credit line with margin options. S.R.28:75. Thus, the sole

piece of “evidence” that the government produced to support the

Fifth Circuit’s inference was Cheng’s signature on the

authorization form for the opening of the corporate trading

account, which Kuhns testified was used during the same time

period for purchases other than those at issue here.

S.R.11:49,56. The government’s failure of proof was not cured

by the testimony of Kuhns, Cheng, Cheng’s administrative

assistant, or the treasurer of PRC.

This case does not present a situation in which there was a

paucity of evidence on an element of an offense such that the

only way to satisfy the proof standard was by drawing an

inference. Rather, there was an abundance of evidence to the

contrary, completely ignored by the Fifth Circuit, in violation

of the standards articulated in Francis and Jackson. In short,

the Fifth Circuit drew the inference it desired in order to uphold

Cheng’s four convictions on the § 2314 counts. Cheng’s harsh

sentence of ten years imprisonment on the § 2314 counts alone

and thirty in total, meted out by a district court judge who stated

he wanted to make an example out of Cheng and Heath for their

purported role in the savings-and-loan crisis, should not rest on

what amounts to no more than guessing by the courts.

B. The Inference Drawn by the Fifth Circuit

Essentially Allowed Cheng to Be Convicted

on the Impermissible Basis of Vicarious

Criminal Liability.

By allowing Cheng’s culpability to be determined by an

inference drawn solely from his business oversight of a large

company and general awareness of the business’s stock pur-

chases, the Fifth Circuit permitted Cheng to be convicted for

vicarious criminal liability — a result clearly contrary to law.”4

24 The Fifth Circuit's decision, based upon a wobbling pyramid of

inferences, also conflicts with the requirement that “while evidence of such

——

This issue itself is so important to the proper administration of

federal criminal law and to the maintenance of stability in the

commercial world that this Court should grant the writ of

certiorari to the Fifth Circuit.

1. Section 2314 is not a criminal statute

that permits the imposition of vicarious

criminal liability.

Vicarious criminal liability is a legal concept that does not

exist at common law. United States v. United States Gypsum,

438 U.S. 422, 437-38 (1978) (“We start with the familiar

proposition that “[t]e existence of a mens reais the rule of, rather

than the exception to, the principles of Anglo-American

criminal jurisprudence.’”’) (citations omitted). Rather, it must

be expressly created by criminal statute. Jd.; People v. Jackson,

440 N.W.2d 39, 41-42 (Mich. 1989). A vicarious criminal

liability statute eliminates the requirement of a criminal act, and

instead imputes the criminal act of another defendant. State v.

Beaudry, 365 N.W.2d 593, 597 (Wis. 1985). In Cheng’s case,

§ 2314 does not authorize such an imputation, but rather re-

quires that the defendant personally possess the requisite

knowledge and perform the criminal acts.

Both state and federal courts recognize that vicarious

criminal liability cannot be imposed in a case like the one at bar.

For example, the California Court of Appeal in People v. Lieber,

146 Cal. App. 2d Supp. 910, 914, 304 P.2d 869, 872 (Cal. App.

Dep’t. Super Ct. 1956), rejected the use of vicarious criminal

liability as “unreasonable and indeed unconstitutional,” and

restated the rule that “an officer of a corporation is not criminally

answerable for any act of a corporation in which he is not

personally a participant.” Jd. Subsequently, the court in People

v. Regan, 95 Cal. App. 3d Supp. 1, 4, 157 Cal. Rptr. 62, 63 (Cal.

knowledge may be inferred from the particular circumstances and acts and

conduct of the parties, . . . it must be clear and unequivocal.” United States

v. Solomon, 422 F.2d 1110, 1112 (7th Cir.), cert. denied, 399 U.S. 911 (1970)

(citations omitted).

App. Dep’t Super. Ct. 1979), rejected the attempt to use

vicarious criminal liability, ruling that the District Attorney

must present evidence of the defendant’s “knowledge of or

participation in” the alleged illegal act in order to convict. The

court in Regan rejected as “untenable” the District Attorney’s

argument that the factfinder may infer knowledge or approval

on the part of the defendant. /d. In Cheng’s case, the Fifth

Circuit pointed to no evidence that Congress has abrogated the

requirement of § 2314 that the defendant transport the items with

knowledge that they are fraudulently obtained.

These cases, which reject the imposition of vicarious

criminal liability absent explicit statutory authorization, track

the cogent reasoning of Justice Murphy, who dissented from the

majority decision in United States v. Dotterweich, 320 U.S. 277,

285-93 (1943). The Court in Dotterweich affirmed the imposi-

tion of vicarious misdemeanor criminal liability on the corporate

president for violations of the Federal Food, Drug and Cosmetic

Act. Justice Murphy aptly stated,

There is no evidence of any personal guilt on the part

of the respondent. There is no proof or claim that he

ever knew of the introduction into commerce of the

adulterated drugs in question, much less that he ac-

tively participated in their introduction. Guilt is im-

puted to the respondent solely on the basis of his

authority and responsibility as president and general

manager of the corporation.

It is a fundamental principle of Anglo-Saxon

jurisprudence that guilt is personal and that it ought

not lightly to be imputed to a citizen who, like the

respondent, has no evil intention or consciousness of

wrongdoing. It may be proper to charge him with

responsibility to the corporation and the stockholders

for negligence and mismanagement. But in the ab-

sence of clear statutory authorization it is inconsistent

with established canons of criminal law to rest

liability on an act in which the accused did not par-

ticipate and of which he had no personal knowledge.

