Thursday, June 07, 2012

Halstead merger problem occurs in cases other than illegal gambling operations

US v. Cloud:  William Roosevelt Cloud, convicted of several charges arising from a mortgage fraud conspiracy that he masterminded, raised several issues in this appeal: evidentiary rulings, the district court’s loss calculation, and the district court’s order directing him to reimburse his court-appointed attorneys fees. The Fourth Circuit affirmed on the first two issues, but vacated the reimbursement order. Cloud also argued that some of his money laundering convictions should be reversed due to a merger problem, and the Fourth Circuit agreed.

The scheme included at least fourteen others charged as co-conspirators, and it lasted from 1999 to 2005. Cloud’s scheme involved purchasing numerous properties, "flipping" them to buyers at increased prices, and banking the difference. He encouraged the unsuspecting buyers to purchase several properties, and in order to perpetuate the scheme, Cloud falsified loan applications, forged signatures, and provided false information to closing attorneys. Cloud signed false HUD-1 forms containing false information and distributed kickbacks to buyers, a mortgage broker, and recruiters who found buyers. The loss amount to lenders and the community totaled around $19 million.

With respect to the evidentiary issues, Cloud objected to victim-impact testimony, but the Fourth Circuit found that this type of testimony must meet only a low bar of relevancy, so it was properly admitted. Also admitted were conversations between Cloud and several tenants, from which an inference could be drawn that Cloud was dishonest with tenants to hide his scheme; the Fourth Circuit concluded that any error in admitting this testimony was harmless. The Fourth Circuit vacated the district court’s reimbursement order because no findings were made with respect to Cloud’s ability to pay for representation, nor whether Cloud had funds available for payment. Previously, the Fourth Circuit had rejected a similar order in United States v. Moore, so the directive to reimburse was vacated here.

Additionally, Cloud argued that his money laundering convictions must be reversed under United States v. Santos, as interpreted by the Fourth Circuit in United States v. Halstead. The Fourth Circuit agreed, and reversed those convictions. In Santos, the Supreme Court affirmed the vacatur of money laundering convictions that arose from an illegal gambling operations, when it determined that the money laundering offenses merged with the convictions for operating an illegal gambling business. Six counts against Cloud of promotional money laundering suffered from a "merger problem," as they charge illegal activity including money transactions to pay for the costs of his illegal activity, and the government also used those transactions to prosecute Cloud for money laundering. To put it another way, a merger problem does not arise when the financial transactions of the predicate offense are different from the transactions prosecuted as money laundering. Here, the six money laundering convictions were based on paying the "essential expenses" of the underlying fraud, so a merger problem existed, and the Fourth Circuit reversed the money laundering convictions with respect to those counts.

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