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United States v. White

United States Court of Appeals, Seventh Circuit

December 13, 2013

United States of America, Plaintiff-Appellee,
Charles White, Norton Helton, and Felicia Ford, Defendants-Appellants.

Argued September 20, 2013

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 06 CR 763 — Samuel Der-Yeghiayan, Judge.

Before Wood, Chief Judge, and Flaum and Bauer, Circuit Judges.

Flaum, Circuit Judge.

Charles White, Felicia Ford, and Norton Helton were three players in a major mortgage fraud scheme. Charles White was the scheme's mastermind and principal. Through fraudulent mortgage loan applications, he obtained financing for straw purchasers to buy properties from homeowners on the brink of foreclosure. Unbeknownst to the owners, White's goal was not to save their homes, but instead to strip the properties of their equity for his own gain. Felicia Ford was the closing agent. Though she was supposed to act as the lender's representative in the transactions, she instead fabricated official documents to facilitate White's scheme. Norton Helton was the attorney. At White's behest, Helton "represented" the homeowners during the closings—that is, he falsely assured clients that everything was in order while pocketing legal fees paid out of the equity proceeds. Helton also orchestrated the scheme's cover-up by representing the homeowners in their subsequent bankruptcy filings. All three players were convicted of multiple counts of wire fraud for their participation in the scheme; Helton was also convicted of bankruptcy fraud. The three defendants now appeal a multitude of substantive and procedural issues stemming from their trial and, in White's case, his sentence. We affirm on all issues.

I. Background

Defendant White owned and operated Eyes Have Not Seen ("EHNS"), a company that offered a "mortgage bailout" program to insolvent homeowners in the Chicago area.[1] EHNS told these homeowners that they could stave off foreclosure by transferring their homes to EHNS "investors" for a one-year period. EHNS represented that the investors would pay the property's mortgage; the owners could then continue to live in their home, take the year to improve their financial health, and reassume their mortgage obligation at the program's conclusion. In reality, however, EHNS investors would take title to the home outright. White would pressure EHNS's appraisers to assess the properties at amounts higher than their actual value. Then, EHNS would strip both the available and manufactured equity from the property in the form of transaction fees. The clients almost always were unable to buy back their homes at the conclusion of the one-year program. Eventually, lenders foreclosed on many of the properties.

EHNS advertised on gospel radio stations and solicited clients through public foreclosure lists. Many clients testified that they did not fully understand the transactions they were participating in. White and EHNS employees often did not explain that the homeowners would actually sell their properties to a third party. Instead, clients were told that they would be temporarily "transferring" their homes in a way that would preserve their ownership rights, or that they would co-own the property with the investor.

White and EHNS employees recruited the investors—i.e., the straw purchasers—by paying them an amount per transaction. Sometimes, they used a client's family member instead. White was responsible for obtaining the requisite mortgage financing for the property's purchase. He accomplished this by submitting fraudulent loan applications to lenders. White's common tactics included lying about the investor's employment history (usually by stating that the investor was employed by EHNS or another of White's companies), inflating the investor's assets, and including incorrect bank account information. White also falsely represented to the lenders that the investors planned to live in the property. To conceal his role in these applications, White would prepare and submit applications under several different aliases.

Once the lenders gave the loans preliminary approval, they wired the loan funds to an escrow account at Title Zone, L.L.C. White had helped create Title Zone, and the company's Chicago branch shared an office suite with EHNS. Defendant Ford was a closing agent at Title Zone who had been hired on White's recommendation. Ford performed many of EHNS's transactions. As a closer, Ford served as a representative for the mortgage lender. Ford was supposed to follow the lender's closing instructions, ensure that all of the lender's conditions were met, and submit the required documents to the lender for approval. Only then would the lender authorize release of the loan funds from the escrow account, which Ford could then distribute to the parties.