Dotterweich, 320 U.S. at 285-86 (Murphy, J., dissenting). Sub-

sequent courts echo Justice Murphy’s reasoning in deciding not

to impose vicarious felony criminal liability. Because § 2314

does not provide the requisite authorization, the Fifth Circuit’s

inference imposing vicarious criminal liability fails as a matter

of law.

2. Imposition of vicarious criminal liability

is especially egregious in a case, like the

instant one, where the penalty is sub-

stantial imprisonment.

The use of a theory of vicarious criminal liability to impose

severe criminal penalties exacerbates the affront to Cheng’s due

process rights. It is a “universal doctrine” of American criminal

law that the prosecutor must prove the union of a criminal act

and a criminal intent in order to convict the defendant. Moris-

sette v. United States, 342 U.S. 246, 251 (1952). In the latter

half of this century, however, courts have recognized a class of

offenses that do not require criminal intent. Id. at 253-56. As

this Court noted in United States v. United States Gypsum, 438

U.S. 422, 437-38 (1978), “the limited circumstances in which

Congress has created and the Court has recognized such offenses

. attest to their generally disfavored status.” Thus, they are

applied in limited circumstances:25

These offenses usually involve light penalties and no

moral obloquy or damage to reputation. Although

criminal sanctions are relied upon, the primary pur-

Commentators LaFave and Scott agree: “To the extent that vicarious

liability can be justified in the criminal law, it should not be utilized to bring

about the type of moral condemnation which is implicit when a sentence of

imprisonment is imposed.” LaFave & Scott, Criminal Law § 3.9 at 255

(1986).

pose of the statute is regulation rather than punish-

ment or correction. The offenses are not crimes in the

orthodox sense, and wrongful intent is not required in

the interest of enforcement.

People v. Vogel, 46 Cal. 2d 798, 801 n.2, 299 P.2d 850, 853 n.2

(Cal. 1956). See also Morissette, 342 U.S. at 256. The potential

penalty under § 2314 is ten years and/or a fine of $10,000 for

each count.26 Moreover, the charged offenses have clearly

damaged Cheng’s reputation. By charging Cheng with ten

§ 2314 offenses, the government indisputably intended to

punish Cheng severely.

3. Imposition of Vicarious Criminal

Liability on Cheng Violated the Ex

Post Facto Clause.

The United States Constitution prohibits the enactment of

ex post facto laws. U.S. Const. Art I, § 9. This prohibition

applies not only to legislatures, but also to courts through the

due process clause of the Fifth and Fourteenth Amendments.

Marks v. United States, 430 U.S. 188, 193 (1977). This Court

has held that novel judicial construction of an existing statute

operates as prohibited a ex post facto law:

[A]n unforeseeable judicial enlargement of a criminal

statute, applied retroactively, operates precisely as

Art. I, § 10,[?7] of the Constitution forbids... . Ifa

judicial construction of a criminal statute is “unex-

pected and indefensible by reference to the law which

6 In Cheng’s case, having been charged with ten counts of § 2314, his

sentencing exposure was one hundred years imprisonment and/or $100,000

in fines — an obviously punitive possibility.

Article I, Section Ten, of the Constitution, governing the siates’ —

conduct, is the identical counterpart to Article I, Section Nine, of the Con-

stitution prohibiting the federal government from enacting ex post facto laws.

had been expressed prior to the conduct in issue,’ it

must not be given retroactive effect.

Bouie v. Columbia, 378 U.S. 347, 353-54 (1964). The Fifth

Circuit’s decision is indefensible and unexpected because it is

contrary to the express language of § 2314, and runs counter to

accepted jurisprudence. Cheng neither committed the act of

transferring the funds obtained by fraud, caused the act to be

committed, nor had the requisite criminal intent to commit the

act. Thus, judicial enlargement of § 2314 in the manner ad-

vanced by the Fifth Circuit violated Cheng’s due process right

under the Fifth Amendment.

4. Countenance of the Imposition of

Vicarious Criminal Liability on

Corporate Heads Like Cheng Will

Chill the Legitimate Conduct of

Corporate Executives.

A chill wind should blow through the commercial world

from the convictions of Cheng on the basis of vicarious criminal

liability. In essence, Cheng, one of PRC’s corporate heads, is

being held criminally responsible for the actions of his subor-

dinates of which he had no knowledge and which he neither

caused, directed, or otherwise controlled. PRC had hired Ralph

Kuhns as chief financial officer for the thirteenth-largest real

estate Company in the nation and delegated significant con-

comitant responsibility to him. See §.R.11:87. Sucha delega-

tion is crucial to the smooth functioning of a large business

organization; without it, the corporate heads will be unable to

manage effectively.

The Fifth Circuit’s decision opens the door to imposing

career-destroying prison sentences — felony criminal liability

— for the business oversight and responsible role a person

exercises in his company. Arguably, the higher one rises in his

or her corporation, the greater the number of subordinates the

person supervises and thus the greater the risk that he or she wil]

be held criminally responsible for the actions of his or her

subordinates. The Fifth Circuit’s wayward opinion raises

serious implications for corporate conduct that this Court should

rectify.

CONCLUSION

The government’s abject lack of evidence on the § 2314

charges explains why the Fifth Circuit felt compelled to ag-

gregate proof for conduct charged in ten separate offenses, and

to conclude that the evidence supported an inference of criminal

intent based upon Cheng’s business oversight and putative

knowledge of the stock purchases. However, neither a lack of

evidence nor a desire to convict at ail costs justifies either the

rewriting of the law of the United States or the violation of the

United States Constitution. Accordingly, this Court should grant

this petition for writ of certiorari.

