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United States v. Webb

United States District Court, N.D. Illinois, Eastern Division

December 21, 2016

UNITED STATES OF AMERICA, Plaintiff,
v.
GREGORY WEBB, Defendant.

          MEMORANDUM OPINION AND ORDER

          Virginia M. Kendall United States District Court Judge

         On February 27, 2014, a federal grand jury indicted Gregory Webb on eleven counts of wire and mail fraud alleging that he committed fraud by luring investors into his company, InfrAegis, which was in the business of placing security devices in cities in order to protect citizens from radiological, biological, and chemical threats, as well as by using facial recognition software to aid in identifying offenders. Webb, as the CEO and president of InfrAegis, intentionally devised and participated in a scheme to bilk investors by marketing a product called the iaMedium that Webb promised would make city streets safer. At trial, the jury heard evidence that the technology Webb was selling did not exist in the form that Webb claimed it did and more importantly, that InfrAegis had not sold any of the devices to municipalities in spite of Webb's statements that he had contracted with numerous cities. InfrAegis had no capital, no legitimate promises of future capital to fund the development and implementation of the iaMedium and no contracts to place the devices on the street. By 2007, Webb knew that his aim to create a multi-billion dollar company was not possible and yet he knowingly made false representations about InfrAegis's impending deals and contracts in order to lure investors.

         Upon the close of its case in chief, the Government voluntarily dismissed counts six and eight against Webb. On July 11, 2016, the jury returned a guilty verdict on the remaining nine counts. Webb now moves for a judgment of acquittal under Fed. R. Crim. P. 29(a) and (c), arguing that the evidence was insufficient to convict him. Alternatively, he requests a new trial under Fed. R. Crim. P. 33. Webb argues that four issues, when taken together, require a new trial: (1) the jury heard prejudicial evidence; (2) Webb could not cure the prejudice; (3) the Court rushed the jury to reach a verdict; and (4) that the Government's evidence lacked foundation. (Dkt. 103 at pp. 2; 4). The Court denies Webb's motions, and holds that the jury had sufficient evidence to support a judgment of guilt, and that the Court did not commit any error.

         I. Webb is Not Entitled to Judgment of Acquittal

         Webb asserts that he is entitled to judgment of acquittal because the evidence was insufficient to support a guilty finding of a willful presence of a scheme to defraud. (Dkt. No. 104 at ¶¶ 4, 5). Webb faces “a nearly insurmountable hurdle” in claiming that the jury had insufficient evidence to conclude that he was guilty of the charges. See e.g. United States v. Domnenko, 763 F.3d 768, 772 (7th Cir. 2014) (citing United States v. Torres-Chavez, 744 F.3d 988, 993 (7th Cir. 2014)). Once a defendant is convicted, the Court reviews the evidence presented to the jury in the light most favorable to the Government and makes all reasonable inferences in the Government's favor. See United States v. Cejas, 761 F.3d 717, 726 (7th Cir. 2014) (citing United States v. Larkins, 83 F.3d 162, 165 (7th Cir. 1996)). The Court may overturn the jury's guilty verdict only if upon viewing the evidence in the light most favorable to the Government, “the record is devoid of evidence from which a reasonable jury could find guilt beyond a reasonable doubt.” United States v. Jones, 713 F.3d 336, 340 (7th Cir. 2013) (quoting United States v. Stevenson, 680 F.3d 854, 855-56 (7th Cir. 2012)). Finally, “[i]t is up to the jury to weigh the evidence and determine the credibility of the witnesses; [courts do] no second-guess the jury's assessment of the evidence.” United States v. Rollins, 544 F.3d 820, 835 (7th Cir. 2008).