Ford used her position to contribute to the scheme's success in several ways. For one, Ford (or her assistant) would prepare two versions of the required HUD-1 settlement statements: a version to be submitted to the lenders, and a version for the transacting parties. The version for the homeowners and investors would contain true information about the amount of EHNS's fees. The version that Ford submitted to the lenders, however, omitted these fees. In addition, Ford would accept a cashier's check for the mortgage's down payment from White—despite her knowledge that White was not the purchaser. Ford would nonetheless represent to the lender that the investor had been the one to provide the funds. And in some transactions, Ford would arrange for EHNS to receive the loan proceeds before White made the down payment. Ford (or her assistant) would create what looked like a photocopied image of the investor's down-payment check by cutting and pasting the information for the current transaction onto an image of a cashier's check from a previous transaction. Ford would fax the fabricated check image to the lender to get the bank to release the loan funds, but she would delay sending the actual check. This allowed White to subsequently draw upon the loan funds to cover the down payment. For her services, Ford received kickbacks from White and EHNS in the form of "bonuses" and other payments.

Then there was defendant Helton. EHNS clients were told that Helton, a real estate attorney, would be present at the transaction's closing to represent them. Usually the clients would not meet Helton before the day of the closing. When clients asked questions, Helton described the mortgage bailout program in the same terms as EHNS—that is, he did not tell the homeowners that they were selling their home outright. He would also assure hesitant clients and investors of the paperwork's accuracy, and on at least one occasion he discouraged a homeowner from reading the documents herself.

Clients were told that EHNS would use the loan proceeds to pay their mortgage for a year. EHNS usually fulfilled this promise, but White withdrew more equity from the sale than was necessary to cover the mortgage and EHNS's costs. In fact, EHNS usually took all of the available equity in the form of large fees—for EHNS, for White's loan officer commissions, and for Helton's legal services. The clients were often unaware that EHNS was taking these fees.

Next came the bankruptcy filings. White and EHNS employees told clients that they needed to improve their credit so that they could reassume their mortgages at the program's conclusion. They referred clients to Helton, who told them that they could restore their financial health by filing for Chapter 7 bankruptcy; sometimes he pressured them to do so. During his clients' bankruptcy proceedings, Helton took steps to prevent the trustee, their creditors, and the court from discovering that the debtors had recently sold their homes through the bailout program. When Helton and his staff filed petitions and asset schedules on behalf of clients, they omitted any reference to the EHNS sales or the properties in question—even when Helton had been personally present at the property's sale. Helton also coached his clients before their § 341 meetings of the creditors to tell the trustee that the client had never owned real estate, or else to say that the client lost the property in foreclosure. When his clients followed his instructions and lied, Helton did not correct the false representation. When one client told the trustee the truth about having recently owned property, Helton became angry with her. And when a trustee did learn of a debtor's recent EHNS transaction, Helton lied and said that he was personally unfamiliar with the program.

Helton also carried out a side scheme using his own "mortgage bailout" company, Diamond Management. Helton employed virtually the same tactics as White and EHNS: he recruited straw purchasers, he provided the down payment checks himself, he used Ford and Title Zone's services at the closings, and he encouraged his clients to file for Chapter 7 bankruptcy afterward.[2]

Eventually, the authorities caught on, and Helton was charged with bankruptcy fraud. This led to the unraveling of the whole EHNS scheme. The federal grand jury returned a fourth superseding indictment in March 2010 charging White, Ford, and Helton with multiple counts of wire fraud in violation of 18 U.S.C. § 1343, and Helton with multiple counts of bankruptcy fraud in violation of 18 U.S.C. § 157.

The three defendants went to trial that year. (We will relay additional background regarding the events at trial in our discussion of each claim of error.) White was convicted of seven counts of wire fraud. Ford was convicted of five counts of wire fraud and acquitted on two counts. Helton was convicted of three counts of wire fraud and eight counts of bankruptcy fraud. Helton and Ford filed motions for acquittal, and all three defendants moved for a new trial. The district court denied all motions, and sentenced White to 266 months imprisonment, Helton to 180 months, and Ford to 48 months.

This appeal followed.