Respectfully submitted,

Abbe David Lowell

(Counsel of Record)

Susan B. Smith

Nanette L. Davis

BRAND & LOWELL

(A Professional Corporation)

923 Fifteenth Street, N.W.

Washington, D.C. 20005

(202) 662-9700

Counsel for Petitioner

Paul S. Cheng

Wires

Pye OR

ret

APPENDIX A

UNITED STATES COURT OF APPEALS

for the Fifth Circuit

No. 91-1112

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

VERSUS

SIMON EDWARD HEATH and PAUL SAU-KI CHENG,

Defendants-Appellants.

Appeals from the United States District Court

for the Northern District of Texas

Before HIGGINBOTHAM, and DUHE, Circuit Judges and

HUNTER, District Judge.!

DUHE, Circuit Judge:

Defendants-Appellants Simon Heath and Paul Cheng were

convicted of numerous counts of bank fraud, wire fraud, misap-

plication of funds, false entries, and interstate transportation of

funds obtained by fraud. They seek reversal of their convic-

tions. Because we find two counts of the indictment multi-

plicitous, we remand in part. The remaining convictions are

affirmed.

BACKGROUND

Cheng and Heath were founding partners of Pacific Realty

Corporation (PRC), a large national real estate development

company. In 1984, PRC and Cheng and Heath, individually,

acquired Guaranty Federal Savings & Loan, a Dallas savings

! Senior District Judge of the Western District of Louisiana, sitting by

designation.

9 ti EE

Crean Ae a Laks Bie

and loan then in receivership. The purchase agreement con-

tained a forbearance clause exempting Guaranty from banking

regulations that prohibit loans to insiders. Thus, Guaranty was

authorized to loan money to PRC and its clients.

Soon after requiring Guaranty, PRC bought forty-two acres

of land in Florida for development. Problems occurred, how-

ever, when the local government imposed a sewer moratorium.

At the same time, the company with which PRC had planned to

develop the land withdrew from the deal. Cheng and Heath then

tried to sell the land, but were unsuccessful.

In December 1985, Cheng and Heath made a deal with Don

Farris, of the Don Companies, an Arizona real estate develop-

ment company. Farris, a major borrower of Guaranty, was to

buy almost thirty acres of the Florida property for $10 million

with money loaned to him by Guaranty. The loan would be

non-recourse and collateralized solely by the Florida property.

Farris would then establish a $2 million reserve account to pay

interest on the Joan, funded with proceeds from the sale to PRC

of property he owned in Arizona. PRC agreed to buy the

Arizona property with $3.3 million loaned to it by Guaranty and

secured solely by the property.

The $10 million loan from Guaranty to Farris required a

loan-to-property value ratio of ninety percent. For the deal to

be successful, therefore, the Florida property had to be appraised

at $11 million, more than twice the value quoted to Cheng and

Heath during their earlier unsuccessful attempts to sell the

property. In an effort to obtain such a favorable appraisal,

Heath, in the presence of Cheng and another PRC employee,

directed Ben Romero, an officer of PRC, to secure an appraisal

on an “as built basis” by informing the appraisers that twin

highrise apartment towers would be built on the land. At the

time, Cheng and Heath had no intention of actually building the

highrises. Based on this misrepresentation, Romero obtained a

preliminary opinion letter from Marshall & Stevens, a Chicago

appraisal firm, appraising the full 42.40 acres at $11.2 million.

Marshall & Stevens was not aware that its preliminary letter was

going to be used to close the Guaranty/Farris loans, and the letter

was technically deficient for such purposes. Using this letter,

however, PRC and Farris closed the deal on January 17, 1986.

On January 18, at Cheng and Heath’s request, Marshall &

Stevens sent PRC a corrected back dated letter, addressed to

Guaranty and appraising only the thirty acres of property sold

to Farris.

Although it corrected its original letter, Marshall & Stevens

did not immediately provide Guaranty with the necessary full

narrative appraisal because it was unable to verify its initial

$11.2 million estimate. In light of the zoning laws and sewer

moratorium, one Marshall & Steven’s appraiser suggested that

the Florida property was worth less than half of the $1 1.2 million

evaluation. In the meantime, in March 1986, the Federal Home

Loan Bank (FHLB) discovered that the loan had been made

without the required full narrative appraisal.

To provide Marshall & Stevens with a factual basis for the

$11.2 million figure, Romero made to them specific false rep-

resentations about the development potential of the Florida

property, including assurances that sewer and treatment

facilities were available, that the density of the purported twin

towers was permissible under current zoning, and that it was

physically possible to build the highrises on the land. Based on

these misrepresentations, Marshall & Stevens completed the full

narrative appraisal for $11.2 million.

For their participation in the scheme, the Government

brought a seventeen count indictment against Cheng and Heath.

Count one alleged conspiracy, counts two and three alleged bank

fraud based on the loans for $10 million and $3 million procured

from Guaranty. Counts four through seven alleged wire fraud,

misapplication of funds, and false entries. The final ten counts

were for interstate transportation of funds obtained by fraud,

based on Cheng and Heath’s use of funds obtained through the

Florida deal to purchase stock from a New York broker.

ANALYSIS

Together, the Defendants attack their convictions on many

grounds. Initially, they charge that the indictment was multi-

plicitous with regard to the two bank fraud charges stemming

from a single transaction. Next they attack the sufficiency of

the evidence on all counts, asserting that the evidence did not

support the finding of fraud necessary to each count. They also

claim that their convictions for interstate transportation of

fraudulently obtained funds fail because the Government did not

prove that each individual transfer involved proceeds a

fraudulent transaction. Finally, they cite numerous trial errors,

including prosecutorial misconduct, mistakes in the district

court’s evidentiary rulings, and flaws in the district court’s

instructions to the jury.

