Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

Companies filed suit, alleging that an employee engaged in a collusive trading scheme in violation of the Securities Exchange Act of 1934. Under section 9(a) of the Act, a private plaintiff must plead that: a series of transactions in a security created actual or apparent trading in that security or raised or depressed its market price; scienter; the purpose of the transactions was to induce the security's sale or purchase by others; plaintiffs relied on the transactions; and the transactions affected plaintiff's purchase or selling price. The district court dismissed for failure to state a claim. The Seventh Circuit reversed and remanded. The complaint adequately stated with particularity the circumstances constituting the securities fraud, and the economic loss impact on the plaintiffs as a result of the fraud and satisfied the pleading requirements of FRCP 9(b).

Defendants were convicted of mail fraud and wire fraud (18 U.S.C. 1341, 1346) for participating in a fraudulent scheme to obtain mortgage loans. The scheme involved: recruiters, who enlisted buyers to buy properties with fraudulently obtained funds; financiers, who provided funds to buyers to facilitate the transactions; administrators, who bought fake documents to enable buyers to obtain mortgages; loan officers, who prepared fraudulent applications and sent them to lenders. Between 2003 and 2005, the group acquired more than 70 properties for which lenders provided $7.2 million in loans. Most of the properties went into foreclosure, resulting in losses to the lenders of $2.2 million. The Seventh Circuit affirmed the convictions and sentences. The use of the term "straw buyer" in the confession of a nontestifying co-defendant did not obviously refer to the defendant and violate his Sixth Amendment right of confrontation under the "Bruton" doctrine. The court properly applied a "sophisticated means" sentence enhancement and gave an "ostrich" instruction concerning defendant's knowledge.

Defendants ran the township trustee's office, which provides various social services. They defrauded the office by taking substantial payments for work they did not perform, deposited checks made out to the office into their personal bank accounts. They were convicted of two counts of mail fraud (18 U.S.C. 1341, 1346). The Seventh Circuit affirmed. While evidence of mailing was circumstantial, based on usual office practice, it was sufficient. The 2010 Supreme Court decision in Skilling v. U.S. did not mandate acquittal; even if honest services fraud is erased from the picture, the jury would have convicted defendants on a monetary fraud theory. The jury was properly instructed on both theories.

Plaintiff, a plastics manufacturer, dealt with a container company that filed for bankruptcy in 2002, filed a creditor's claim for more than $7 million, and objected to the sale of assets and lien priorities. The debtor had pledged all of its assets as security for a line of credit with ANB, its primary lender. Plaintiff claimed that there was a fraudulent scheme under which the debtor would produce containers and not pay for them, so that that they would be part of inventory when a successor company, let by insiders, purchased the assets in bankruptcy. After its claims were rejected in the bankruptcy proceedings, plaintiff sued ANB and Gateway alleging violation of RICO (18 U.S.C. 1961) and common-law fraud. The district court dismissed as "res judicata" but denied Rule 11 sanctions. The Seventh Circuit affirmed the dismissal, citing collateral estoppel, issue preclusion. The court did not find that the claims were frivolous or designed to harass.

Based on a scheme for laundering drug money, defendants were convicted of conspiring to engage in monetary transactions in criminally derived property (18 U.S.C. 1956); one was additionally convicted of engaging in a monetary transaction in criminally derived property(18 U.S.C. 1957). The Seventh Circuit affirmed on the conspiracy count, which was supported by a "plethora" of evidence, but reversed on the second. The transaction triggering the Sect. 1957 violation occurred when a defendant handed over $8,000 of drug cash to purchase property, not when that property was sold for about $47,000; the transaction involved less than the $10,000 minimum the statute requires. The judge properly instructed the jury concerning the duration of a conspiracy and the meaning of "knowingly" and properly refused to allow the defense to address the statute of limitations to the jury.

