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Appeals from the United States District Court for the Southern District of Texas.
For United States of America, Plaintiff - Appellee: Jason Scott Varnado, Assistant U.S. Attorney, Lauretta Drake Bahry, Assistant U.S. Attorney, Renata Ann Gowie, Assistant U.S. Attorney, U.S. Attorney's Office, Southern District of Texas, Houston, TX.
For Mark Kuhrt, Defendant - Appellant: Seth Kretzer, Law Offices of Seth Kretzer, Houston, TX.
For Gilbert T. Lopez, Jr., Defendant - Appellant: Jack Benjamin Zimmermann, Esq., Zimmermann, Lavine, Jim E. Lavine, Esq., Terri Raye Zimmermann, Esq., Zimmermann & Sampson, P.C., Houston, TX; Megan Elizabeth Smith, Houston, TX.
Before PRADO, ELROD, and HAYNES, Circuit Judges.
JENNIFER WALKER ELROD,
Appellants Mark Kuhrt and Gilbert Lopez challenge their convictions and sentences on multiple counts of wire fraud and conspiracy. Appellants argue insufficiency of the evidence and errors at trial involving the district court's jury instructions and exclusion of certain expert testimony. Appellants also assert numerous procedural and substantive errors regarding their sentences. We AFFIRM.
Kuhrt and Lopez were both employees of Allen Stanford's investment companies for over a decade. During tat time, Stanford ran a multi-billion dollar Ponzi scheme and stole billions of dollars from his investors. See United States v. Stanford, 4:09-cr-00342-1, [Dkt. No. 808] (S.D. Tex. Mar. 6, 2012). At trial, the government alleged that Appellants actively helped Stanford hide his fraud for over a decade. The government's case consisted of documents and e-mails spanning almost a decade and witness testimony from other Stanford employees. The government's key witness was James Davis, who orchestrated much of the Ponzi scheme before he reached a plea deal with the government. After a five-week trial, Appellants were each convicted of nine counts of wire fraud and conspiracy to commit wire fraud.
A brief overview of Stanford's scheme and the institutional structure of his companies is provided here. The facts and events prior to Appellants' employment, and unrelated to Appellants' respective roles in the Ponzi scheme, are undisputed.
Stanford established Guardian International Bank (GIB), on the island of Montserrat, a British Overseas Territory in the Caribbean, in 1985. GIB sold certificates of deposit (CDs) to customers outside the United States, representing to customers that their money would be invested in liquid financial products and that the bank would not use their money to make loans. Stanford also owned a real estate company, Guardian Development Corporation (GDC), and a service company in Houston,
Texas, Stanford Financial Group (SFG), which provided accounting, legal, and other services to both GDC and GIB.
Stanford soon hired James Davis, who became SFG's controller and eventually played a major role in Stanford's illegal activities. Stanford also enlisted the services of a Certified Public Accountant (CPA), Harry Failing, and an Antigua-based auditor, C.A.S. Hewlett. At the beginning of Davis's employment, Davis tracked GIB's liabilities and expenses, but he was not privy to investment information. In the early 1990s, GIB moved to Antigua and Davis became the Chief Financial Officer of SFG and GIB. Jean Gilstrap was hired as the new controller of SFG. Davis soon gained access to GIB's financial statements and learned that the reported investment returns were grossly inflated and that the missing money was being funneled to Stanford's personally owned companies. After his discovery, Davis began working to cover up the fraud.
Beginning in 1992, Stanford, Davis, and Gilstrap worked together to make false revenue entries in GIB's books. Around this time, GIB became Stanford International Bank (SIB). As SIB, the company continued to market and sell CDs with the promise that these were safe investments. Marketing materials claimed the CDs were " strong, safe and fiscally sound," using a " conservative" investment strategy, and investing to " minimize risk and achieve liquidity."
Several years later, Stanford founded Stanford Group Company (SGC) in Houston, Texas and Baton Rouge, Louisiana, which hired " financial advisors" to sell SIB CDs to customers in the United States. Through SGC, Stanford collected money from American investors.
In 1997, Lopez, a Certified Public Accountant, was hired as an SFG accounting manager, reporting to Gilstrap, and Kuhrt was hired as a fixed assets manager, reporting to Lopez. Kuhrt was not a Certified Public Accountant, but had a Masters of Business Administration and accounting experience. The following year, Lopez was promoted to controller. Davis testified that he was comfortable promoting Lopez into that position because " [Lopez] had demonstrated his loyalty to Ms. Gilstrap, [and] had been aware of what was happening in the financial record keeping."
In 2000, Failing, Stanford's accountant, reported that while the IRS was looking at Stanford's personal finances, the IRS had discovered that Stanford received money from SIB. Failing indicated that the IRS could view this money as taxable income, which Stanford wanted to avoid. Failing proposed creating fake promissory notes to make it appear that Stanford had received a loan from SIB and would pay the money back. Failing explained this plan in an e-mail that Lopez received. Lopez was also mentioned by name in this e-mail (" Gil seemed to like this as well." ).
Over the next several years, there were many material inaccuracies in SIB's annual reports. The reports inflated SIB's investment numbers and did not disclose that significant sums of money were being diverted to Stanford's other, personally held companies. The information in these reports was communicated to prospective customers through the financial advisors, who were aggressively selling CDs. At trial, Davis testified that " [Lopez and Kuhrt] were responsible for the content and accuracy of the annual report." Davis also testified that " Mr. Lopez was responsible for the content and accuracy of the [2002 annual] report," and that " [Mr. Kuhrt] was the senior most accountant reporting to Mr. Lopez and had responsibility for [the 2002 annual report's] content and accuracy." Lopez and Kuhrt testified that they
had minimal authority over the reports and were not responsible for the reports' content and accuracy. This was one of the key factual disputes at trial.