I. Indictment Multiplicity

‘Multiplicity’ is charging a single offense in more than

one count of an indictment.” United States v. Lemons, 941 F.2d

309, 317 (Sth Cir. 1991). The Defendants argue that Counts 2

and 3 of their indictments, which charged them with bank fraud

under 18 U.S.C. § 1344, are multiplicitous in that each of the

counts seeks to punish them for participation in the same scheme

against Guaranty. The Government counters that each transac-

tion, the $3.3 million Phoenix loan and the $10 million Florida

loan, must be viewed as subjecting Guaranty to separate risks

of loss, giving rise to multiple liability under the statute.

In Lemons, we stated that “the bank fraud statute imposes

punishment only for each execution of the scheme.” Jd. at 318.

Thus, unlike the mail or wire fraud statutes, the bank fraud

statute does not allow punishment for each act in execution of

a scheme or artifice to defraud. /d. Although we so interpreted

the bank fraud statute, we expressly declined to hold that “the

pn” ls

execution of a scheme cannot result in the imposition of multiple

liability... .” Jd. n.6. Our note specifically referred to United

States v. Farmigoni, 934 F.2d 63 (Sth Cir. 1991), cert. denied,

112 S. Ct. 1160 (1992). Farmigoni, in contrast to this case and

Lemons, involved a scheme to defraud two different banks,

giving rise to prosecution in each of the banks’ home States.

Although both indictments in F armigoni arose from the same

scheme, “neither require[d] proof of intent to defraud the other

unnamed financial institution.” /d. at 66. The instant scheme

involves intent to defraud only one bank, Guaranty, albeit by

procuring two loans. The two loans, however, were integrally

related; one could not have succeeded without the other. Indeed,

the sale of the Phoenix property was conceived for the sole

purpose of facilitating the Florida sale.

Although a two-loan scheme may subject an institution to

greater risk than a scheme involving only one transaction, it is

the execution of the scheme itself that subjects a defendant to

criminal liability, not, as we stated in Lemons, the execution of

each step or transaction in furtherance of the scheme. Because

the Defendants’ indictments sought to punish them for execu-

tion of the multiple steps involved in the scheme, the counts are

multiplicitous. Therefore, we remand the case with the instruc-

tion to the Government to choose the count it wishes to leave in

effect. The district court then should vacate the convictions on

the remaining count and resentence Heath and Cheng. See

United States v. Saks, 964 F.2d 1514, 1526 (Sth Cir. 1992);

United States v. Moody, 923 F.2d 341, 347-48 (Sth Cir.), cert

denied, 112 S. Ct. 80 (1991).

II. Sufficiency of the Evidence

Convictions must be affirmed if the evidence, viewed in

the light most favorable to the verdict, with all reasonable

inferences and credibility choices made in support of it, is such

that any rational trier of fact could have found the essential

elements of the crime beyond a reasonable doubt. Jackson v.

Virginia, 443 U.S. 307, 319 (1979); United States v. Kim, 884

F.2d 189, 192 (Sth Cir. 1989). In making this determination, we

need not exclude every reasonable hypothesis of innocence.

United States v. Henry, 849 F.2d 1534, 1536 (Sth Cir. 1988).

Juries are free to use their common sense and apply common

knowledge, observation, and experience gained in the ordinary

affairs of life when giving effect to the inferences that may

reasonably be drawn from the evidence. United States v. Cruz-

Valdez, 773 F.2d 1541, 1546-47 (11th Cir. 1985)(en banc), cert

denied, 475 U.S. 1049 (1986).

A. Fraud

Each of the fraud-based charges relies on the twin highrise

apartment tower statement used in the Marshall & Stevens

appraisal. The Defendants contend that the statement was not a

material misrepresentation and, therefore, could not support

their convictions. They suggest that representations that should

have no effect on the party to whom they are made, no matter

how intentional, cannot be material. In other words, because

Marshall & Stevens had a professional duty to independently

investigate the highest and best use of the Florida land, the

owners’ plans for development could not influence the ap-

praisal, and, therefore, are immaterial to the appraisal.

The Government responds that despite the appraisers’ ethi-

cal duty, the twin tower statement was made with the intent to

influence the appraisal and did, in fact, do just that. Implicit in

the highrise description, the Government argues, is a repre-

sentation of density per acre. This particular physical plan, the

Government explains, was the only one that could sustain the

density supporting the valuation, as well as zoning require-

ments, such as parking and green spaces.

A statement is material if it “has a natural tendency to

influence, or was capable of influencing the decision of” the

lending institution. Kungys v. United States, 485 U.S. 759, 770

(1988); Theron v. United States Marshal, 832 F.2d 492, 496-97

(9th Cir. 1987), cert. denied, 486 U.S. 1059 (1988). The high-

ris¢ misrepresentation was necessary to the $11.2 million ap-

praisal which, in turn, was necessary to PRC’s procuring the

loan from Guaranty. We conclude, therefore, that the statement

was material to Guaranty’s decision. Proof that Romero made

the misrepresentations at Heath and Chen g’s bequest, therefore,

was sufficient to support their fraud-based convictions.

B. Individual Transfers

The Defendants argue that their convictions for interstate

transportation of funds obtained by fraud should be reversed

because the Government failed to prove beyond a reasonable

doubt that any individual transfer involved the proceeds of the

illegal deal. The proceeds of the fraudulent transaction were

commingled with over $700,000 of untainted money. Because

none of the transfers named in the indictment exceeded

$700,000, the Defendants contend, none necessarily involved

funds obtained by fraud. In the aggregate, the transfers listed in

the indictment well exceeded $700,000.