A real estate broker received money for contracting work never completed, used false addresses in invoices from companies that did not exist, submitted loan applications with inflated incomes and account balances, and forged documentation. At trial on charges of wire fraud, aiding and abetting and conspiracy to commit wire fraud (18 U.S.C. 2, 371, and 1343), witnesses used the words "fraud" and "misrepresentation." The district court directed acquittal on aiding and abetting and conspiracy charges and sentenced defendant to 71 monthsâ imprisonment and payment of $2,360,914.51 in restitution. The Seventh Circuit upheld the conviction. The testimony of the lay witnesses could have been helpful and did not amount to legal conclusions about intent or "de facto" instructions to the jury. Defendant would not have been acquitted had the court struck the sporadic, repeated use of two words with potential legal baggage in otherwise appropriate testimony. The court vacated the sentence. The district court erred in considering transactions underlying dismissed counts as relevant conduct without making sufficient findings regarding the number of victims and in ordering defendant to pay restitution to victims not clearly harmed by conduct in her counts of conviction.

After not paying taxes for several years and creating shell corporations to receive his income, the defendant, a commodities trader, entered a guilty plea to one count of tax evasion, 26 U.S.C. 7201. The district court calculated an offense level of 21, carrying a range of 37-46 months' imprisonment under the sentencing guidelines and imposed a 24 month sentence. The Seventh Circuit affirmed. Rejecting an argument that the government breached the plea agreement, the court reasoned that both parties understood that the losses stated in that agreement remained uncertain and open to recalculation. The record supported the tax losses upon which the sentence was based. Application of an enhancement for use of "sophisticated means" was appropriate.

Defendants, based in Romania and Chicago, operated an internet scam using E-bay. The Seventh Circuit addressed appeals by defendants convicted of wire fraud (18 U.S.C. 1343). The court upheld a sentence of 63 months imprisonment, at the high end of the guidelines, that did not include credit for time served on related state charges or in custody of immigration officials. The court properly allowed the defendant's attorney to withdraw and declined to appoint new counsel. Another defendant's appeal was barred by his plea agreement. The court properly considered the foreseeability of losses caused by co-schemers in sentencing a third defendant, who also pled guilty to receipt of stolen funds in interstate commerce (18 U.S.C. 2315). With respect to the only defendant to go to trial, the court vacated a conviction for aggravated identity theft (18 U.S.C. 1028A), finding the evidence insufficient to show that he knew that the passport he used belonged to a real person and was not a purely fictitious document; affirmed his conviction for money laundering (18 U.S.C. 1956(h)),stating that the court did not commit plain error in not limiting jury consideration of âproceedsâ to the net profits of the internet fraud scheme; and vacated his 324-month sentence.

The United States has a $60 million judgment against the defendant, who fled the country, for Medicare and Medicaid fraud. The government served a writ of garnishment (28 U.S.C. 3205) against his interest in a Georgia company, which paid secured creditors, liquidated its assets, and placed slightly more than $4 million in escrow for the claim. Creditors of the Georgia company claimed $175,000. The district court ruled in favor of the government because the creditors had not obtained a writ. The Seventh Circuit vacated and remanded, reasoning that the creditors' claim was against the Georgia company, not against the defendant, and that the defendant's equity interest in the company (which was reachable by the government) may have been subordinate to the interests of creditors. The court noted many unanswered questions about the creditors' interest in the company.

The Commodity Futures Trading Commission sued operators of commodity trading pools for fraud and related violations of the Commodity Exchange Act. Following earlier proceedings in the Seventh Circuit, the district court entered judgment against remaining defendants. Defendantâs assets of $104 million, 39% of the amount owed the investors in the pools, were placed in the control of a receiver. The district court approved the receiverâs proposed allocation of the assets among the investors, which excluded a claim filed by an Andorran bank as untimely and rejected a valuation claim by GAMAG. The Seventh Circuit affirmed. The district court acted within its discretion in disallowing the bankâs claim, based on the bankâs neglect in pursuing its claim and the difficulty in recalculating the shares of the investors. GAMAGâs claim to be a creditor, rather than a shareholder, was properly rejected; its funds were commingled with and managed with the funds of the other investors and there was no difference in the level of risk.