At trial, the government introduced evidence showing that Appellants were aware of the money that Stanford had taken from the company. Specifically, in 2003, Lopez sent a spreadsheet, prepared by Kuhrt, which tracked all of the outstanding " loans" to Stanford. In addition, Davis testified that in 2004 he met with Lopez and Kuhrt and they had a lengthy discussion regarding whether the amounts diverted to Stanford should be disclosed in the annual report. Davis testified that all three men believed the amounts should be disclosed, but that they nevertheless agreed not to disclose any of the money. Appellants dispute that this meeting occurred, but assert that any discussion of " footnoting" the money diverted to Stanford ended in their objection to non-disclosure, and Davis's overruling of them.
To keep the appearance that the diverted money was part of a loan, Failing advised that Stanford should " service" the " loan." Therefore, according to Davis's testimony, Appellants designed a " private equity flip," which was a sham transaction that would make it appear that Stanford had paid back a significant amount of money to SIB. To execute this " flip," Stanford used $132 million of SIB depositors' money to purchase private equity assets from Stanford Venture Capital Holdings (SVCH), another of his companies. Stanford then " sold" these assets to SIB for $385 million, a sham value. On paper, it appeared that Stanford had injected money into SIB to service his loan interest and pay down some of the principal. Davis testified that Appellants facilitated this transaction, despite knowing that it was a sham. According to Kuhrt, " Davis and Stanford concocted [this] transaction" and " [s]everal unwitting SFGC employees, including Lopez and Kuhrt, were engaged to manage the portfolio transfer." This was another key factual dispute at trial. By the end of 2005, Stanford had taken over $850 million out of the bank. According to Davis, Appellants were aware of these amounts.
The government also presented testimony from Rolando Roca, a budget analyst at SFG in Houston, who worked under Kuhrt. Roca testified that after Lopez and Kuhrt were promoted in 2006, Lopez had the responsibilities of a chief accounting officer and Kuhrt had the responsibilities of a controller. Roca testified that this included authority over financial decisions and disclosures. According to Roca's testimony, he found Kuhrt's and Lopez's demeanors to be odd on numerous occasions, and they reprimanded him for asking too many questions. Roca also testified that Kuhrt specifically told him that the Antigua-based auditor, Hewlett, was " the closest thing we could get [to a rubber stamp]."
The government also presented the testimony of Fran Casey, an internal auditor. Casey testified that he completed a draft audit report in May 2006, which stated that the audit was only able to verify 8% of SIB's assets and only 2% of the income statement accounts. Casey testified that
when Lopez saw the report, Lopez became extremely angry and stated that the report could not be issued in its present form: stating that 92% of the assets were unverified. Casey testified that he felt " intimidated" by Lopez's demeanor. The report was eventually issued without the statements regarding the 8% and the 2% verification rates.
The following year, SIB was required to prepare and file reports with Antigua's Financial Services Regulatory Commission (FSRC). These reports included schedule " IB5s" detailing the bank's investments. Davis testified that he and Kuhrt were responsible for the content and accuracy of the schedule IB5s. According to Davis, he would send the previous quarter's IB5 to Kuhrt, who would update it and submit it. Davis also testified that Kuhrt once caught and corrected an error on an IB5, indicating that Kuhrt actually read and reviewed the document. The IB5s that SIB filed did not contain any reference to the money being diverted to Stanford.
At this point, Stanford was diverting almost $1 million per day from his companies for his personal use. Davis testified that Appellants were concerned about the amount of money being diverted. According to Davis's testimony, Kuhrt also raised a concern that the equity-to-asset ratio at SIB was too low to satisfy Antiguan regulators. Subsequently, Appellants participated in a second " private equity flip." According to Davis's testimony, Lopez worked with the legal team--which was unaware of the purpose of the flip--to execute the private equity flip, and Davis and Kuhrt exchanged e-mails regarding the purpose of the transaction and its similarities to the prior private equity flip. The flip had two purposes: (1) it raised the Bank's equity-to-asset ratio in order to satisfy the Antiguan regulators; and (2) it showed a payment by Stanford against what he owed the bank.
During this time, the economy was in a recession and Davis testified that he, Lopez, and Kuhrt were all concerned about investor confidence. Davis also testified that both Lopez and Kuhrt knew there were financial problems at all of Stanford's companies, particularly SIB.
According to Roca's testimony, in October 2008, Kuhrt directed Roca to make an accounting entry showing $200 million of revenue. Roca testified that he asked Kuhrt for supporting documentation, but Kuhrt replied that Roca should " [j]ust forward" the entry on, indicating that Roca should execute the entry without the documentation. Davis testified that this $200 million contribution was never actually funded, meaning there was never any revenue to support the entry. Roca also testified that by this point he had begun to question several of the revenue entries, because he believed that the entries mirrored comments made by Davis and Kuhrt about what the entries should be, rather than actual returns.
To quell investor fears, Stanford announced a $1 billion capital infusion. Davis testified that when Lopez inquired as to where this money would come from, Davis responded that " the emperor has no clothes," indicating that Stanford did not actually have the money to inject into the bank. According to Davis, he told Lopez that they would make an accounting entry showing the investments despite the ...