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United States v. Feldman

decided: July 15, 1987.


Appeals from the United States District Court for the Northern District of Illinois, Eastern Division, No. 81 CR 747, Ann C. Williams, Judge.

Cummings, Cudahy and Easterbrook, Circuit Judges.

Author: Cudahy

CUDAHY, Circuit Judge.

The defendants, Richard Feldman and Richard Martenson, appeal their convictions and sentences for mail fraud, wire fraud and racketeering. The defendants were involved with a company known as First Guaranty Metals ("FGM"); FGM was a Florida corporation established in 1978 that was engaged primarily in the retail sale of leveraged futures contracts in precious metals, including gold, silver and platinum. Feldman was one of FGM's owners. Martenson's exact role in the company is unclear; at various points in the record he is described as a partner, trader and consultant.

FGM dealt with investors across the nation from its offices in Boston and Miami. Its customers invested in precious metals, primarily through the purchase of twenty-five year contracts. The customer was required to pay ten percent of the value of the precious metals represented by the contract, hence the term "leveraged" contract. The customers were told by FGM salesmen that they could obtain delivery of the metals at any time during the life of the contract by payment of the balance of their contract price plus interest. They were also told that they could sell their contracts back to FGM at any time, thereby permitting them to speculate in the shifts in the market price of the metals. Investors could resell their contracts only to FGM. Alternatively, customers could choose to be paid any increase in the market value of the metals purchased under the contract, or they could reinvest their profits in additional contracts. FGM's contracts obligated investors to pay interest on the unpaid balance of any purchase and to meet any margin call by FGM within two days of the call.*fn1 FGM charged a commission of one-and-one-half percent at the time of purchase and at the time of sale.

FGM's financial position began to deteriorate in July 1979; it eventually declared bankruptcy in early 1980. The immediate cause of FGM's problems was the volatility of the precious metals market during this period combined with some bad business decisions. Whether these decisions were also fraudulent is the heart of this case. The price of precious metals fluctuated dramatically between July 1979 and January 1980, and in July 1979 FGM began to retreat from its policy of fully "hedging" customer orders.*fn2 When investors attempted to sell their contracts back to FGM, the company began to impose increasingly greater "spreads" between the price at which a customer could buy and sell the same commodity on a given day. FGM thus would be selling metals at a much higher price than it would purchase them from its customers, and its purchase price was significantly below the market price. During this period, FGM also put out margin calls to its customers, purportedly to cover its own losses in the market. On January 30, 1980, the FBI searched FGM's Miami office, seized all of the company's business documents and shut FGM down.

Feldman and Martenson were subsequently indicted for mail fraud, 18 U.S.C. § 1341, wire fraud, 18 U.S.C. § 1343, fraudulent bullion transactions, 7 U.S.C. §§ 13(b), 23(b) and conducting an enterprise through a pattern of racketeering activity, 18 U.S.C. § 1962(c); the indictment also requested forfeiture of property allegedly acquired by the defendants through a pattern of racketeering activity, 18 U.S.C. § 1963(a). The government claimed that the defendants made various misrepresentations in furtherance of a scheme to defraud approximately 1,100 FGM customers of over $11,000,000. Among these misrepresentations were the claims that FGM was fully hedging its customers' contracts, that FGM's prices were closely related to market prices and that it was as easy for a customer to sell his or her investment as it was to buy. The defendants claimed that they never intended to defraud the investors; they simply got caught in a period of wild fluctuations in the precious metals market. The district court entered acquittals on the bullion transactions counts, and the defendants were convicted by a jury on the remaining counts.

This court reversed the defendants' convictions on appeal because the district court had erred in admitting certain evidence and because the Speedy Trial Act had been violated. United States v. Feldman, 761 F.2d 380 (7th Cir. 1985). The case was remanded for a new trial. The defendants were retried on the wire fraud, mail fraud and racketeering counts. The jury convicted on all counts. Feldman and Martenson now appeal.*fn3 The defendants challenge the admissibility of certain evidence and the sufficiency of the evidence. They also argue that their sentences were impermissibly enhanced after their second conviction. We affirm.