In United States v. Poole, 557 F.2d 531 (Sth Cir. 1977), we

reversed a defendant’s conviction for interstate transportation of

funds obtained by fraud because his account contained enough

untainted funds to pay the check in question without using the

funds obtained fraudulently. Id. at 535-36. We noted specifi-

cally, however, that we were not confronted with the issue

present here, that is, the situation in which there are insufficient

untainted funds to cover all the checks in question. Jd. at 536

n.8.

In United States v. Levy, 579 F.2d 1332 (Sth Cir. 1978),

cert. denied, 440 U.S. 920 (1979), we addressed that question,

affirming the defendant’s conviction although he had mingled

legitimately obtained funds with those obtained by fraud. Levy

differs from the instant case, however, in that each check written

exceeded the amount of clean funds. Jd. at 1334, 1337.

The Defendants, focussing on each transfer in isolation,

insist that Poole, not Levy, applies because there were clean

funds sufficient to cover each transfer. To view each transaction

in isolation, however, would defeat the purposes of the statute,

allowing sophisticated criminals “to spirit stolen funds from one

State to another,” Levy, 579 F.2d 1337, so long as each check

written did not exceed the amount of legitimate funds on hand

in the bank account. “[A] criminal statute should be fairly

construed in accordance with the legislative purpose behind its

enactment.” Levy, 579 F.2d at 1337 (citing United States v.

Turley, 352 U.S. 407 (1957)). We thus decline to extend Poole

to the case at hand.

The Government established that Heath and Cheng

deposited $6,053,204.93 of loan proceeds into an account con-

taining $454,518.49 of untainted funds. In that account, the

Defendants placed an additional $332,162.50 of clean funds,

and the bank contributed interest totalling $12,600.56. Thus,

the Government proved that between January 21, 1986 and

February 25, 1986, the account held $6,053,204.93 tainted funds

and $799,281.55 clean funds (counting all of the interest paid

as clean). By February 4, the date of the first transfer cited in

the indictment, the Defendants had reduced the account balance

to $3,988,519. From this amount, they transferred a total of

$2,155,508 to a New York broker. Even assuming that none of

the clean funds were removed before February 4, it is obvious

that the $799,281.55 could not have covered all of the transfers

to New York. At least $1,356,126.45 in tainted funds was

transferred to New York. It defies logic to require that the

Government trace these tainted funds through each transfer.

Such proof is impossible because money is fungible. United

States v. Banco Cafetero Panama, 797 F.2d 1154, 1158 (2d Cir.

1986). The impossibility of such proof, however, does not

render the convictions invalid. We are satisfied that, having

proved beyond a reasonable doubt that the aggregate taken from

the account exceeded the amount of clean funds available, the

Government met its burden.

Moreover, we are unpersuaded by Defendant Cheng’s

contentions that the Government failed to prove that he had

knowledge of the transfers. Viewed in the light most favorable

to the verdict, the evidence established that Cheng oversaw the

financial affairs of PRC and was aware of the stock purchases.

In this light, the evidence permits the inference that he under-

stood how those purchases would be paid for.

il. Trial Errors

A. Prosecutorial Misconduct

During the trial, the Government questioned several wit-

nesses about the use of the Florida property following the sale

to Farris. The Defendants contend that these questions exceeded

the limits imposed by the district court on testimony regarding

the status of the land after the Closing. The Government notes,

however, that the district court limited testimony regarding only

the value of the Florida Property, not all subjects having to do

with it. It argues that its questions were relevant to show the

control exercised over the property by the Defendants and their

continued efforts to develop and sell the property to prove that

the sale to Farris was a sham warehousing transaction.

The trial court specifically restricted testimony regarding

the value of the Property to a six month period Sulrounding

closing. The court, however, declined to adopt a similar rule for

evidence of development, deciding instead to rule on such

evidence on a case-by-case basis. Nonetheless, the court re-

quested that the Government not ask open-ended questions of

the witnesses on that Subject. After careful review of the

Government’s questions, we find no violation of the guidelines

set by the district court.

The Defendants next argue that the prosecutors tainted the

trial by deliberately eliciting inflammatory hearsay statements

10a

from Scott Smith, Vice President and Senior Loan Officer of

Guaranty during redirect examination by the Government.

During Smith’s cross-examination, the Defendants inquired

whether the Florida loan had aroused Smith’s attention in any

way. On redirect, the Government pursued this line of question-

ing, asking whether Smith had reported the loan to any of his

senior officers. Smith testified, “I told Mr. Thompson that there

was some concern being voiced about the loan, that it may be a

sham loan to get money into Pacific Realty.” Defense counsel

immediately objected, and the court retired the jury. When the

jurors returned, they were instructed to ignore the last of Smith’s

statements because it was hearsay.

We disagree with the district court’s description of the

statements. Hearsay “is a statement, other than one made by the

declarant while testifying at trail or hearing, offered to prove the

truth of the matter asserted.” Fed.R.Evid. 801(c). Smith’s

Statement was not offered to show that the loan was a sham, but

to reveal whether the loan had aroused his suspicions and

whether Smith had notified any other bank office about it. It

was not hearsay, and its introduction, therefore, did not con-

Stitute reversible error. Finally, the Defendants complain that

several statements made by the prosecutor in closing argument

were wholly frivolous and prejudicial. Specifically, the Defen-

dants point to several instances when the prosecutor allegedly

vouched for a Government witness. They also refer to the

prosecutor’s remarks about the Defendants’ failure to explain

the twin tower concept. And, last, the Defendants allege that

the prosecutor implied that they should be punished for viola-

tions of civil regulations as well as criminal statutes. We find

none of these arguments persuasive.

