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United States v. Thyfault

August 26, 2009

UNITED STATES OF AMERICA, PLAINTIFF-APPELLANT,
v.
MICHEL THYFAULT, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 03 CR 779-James B. Moran, Judge.

The opinion of the court was delivered by: Bauer, Circuit Judge.

ARGUED OCTOBER 20, 2008

Before BAUER, KANNE and WILLIAMS, Circuit Judges.

On November 4, 2004, a multi-count superceding indictment charged Michael Thyfault and other individuals with multiple mail fraud and tax evasion offenses. The indictment accused the defendants of being the prime movers in a major scheme to defraud Intercounty Title Company of Illinois ("Inter-county") and related entities. The scheme involved theft and mismanagement of Intercounty's escrow funds over a ten-year period, during which time Intercounty's deficits were covered by thefts from its escrow account. Thyfault was charged with one count of conspiracy to commit mail fraud and four counts of mail fraud. The jury acquitted Thyfault on the conspiracy count, but was unable to reach a verdict on the mail fraud counts. The government then sought to retry Thyfault on the mail fraud counts; Thyfault moved to dismiss the charges on the basis of issue preclusion, arguing that his conspiracy acquittal precluded the government from attempting to prove his intent to defraud, an element of the mail fraud charges. The district court agreed and granted the motion. The government brings this appeal, contending that the district court erred in granting Thyfault's motion because a rational jury could well have found that Thyfault intended to violate the law, but not in agreement with others as charged in the conspiracy. We reverse.

I. BACKGROUND

Jack Hargrove and Laurence Capriotti were co-owners of Intercounty, a Chicago-based title insurance and escrow agent. The company sold title insurance policies issued by Stewart Title Guaranty Company. Thyfault, a certified public accountant, was hired as Intercounty's chief financial officer in 1989, a capacity in which he served until 1995.

By the late 1980s, Intercounty was running an annual deficit in the millions as the result of a price war in the title insurance market. To cover its losses, Intercounty invested in junk bonds in the hopes that the bond yield would outperform their real estate obligations. The plan backfired, and Intercounty got itself into a hole from which it never recovered.

From about 1990 onward, Intercounty's deficits were offset by thefts from the escrow account. During that time, company management engineered numerous fraudulent schemes that ultimately robbed the company of more than $60 million. Under one such scheme, Capriotti and Hargrove purchased certificate of deposits ("CDs") with escrow funds which were then used to secure loans. When the loans came due, Capriotti and Hargrove cashed out the escrow-funded CDs and paid off the loans. Thyfault directed the transfer of escrow funds to purchase at least two CDs. According to Thyfault, he was skeptical of the practice of buying CDs with escrow money and did not understand how it benefitted the company.

The misuse of the escrow funds did not stop there. Another large overdraft related to an escrow file associated with a golf course community that Capriotti and Hargrove built known as Ruffled Feathers. In 1992, Capriotti, Hargrove and Thyfault were among those who met to discuss the negative balance in the Ruffled Feathers escrow file. During that meeting, Thyfault had with him a printout showing the negative balance, which was approximately $5 million at the time. Capriotti discussed a plan to falsify records of the deficit in a report that would be circulated to other mangers at Intercounty. According to Thyfault, he did not contribute to the conversation about what was to be done or participate in the alteration of the records.

Intercounty's escrow account was also depleted by the direct transfer of escrow money into the operating account. James Wallin, Intercounty's treasurer, carried out the transfers at Capriotti's direction. At a civil deposition, Thyfault acknowledged knowing that transfers had been made from the escrow account to the operating account.

One reason Capriotti and Hargrove's thefts escaped detection was a large float in the escrow account that could be as high as $20 or $30 million on any given day. Another reason was a bogus escrow agreement Capriotti and Hargrove cooked up with Independent Trust Corporation ("Intrust"), a company specializing in land trusts and self-directed IRAs. Under the deal, Intrust transferred trust holders' cash investments to Intercounty's escrow account. Intercounty was to invest the Intrust money in government obligations and then pay out the resulting interest to Intrust for the benefit of its trust holders. Intrust was, not coincidentally, owned by Hargrove. Thyfault's responsibility was to play the role of scorekeeper, monitoring the transfer of funds back and forth between Intrust and Intercounty and calculating the interest and fees. These scores were kept on a spreadsheet, a copy of which Thyfault provided to Intrust each month. However, the spreadsheets reflected false information. Although the accounting showed interest payments being made to the escrow file set up for Intrust's deposits, no such deposits were made after January 1994 because Intercounty lacked the funds to honor them. According to Thyfault, he had reservations about this practice, but did not believe it was illegal since it had been authorized by the appropriate parties; he did not raise his concerns with Capriotti.

In November 1996, Capriotti fired Thyfault. Thyfault was provided with a severance package that paid him his full salary for six months and a percentage of his salary for an additional eighteen months. According to Intercounty's comptroller, George Stimac, Capriotti gave Thyfault the severance package to "keep him quiet" because he was the "weak link" in the Intercounty hierarchy. After Thyfault's firing, the fraud continued for several more years. During that time, Capriotti and Hargrove continued to transfer funds from Intrust to Intercounty and from Intercounty's escrow account to its operating account. By the late 1990s, however, the various schemes unraveled and both Intercounty and Intrust collapsed.

Thyfault was charged with four counts of scheming to defraud through the U.S. mail, in violation of 18 U.S.C. § 1341, and one count of conspiring to participate in the fraud scheme, in violation of 18 U.S.C. § 371. Thyfault and Hargrove were jointly tried before a jury, while the other defendants involved in the fraudulent scheme entered into plea agreements with the government.

Thyfault did not dispute that the charged scheme existed or that large amounts of money were stolen, but argued that the scheme was perpetrated by Capriotti and others without his knowing participation. Thyfault's counsel acknowledged that Thyfault may have been ...


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