         Webb argues that the government failed to offer anything beyond insufficient circumstantial evidence “equally consistent with a theory of innocence” that he engaged in a scheme to defraud. (Dkt. 104 at ¶ 6). Webb is incorrect in his conclusion that only circumstantial evidence was presented to the jury. In fact, numerous investors testified that Webb himself caused them to invest, that they in fact invested, and that they lost their investments. The Government corroborated much of this testimony with tape recordings of Webb himself as he boldly and without abandon rattled on for hours making false claim upon false claim about the contracts and the status of the devices in various cities. The city officials then corroborated that each statement was false in that the devices were not on the streets nor were there contracts to put them on the streets. All of this is direct evidence. At trial, the jury heard evidence that (1) InfrAegis ran out of capital and had no legitimate promise of future capital long before the investors put money into the company; (2) Webb himself made misrepresentations about the status of the company's capital and contracts; (3) the technology in the devices may have existed in separate forms in separate ways but never had existed in one composite device that could be placed on a city street; and (4) that Webb used the mails or interstate wire communication to further his scheme. Taking this evidence together, the jury found a scheme to defraud existed and that Webb directly made material representations, promises, and pretenses, and used the mails or wire communication to execute that scheme. See United States v. Weimert, 819 F.3d 351, 355 (7th Cir. 2016) (outlining the elements of mail and wire fraud). The evidence was direct and not circumstantial and the jury correctly held that the overwhelming volume of the evidence including the Webb's own words heard on tape were sufficient beyond a reasonable doubt to convict.

         A. InfrAegis ran out of capital.

         Webb concedes that his company had insufficient capital and yet attempts to use this fact to his advantage to explain why deals fell through. Although the lack of funding was the defense theory as to why deals were not completed, the direct testimony at trial instead stated otherwise including that the technology could not do what Webb said it could do. More importantly, even if it were true that deals were hampered with the municipalities due to lack of funding, Webb repeatedly misled his investors by telling them that deals were complete, technology had been ordered and devices were being used in multiple locations. The jury reasonably construed the depleted capital as evidence of Webb's scheme to defraud and his motivation to bolster the alleged deals. Financial records introduced at trial reflected that InfrAegis had only $38, 000 in cash as of January 2007 and therefore each statement was a misrepresentation about the strength and liquidity of the company. (Government Ex. Chart 4). The Government also presented evidence that Webb did not have legitimate sources of future capital. InfrAegis's lack of capital, in it of itself, is not what constitutes the fraud. The fraud occurred when Webb made representations to investors about the status of negotiations and contracts, when in reality his company lacked the required capital to move forward.

         Specifically, the Government presented evidence that Webb did not have a reasonable basis to rely on capital from Donald Wamhof, nor did he have capital coming from DLM Capital because instead DML accused Webb of fraud and no influx of capital ever occurred with DML.

         1. Testimony of Donald Wamhof

         Webb asserts that the Government disparaged Webb's efforts to obtain financing through Donald Wamhof, a retired mortgage broker who was going to provide $8.7 billion to the project. (Dkt. No. 104 at ¶ 10). The evidence demonstrated that, indeed, Webb had no reasonable basis to rely on capital from Wamhof. Wamhof testified that he intended to purchase the controlling stake in InfrAegis and that he would subsequently pay off investors for their shares. Webb argues that while Wamhof's plan may have been “unorthodox, ” he had a good faith belief Wamhof would follow through. Id. As a threshold issue, in rehashing whether Wamhof would follow through, Webb asks the Court to reweigh the jury's credibility determination. The Court is obliged to “defer[] to the jury's credibility determinations” and “cannot second-guess the jury's determination of which witnesses were credible and which were not.” United States v. Graham, 315 F.3d 777, 781 (7th Cir. 2003). While the Court need not reweigh these determinations, a brief summary of Wamhof's testimony is illustrative. Wamhof reportedly missed deadline after deadline to come forth with the money for InfrAegis. (Dkt. No. 105 at p. 10 n.4.). Wamhof also testified that he told Webb that he intended to obtain the money by monetizing an international bill of exchange that had been guaranteed by the United States Treasury, but that he also told Webb that he had never been successful before in monetizing one of these so-called bills of exchange. The evidence also established that the United States Treasury did not guarantee such documents. Id. The jury reached the reasonable jury conclusion that the outlandish theory presented by Wamhof for future capital was not a real possibility and that it merely constituted another basis to show Webb's intent to defraud.