The Government’s remarks about Mr. Kuhn’s (sic — should

be Smith’s) testimony merely pointed out that the Defendants’

attacks on his credibility were unsuccessful. The statements do

not rise to the level of vouching, most often described by this

lla

Court as “explicit personal assurances of the witnesses

veracity.” United States v. Binker, 795 F.2d 1218, 1224 (5th

Cir. 1986), cert. denied, 479 U.S. 1085 (1987). The

Government’s references in rebuttal to the Defendants’ failure

to explain the twin tower concept similarly identified holes in

the Defendants’ defense theory, in this instance, by pinpointing

a weakness in their evidence. Finally, a review of the record

does not reveal an attempt by the prosecutor to imply that

violations of civil regulations should lead the jury to punish the

Defendants. Rather, the prosecutor’s unspecific reference to

“Tules and regulation” was made as part of an expansive illustra-

tion of the Defendants’ general disrespect for the law.

B. Evidentiary Rulings.

1. Kuhn Testimony

The trial court limited the testimony of one of the

Defendants’ allegedly key witnesses, Michael Kuhn, a real

estate lawyer, who would have testified about the use of non-

recourse loans to execute real estate deals. The trial court

limited the testimony because Kuhn would be “testifying to his

own experience and impressions,” leaving the Government no

means to question his accuracy. The court further stated that

Kuhn’s testimony on the subject was impermissible because

“there [were] no partial studies, no statistics from which would

give rise to any reliable inferences. No testing the accuracy of

the witness’s opinion.”

Rule 702 of the Federal Rules of Evidence permits one

“qualified as an expert by knowledge, skill, experience, training,

or education” to testify when his “spec: «ized knowledge will

assist the trier of fact to understand the evidence or to determine

a fact issue.” Fed.R.Evid. 702. As a general rule, “questions

relating to the bases and sources of an expert’s opinion affect

the weight to be assigned that opinion rather than the admis-

sibility and should be left for the jury’s consideration.” Viterbo

v. Dow Chem. Co., 826 F.2d 420,422 (Sth Cir. 1987). We find

12a

that in light of these rules, the limitation of Kuhn’s testimony

was in error. Kuhn had specialized knowledge and experience

in the field of real estate closings, which were beyond the

knowledge and skills of the jurors. The absence of scientific

data supporting his opinions went to the weight the jury should

have accorded them. The error, however, was harmless.

Information about non-recourse loans was available from

other witnesses. The limitation of Mr. Kuhn’s testimony, there-

fore, did no so hamper the Defendants’ ability to present their

defense as to mandate reversal of their convictions.

2. Romero Rehabilitation

The Defendants wished to examine Michael Carnes, the

lawyer representing Ben Romero, a key participant in the ap-

praisal scheme. The Defendants proffered Carnes in an attempt

to rehabilitate Romero’s credibility, which the Government had

attacked by introducing prior inconsistent statements made by

Romero before the grand jury following his plea agreement with

the Government. Carnes was to testify about the tactics used by

the Government allegedly to coerce Romero into pleading guil-

ty. The district court, however, correctly excluded Carnes’s

testimony because it was not probative of Romero’s inconsis-

tencies or impeachment.

Rule 613(b) of the Federal Rules of Evidence requires that

a witness be “afforded an opportunity to explain or deny”

inconsistent statements proven by extrinsic evidence. It does

not mandate the examination of corroborating witnesses. To the

contrary, it is within the trial court’s broad discretion to set

reasonable limits on rehabilitative testimony to prevent the trial

from meandering off into collateral matters. Beck v. United

States, 317 F.2d 865, 870 (Sth Cir. 1963), cert. denied, 376 U.S.

972 (1964).

13a

C. Instructions

1. Allen Charge

After the jury deliberated for seven days, it informed the

court that it was deadlocked. The court then read the jury an

Allen charge”, but, over counsel’s objections, omitted from the

charge language that the court believed coercive. In particular,

the district court omitted language encouraging the “majority”

and “minority” to reconsider their Positions. It also failed to

repeat that the jury should not convict unless convinced of the

Defendants guilt beyond a reasonable doubt. The first omission,

the Defendants argue, had a coercive effect on the jury. The

second eliminated an essential] reminder about the

Government’s burden of proof.

We review Allen charges for compliance with two require-

ments: ““‘(1) the semantic deviation from approved Allen char-

ges cannot be so prejudicial as to require reversal, and (2) he

circumstances surrounding the giving of an approved Allen

charge must not be coercive.” United States v. Lindell, 881

F.2d 1313, 1321 (5th Cir. 1989)(quoting United States y. Bot-

tom, 638 F.2d 781, 787 (5th Cir. Unit B Mar. 1981)), cert.

denied, 493 U.S. 1087 and 496 U.S. 926 (1990). The district

court is given broad discretion to determine whether an Allen

charge might coerce a jury. United States v. Reeves, 892 F.2d

1223, 1229 (Sth Cir. 1990).

In light of the complexity of the case, the sophistication of

the bank fraud scheme, and the length of the indictment, the

court did not err in giving the jury an Allen charge rather than

declaring a mistrial. See Lindell, 881 F.2d at 1321. Although

the court deviated from the Fifth Circuit’s suggested Allen

charge, the modification was not so significant as to coerce the

‘ “Allen” refers to Allen v. United States, 164 U.S. 492 ( 1896). The term

describes supplemental instructions urging jurors to forego their differences

and reach a unanimous verdict.