The defendants challenge the admission of testimony by a number of investors allegedly defrauded by FGM. The investors testified to statements made to them by FGM salesmen concerning the nature of FGM's business, the terms and conditions of buying and selling and the salesmen's advice respecting their investments. At trial, the defendants objected to these statements as inadmissible hearsay.*fn4 The district court permitted the introduction of this testimony on two grounds: (1) the testimony was offered as a verbal act and not for the truth of the matters asserted and therefore was not hearsay, Fed. R. Evid. 801(c)*fn5; and (2) the statements were admissible as statements of the defendants' agents and therefore were not hearsay, id. 801(d)(2)(D).*fn6 Tr. at 51-52.*fn7

The defendants claim that the court erred in admitting some of the conversations between investors and FGM salesmen under Rule 801(d)(2)(D) because: (1) the salesmen were not authorized to make some of the representations that were repeated by the investors in court; (2) some of the statements were made by salesmen from the Boston office, and the defendants were not shown to be in an agency relationship with those salesmen; and (3) some of the conversations about which the investors testified took place after Martenson left FGM.

The defendants' objection to the admission of these conversations apparently is based solely on a hearsay objection and is directed only towards their admissibility under Rule 801(d)(2)(D). One need not even reach the question whether these statements fall within Rule 801(d)(2)(D), however, to dispose of the hearsay objection. The statements testified to by the investors were not hearsay because they were not "offered in evidence to prove the truth of the matter asserted." Fed. R. Evid. 801(c). The government offered the conversations between the investors and FGM salesmen to establish the existence of a scheme to operate FGM in a certain manner. Far from offering the statements for their truth, the government sought to show their falsity through independent evidence. See United States v. Gibson, 690 F.2d 697, 700 (9th Cir. 1982) ("investors' testimony was offered to prove the existence of a scheme; the statements were not offered for their truthfulness") (emphasis in original), cert. denied, 460 U.S. 1046, 103 S. Ct. 1446, 75 L. Ed. 2d 801 (1983); United States v. Toney, 605 F.2d 200, 207 (5th Cir. 1979), cert. denied, 444 U.S. 1090, 100 S. Ct. 1055, 62 L. Ed. 2d 779 (1980); United States v. Krohn, 573 F.2d 1382, 1386 (10th Cir.), cert. denied, 436 U.S. 949, 98 S. Ct. 2857, 56 L. Ed. 2d 792 (1978).

Although hearsay is not a viable objection to the admissibility of the salesmen's statements, a separate issue is whether these statements are admissible against Feldman and Martenson to establish their participation in and intent regarding the scheme to defraud FGM's investors. This question presents the issue of accountability: Can the statements made by the salesmen be attributed to Feldman and Martenson? A number of cases have addressed the question whether misrepresentations made by salesmen can be introduced against corporate officers charged with participating in a fraudulent scheme. These cases have analyzed the admissibility of such statements under the doctrine of agency. See, e.g., Gibson, 690 F.2d at 701; Krohn, 573 F.2d at 1386-87; United States v. AMREP Corp., 560 F.2d 539, 545 (2d Cir. 1977), cert. denied, 434 U.S. 1015, 54 L. Ed. 2d 759, 98 S. Ct. 731 (1978). As framed in these cases, the question is whether the officers authorized, either impliedly or expressly, the making of the statements. "The authorization by the defendant of such statements by a salesman may be found in the circumstances of the particular case, in the scope of the plan or scheme, or from other pertinent facts." Krohn, 573 F.2d at 1386 (citations omitted). The defendants' objections are relevant to this inquiry, and we consider each in turn.

The defendants' first objection is that certain statements made by salesmen to FGM investors were not shown to have been made within the scope of the agency relationship. These statements related to refusals to execute sales orders or to delays in executing such orders, quotations of resale prices that were significantly below the market rate, representations regarding the location of FGM's inventory of precious metals, ...

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