         2. DLM Capital

         Webb also did not have the support of legitimate venture capital firms. Webb contends that Michelle Butler from DLM Capital Investments made an offer to purchase InfrAegis's subsidiary, Bacteria Sciences Worldwide (“BSW”), for $1 billion. (Dkt. No. 104 at ¶ 11). At trial, however, Butler testified that Webb was supposed to deposit $50 million into a controlled bank account, but Webb never made the deposit. And, when DLM Capital had done nothing more than open the bank account, InfrAegis put out a press release stating that DLM Capital had purchased 30% of the total stock for $1 billion. At that time, Ms. Butler testified, the firm had not even began its due diligence process. Ms. Butler requested InfrAegis put out a revised press release stating that the deal had not yet commenced. InfrAegis complied with the request, but Ms. Butler was still compelled to send a cease and desist that stated, “You MUST cease and desist from using DLM as an investor in order to raise money. At this point you are committing fraud plain and simple.” (See Gov. Ex. MB12). Ms. Butler explained, specifically, that InfrAegis displayed DLM's name on its website. Webb knew, once again, that his representations to lure investors did not match reality.

         B. Webb Made Material Misrepresentations about the Status of InfrAegis' Capital and Contracts.

         In order to keep the company afloat, Webb began lying to investors about the status of contracts and capital through offering memoranda, executive summaries, and during investor conference calls. (Dkt. No. 105 at p. 3). The Government introduced witnesses engaged in negotiations with Webb and his staff at InfrAegis. (Dkt. No. 104 at ¶ 3). Webb contends that InfrAegis was negotiating legitimate potential business deals and pilot programs with an eye toward future municipal contracts with InfrAegis for its iaMedium product. (Dkt. No. 104, ¶ 3). The jury heard evidence that Webb was not close to obtaining any business. (Dkt. No. 105 at p. 3). Contracting with municipalities is an extensive process. They do not get signed based on a meeting or submitting a proposal. Webb knew this because he was a long time employee of AT&T and had submitted various government proposals in that capacity. The Government produced evidence explaining the extensive request for proposal process, a process that Webb was familiar with and had made misrepresentations about. Webb made misrepresentations to investors about InfrAegis's agreements with: (1) the City of Chicago; (2) the City of Atlanta; (3) the Washington Metropolitan Area Transit Authority (“WMATA”); and (4) Dole. Finally, the Government presented evidence that investors relied on Webb's statements concerning the imminence of completed contracts in their decisions to invest in the company.

         1. Chicago

         The Government presented evidence that InfrAegis was never close to signing a contract with the City of Chicago. Webb made his first attempt to sell iaMediums to the City of Chicago in August 2006. (Dkt. No. 105 at p. 3). At that time, he made a presentation to Cortez Trotter of the City of Chicago's Office of Emergency Management and Communications, who testified that he told Webb that the City was not interested in the technology because InfrAegis had never attempted to deploy the technology in a city, and also had never tested the product under cold weather conditions. Id. Trotter did not understand why the company was presenting the technology at such a premature stage. Next, Webb approached Brian Murphy and Mike Masters at the Mayor's office in the summer of 2007. (Dkt. No. 105 at p. 3). Murphy and Masters arranged for a demonstration of the iaMedium. Id. at pp. 3-4. There were discussions of issuing a Request for Production (“RFP”), but the City never initiated the procurement process, and those discussions ceased in 2008 shortly after Masters and Murphy sent Commander Lewin to a demonstration of the product. Id. at p. 4. At the demonstration, Commander Lewin proposed a pilot program involving the deployment of ten iaMediums in the City. Id. at ...


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