14a

jury to reach its verdict. Although the court did not address the

jurors in terms of majority and minority, it did properly instruct

all of them to reconsider their opinions, but not to “surrender a

conscientiously held conviction merely to reach a verdict.”” The

Defendants’ contention that the jury’s continued deliberation is

proof of the coercive effect of the instruction does not convince

us otherwise. We note, in fact, that the jury’s verdict was a

discriminating one — after further deliberation, the jury

remained deadlocked on two counts and acquitted the other

Defendants of several others.

Nor do we find omission of the reasonable doubt language

to be reversible error. The jury was reminded at least thirty-five

times in the court’s final jury charges that the Government had

to prove the elements of the crimes beyond a reasonable doubt.

It also was informed of this burden of proof during the jury

selection and closing arguments. Additionally, the court

provided the jurors with a written copy of the final charges

during deliberations. In light of these constant reminders of the

Government’s burden, we conclude that the omission of the

reasonable doubt language from the Allen charge does not

require the reversal of the Defendants’ convictions.

2. Literal Truth

The Defendants claim that they were entitled to a charge

instructing the jury that if the appraisal represented the literal

truth, they could not be found guilty of making false entries for

the purpose of 18 U.S.C. § 1006. The underlying foundation of

the Defendants’ argument, however, misconstrues the law.

“The prohibition of false entries by [section 1006] is in broad

and comprehensive terms.” United States v. Meyer, 266 F.2d

747, 754 (Sth Cir.), cert. denied, 361 U.S. 857 (1959). Mr.

Justice Cardozo, in describing 12 U.S.C. § 592, a forerunner of

the modern bank fraud statutes, defined false entries to include

“any entry on the books of the [institution] which is intentionally

made to represent what is not true or does not exist, with the

| an

15a

intent to deceive [the institution’s] officers or to defraud the

association.” United States y. Darby, 289 U.S. 224, 226

(1933)(quoting Agnew v. United States, 165 U.S. 36, 52 (1897)).

The appraisal entered by Cheng and Heath on the Guaranty

books was prepared by professional appraisers and revealed the

false assumptions on which it is based, but its purpose was to

represent to Guaranty that the Florida property was worth $11.2

million because highrise apartment towers would be built on it.

That representation is not true; the plan to build the highrise

towers did not exist at the time the appraisal was entered. The

entry of the appraisal based on knowingly false assumptions

with the intent to defraud Guaranty falls well within the terms

of section 1006. The court, therefore, did not err in rejecting the

“literal truth” instruction proffered by the defense.

3. Good Faith Defense

After lengthy discussions about the Defendants’ request for

an instruction explaining their good faith defense, the court

instructed the jury that “one who acts with honest intent is not

chargeable with intent to defraud.” The Defendants contend

that the word “chargeable” as used in the instruction eliminated

their entire defense, in effect telling the jury that the Defendants

could not have acted in good faith because they in fact had been

“charged” with the offenses.

The Government notes that despite the debate in the trial

court surrounding this instruction, the Defendants did not raise

this point of error. A party may not state one ground when

objecting to an instruction and attempt to rely on a different

ground for the objection on appeal. 9 Charles A. Wright and

Arthur Miller, § 2554 at 647: Palmer v. Hoffman, 318 U.S. 109,

119 (1943). Our review of this claim, therefore, is limited to

plain error.

Although subject to the interpretation now suggested by

the Defendants, it is not obvious to us that the word “chargeable”

16a

in the present context would so confuse the jurors. Inartful as

the court’s choice of words may have been, it does not rise to

the level of plain error.

4. Expansion of the Indictment

The Defendants next object that the court’s instructions

regarding false entry and misapplication of funds permitted the

jury to find them guilty for acts not charged in the indictment.

First, they argue that because the indictment referred to the

Defendants as officers, directors, and shareholders only, the

court erred when it instructed the jury that the Defendants were

responsible for their actions as “officer[s], agent[s], or

employee[s] of or connected in any capacity with” the institu-

tion. The Defendants objected to the instruction in the district

court, but they did not do so on the ground that the instruction

expanded the indictment. Thus, we review for plain error only.

The trial court’s instruction does not amount to plain error.

The court first read the indictment, referring to the Defendants

as officers directors, and shareholders of Guaranty. It then read

the applicable statutes to the jury, both of which apply to

“officer[s], agent[s], or employee[s] of or connected in any

capacity with” the institution. 18 U.S.C. §§ 675 & 1006. Then

the court listed the elements of the offenses, repeating, as the

first element of each, the requirement that the Defendants be

“officer[s], agent[s] or employee[s].”

To the extent that the instructions mandated this finding,

they were unnecessary because the parties had stipulated that

the Defendants were directors of Guaranty. Though super-

fluous, the instructions did not expand the indictment to allow

the jury to convict the Defendants for actions taken in a capacity

other than officer or director.

The Defendants next contest the court’s charge regarding

materiality. They argue that by instructing the jury that entry of

the appraisal was material, rather than that the false highrise

17a

Statement was material, it permitted the jury to convict them

based on any false statement contained on the appraisal, whether

made by them or not. The Defendants properly objected on

these grounds in the district court.

We review a jury instruction to determine whether “‘‘the

court’s charge, as a whole, is a correct Statement of the law and

whether it clearly instructs jurors as to the principles of law

applicable to the factual issues confronting them.”” United

States v. Stacey, 896 F.2d 75, 77 (5th Cir. 1990)(quoting United

States v. August, 835 F. 2d 76,77 (Sth Cir. 1987)). “A trial judge

is given substantial latitude in tailoring the instructions so long

as they fairly and adequately cover the issues presented.”