II. Discussion

Once we pool the three defendants' arguments, they have offered nearly a dozen distinct grounds for reversal.[3]So we have a lot of ground to cover. We will first dispose of Ford and Helton's sufficiency arguments, and then proceed with all three defendants' claims of error in roughly the order in which the issues arose during trial and sentencing.

A. Sufficiency of the evidence against Ford

First, Ford challenges her wire fraud conviction. We review the district court's denial of Ford's motion for acquittal de novo. United States v. Boender, 649 F.3d 650, 654 (7th Cir. 2011). Nonetheless, in considering sufficiency-of-theevidence challenges, we "view the evidence in the light most favorable to the prosecution, " and then "ask whether any rational trier of fact could have found the essential elements of a crime beyond a reasonable doubt." Id. Here, we answer that question in the affirmative.

Ford contests her conviction on the theory that the fraudulent transactions were always completed before she became involved. She argues that the relevant wire transmissions—i.e., the transfers of the loan funds from the mortgage lender to the escrow account at Title Zone—always occurred before the closings. At the time of the closing, she maintains, the lender had already approved the loan on the basis of White's fraudulent mortgage application. Thus, once the wire transfers took place, the scheme was complete; Ford says her contributions during the closings consisted of entirely separate conduct dealing only with the scheme's "proceeds."

But Ford's understanding of wire fraud is mistaken. To establish a violation of 18 U.S.C. § 1343, the government must prove that Ford participated in a scheme to defraud, that she intended to defraud, and that an interstate wire was used in furtherance of the scheme that she participated in. See United States v. Powell, 576 F.3d 482, 490 (7th Cir. 2009). There is no requirement that Ford personally cause the use of the wire. United States v. Turner, 551 F.3d 657, 666 (7th Cir. 2008). Rather, the third element of wire fraud is met if the use of a wire "will follow in the ordinary course of business, or where such use can reasonably be foreseen, even though not actually intended." Id. (quoting Pereira v. United States, 347 U.S. 1, 8–9 (1954)). The jury could easily conclude that Ford, an experienced closing agent for a title company, would be aware that wire transfers would routinely take place in a scheme involving loaned funds. Cf. United States v. Sheneman, 682 F.3d 623, 630 (7th Cir. 2012) (finding it "well within reason for the jury to conclude that [the defendant], given his involvement in the real estate market, could reasonably foresee that lending banks would use wire transfers to transmit loan proceeds in the course of real estate transactions").

Moreover, the timing of the wire transfer does not determine the scheme's end-point. The transfer is merely a jurisdictional prerequisite for the federal statute's application. For that reason, the transfer need not be the scheme's objective; it need only be "a step in [the] plot." Schmuck v. United States, 489 U.S. 705, 710–11 (1989) (alteration in original).[4]Here, the transfer of the loan funds from the mortgage lender to Title Zone was just an intermediate step—the EHNS scheme was not complete until the defendants had the proceeds in their pockets. For this to happen, EHNS needed Ford to act as the closing agent and submit the proper (or rather, improper) documentation to the lender. Only once the lender was satisfied that everything was in order would it authorize the release of the funds from the escrow account, and only then could White and Helton enjoy the equity payouts that Ford distributed to them. Ford's contributions during the closings—her drafting the false HUD-1 settlement statements, her failure to tell the lenders that the buyer was not the one providing the down payment, and her fabricating the cut-and-pasted cashier's checks—were integral to the scheme's success. The fact that these contributions happened to take place after the wire transfer is immaterial to her culpability.

The government established that Ford was an integral participant in a scheme to defraud in which the use of a wire was foreseeable. Accordingly, her challenge to the sufficiency of the evidence fails.

B. Sufficiency of the evidence against Helton

1. Wire fraud

Helton challenges his wire fraud convictions on the theory that there was insufficient evidence supporting his intent to defraud. "Intent to defraud requires a wilful act by the defendant with the specific intent to deceive or cheat, usually for the purpose of getting financial gain for one's self or causing financial loss to another." United States v. Britton, 289 F.3d 976, 981 (7th Cir. 2002). This may be established "by circumstantial evidence and by inferences drawn from ...

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