United States v. Pool, 660 F.2d 547, 558 (5th Cir. Unit B Nov.

1981).

The court’s instruction on false entries properly advised the

jury of the charges pending against the Defendants and the

elements of those crimes. The potential for confusion arising

from the court’s reference to materiality does not negate this

finding. The court specifically instructed that the indictment

charged only the highrise statement to Defendants. S.R. 33, p.

55. We are satisfied, therefore, that as a whole, the instruction

fairly and adequately informed the jury of the pertinent issues.

5. Clean Funds

The Defendants finally claim that they were entitled to a

charge that if there were untainted funds in their account suffi-

cient to cover each of the alleged interstate transfers, then the

jury should find the Defendants not guilty of interstate transfer

of funds obtained by fraud. As the discussion above explains,

supra II. B., this requested instruction does not accurately reflect

the law.

18a

CONCLUSION

Because counts 2 and 3 of the Defendants’ indictments are

multiplicitous, we REMAND the case for dismissal of one count

and resentencing. The remaining convictions are AFFIRMED.

REMANDED WITH INSTRUCTIONS AND AF-

FIRMED IN PART.

19a

APPENDIX B

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 91-1112

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

SIMON EDWARD HEATH and

PAUL SAU-KI HENG,

Defendants -Appellants.

Appeals from the United States District Court for the

Northern District of Texas

ON PETITION FOR REHEARING AND SUGGESTION

FOR REHEARING EN BANC

(Opinion 08-20-92, 5 Cir., 1992, F.2d )

(September 29, 1992)

Before HIGGINBOTHAM and DUHE, Circuit Judges and

HUNTER‘, District Judge.

*Senior District Judge of the Westem District of Louisiana,

sitting by designation.

PER CURIAM:

(x) The petition for Rehearing is DENIED and no member

of this panel nor Judge in regular active service on the Court

having requested that the Court be polled on rehearing en banc,

(Federal Rules of Appellate Procedure and Local Rule 35) the

Suggestion for Rehearing En Banc is DENIED.

() The Petition for Rehearing is DENIED and the Court

having been polled at the request of one of the members of the

20a

Court and a majority of the Circuit Judges who are in regular

active service not having voted in favor of it, (Federal Rules of

Appellate Procedure and Local Rule 35) the Suggestion for

Rehearing En Banc is also DENIED.

( ) A member of the Court in active service having

requested a poll on the reconsideration of this cause en banc,

and majority of the judges in active service not having voted in

favor of it, rehearing en banc is DENIED.

ENTERED FOR THE COURT:

[John M. Duhe, Jr.]

United States Circuit Judge

2la

APPENDIX C

UNITED STATES OF AMERICA,

Plaintiff-Appellee

Simon Edward HEATH and Paul Sau-Ki CHENG,

Defendants-Appellants.

ON PETITION FOR REHEARING AND

SUGGESTION FOR REHEARING EN BANC

(Opinion Aug. 20,1992, 5 Cir., 1992, 970 F.2d 1397)

Before HIGGINBOTHAM and DUHE, Circuit Judges and

HUNTER, District Judge.!

DUHE, Circuit Judge:

Sua sponte we enter this supplemental order on Defen-

dants-Appellants’ argument that the trial court constructively

amended the indictment. Defendants contend that the decision

of this panel is in conflict with United States v. Salinas, 601 F.2d

1279 (Sth Cir. 1979). We disagree. Assuming without deciding

that it was error for the district court to refer in jury charges to

“officers, agents or employees” when the indictment charged

Defendants as “officers, directors and shareholders,” we never-

theless deny rehearing for the following reasons.

First, Defendants did not object in the trial court to the jury

charge on this ground. Therefore, contrary to Salinas where this

specific objection was made, we review for plain error only. The

Salinas court was not restricted to the plain error standard. An

error in a charge is plain when, considering the evidence and the

charge as a whole, “there is a likelihood of a grave miscarriage

of justice.” U.S. v. Sellers, 926 F.2d 410, 417 (Sth Cir. 1991).

A miscarriage of justice is unlikely here, because Defendants

Senior District Judge of the Western District of Louisiana, sitting by

designation.

22a

stipulated that they were directors of the bank. The court

informed the jury. about that stipulation as part of the charge.

No such stipulation in Salinas definitively established the

defendants’ relationship to the bank. While it was possible in

Salinas for defendants to have been convicted in the wrong

capacity, that could not happen here due to the stipulation.

Second, the Salinas panel found a trial court violation of

Rule 30 of the Federal Rules of Criminal Procedure which was

closely connected to the capacity issue. We have no Rule 30

violation in this case.

Finally, Salinas predates the Supreme Court’s 1986

decision that error in an instruction on an essential element of

an offense can be harmless. Rose v. Clark, 478 U.S. 570, 106

S.Ct. 3101, 92 L.Ed.2d 460 (1986); see also Carella v. Califor-

nia, 491 U.S. 263, 266-68, 109 S.Ct. 2419, 2421, 105 L.Ed.2d

218 (1989); Pope v. Illinois, 481 U.S. 497, 503 n.7, 107 S.Ct.

1918, 1922, 95 L.Ed.2d 439 (1987). In view of the stipulation

that Defendants were directors of the bank, any error would be

harmless.

Rehearing has therefore been DENIED. No Judge in

regular active service having requested that the Court be polled

on rehearing en banc, the Suggestion for Rehearing En Banc has

been DENIED.

[November 19, 1992]

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