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United States v. Spalding

United States Court of Appeals, Fifth Circuit

June 26, 2018

UNITED STATES OF AMERICA, Plaintiff - Appellee
v.
DAVID LYMAN SPALDING, Defendant-Appellant

          Appeals from the United States District Court for the Northern District of Texas

          Before DAVIS, JONES, and HIGGINSON, Circuit Judges.

          STEPHEN A. HIGGINSON, CIRCUIT JUDGE.

         David Lyman Spalding convinced about a hundred people-neighbors, strangers, and even his jeweler-to lend his companies millions of dollars. As Spalding put it, his ventures were poised to strike pay dirt; all they needed was a bit more cash. He obtained loans by promising rapid repayment and stock options, and by assuring that he would use the money for the business. In fact, Spalding spent much of it on himself. Eventually, an investor tipped the FBI, a grand jury indicted, and a petit one convicted. Spalding now appeals his convictions and sentences for various fraud and perjury charges. We affirm.

         I.

         A.

         From about 2004 to 2010, Spalding founded and ran several companies, including Wind Plus Inc. and Wind Plus Holdings, Inc. (collectively, Wind Plus). Spalding billed these businesses to investors as seeking to sell energy projects, wind power, and wind-farm sites.

         The pitch was simple: Wind Plus was about to go public and presented guaranteed returns. In exchange for loans, Spalding offered short-term promissory notes and potential stock options in the soon-to-be-public corporation. He also erected a pyramid scheme, pledging extra options to lenders who convinced others to chip in. Making overtures to some noteholders, Spalding falsely promised to use "a hundred percent" of their loans on Wind Plus's projects and legal fees. To others, he fabricated the scope of Wind Plus's designs and prospects.

         Spalding also sent updates that swayed some backers to double down. He issued fake newsletters about Wind Plus's financing opportunities and third-party offers. He claimed to have entered valuable agreements that didn't exist. And he falsely described Wind Plus as shouldering only a "small amount of outstanding debt." Nevertheless, said Spalding, the company was "burn[ing] through cash" and required more capital to "cover[] legal and outside consulting expenses, secur[e] additional leases, and build[] overall momentum."

         Reality painted a more sobering portrait. Wind Plus lacked a business plan and financial oversight. Burdened by scores of unpaid notes, the company swiftly incurred new expenses without compensating workers. At one point, Wind Plus Inc. failed to pay taxes and its corporate status lapsed. At another, Wind Plus saw its bank accounts dwindle to $4, 000. Even its one success-a $2.3 million return on the sale of a project site-occurred despite Spalding's refusing to pay for proper wind data.[1]

         But as the firm floundered, its founder flourished. Wind Plus occasionally "advanced" Spalding sums ranging from $10, 000 to $50, 000 at a time. Spalding obtained $1, 638, 170 through wires and cashiers' checks, and another $485, 525 in cash withdrawals. All told, he pilfered $2, 123, 695 from company coffers.[2]

         Spalding, in fact, had no personal bank accounts; he just tapped Wind Plus's. In the year he informed investors that Wind Plus was "burn[ing] through cash," for example, his personal expenses comprised over one third of the company's expenditures. And Spalding masked his actions by transferring funds from Wind Plus's main account to a shell account, which he then used to replenish the main one after his assorted purchases.

         What did he buy? A forensic accountant traced how investor funds covered Spalding's rent, utilities, homeowners' dues, taxes, groceries, dating services, and membership in a singles' vacation club. Spalding's more lavish spends included a home, Mercedes-Benz, yacht consultant, Caribbean vacation, $76, 000 engagement ring, [3] six-figure wedding, and European honeymoon.

         Tired of Spalding's "grandiose" but empty promises of repayment, one suspicious noteholder contacted the FBI. Others sued. Spalding then personally filed for Chapter 13 bankruptcy and sought to reorganize the Wind Plus companies under Chapter 11.

         Wind Plus's Chapter 11 filings drew skepticism. Spalding produced no financial records besides bank statements. And the records he did provide failed to blunt concerns. They "showed really unusual expenses" that, according to the Chapter 11 trustee, "weren't reflected in any . . . bankruptcy paperwork."

         Thus Wind Plus's proceedings converted from Chapter 11 to Chapter 7- from reorganization to liquidation. Yet, when the Chapter 7 trustee asked for financial documents besides bank statements, Spalding provided none. (The trustee later learned that Spalding used Wind Plus's bank accounts instead of keeping his own.) Also odd was Spalding's claim that during his tenure he had pocketed only one year's salary, worth $42, 000. Some amended filings further disclosed that Wind Plus had transferred-outside the course of ordinary business-Harry Winston jewelry and Ritz-Carlton sundries to Spalding's wife.

         The bankruptcy proceedings proved pivotal not just for what Spalding put on paper, but also for what he said aloud. Spalding allegedly perjured himself during a creditors' meeting when asked to describe Wind Plus's noteholders.

         Despite lender lawsuits and Wind Plus's bankruptcy, Spalding kept collecting new noteholders for yet another entity, Baseload Energy, LLC. He secured those loans through the familiar gambit. He promised to use the funds on things like the company's attorney's fees, confirmed that he would not take any salary until he got the latest project funded, and falsely claimed that he had secured a bank's "commitment to purchase 100 percent" of a venture. Spalding's speeches said nothing of bankruptcy, or lawsuits, or tax troubles, or his intent to use the loans to bankroll his personal life. Thus he continued to pocket the lenders' "investments."

         The upshot: ninety-seven people gave Spalding $3, 755, 521. And instead of receiving quick and full repayment as promised, the few noteholders who recouped anything got pennies on the dollar.

         B.

         In its final superseding indictment, a federal grand jury charged Spalding with seven offenses: two counts of wire fraud (Counts One and Three), [4]one count of mail fraud (Count Two), [5] two counts of false testimony under oath (Counts Four and Five), [6] and two counts of bankruptcy fraud by false statement (Counts Six and Seven).[7] Spalding successfully moved to dismiss Count Seven on multiplicity grounds. He unsuccessfully moved to suppress statements he gave during a deposition in an investor's civil suit. That motion relied on the Fifth Amendment's privilege against self-incrimination, but the government disclaimed plans to introduce the deposition and the district court ruled the prior testimony fair game for impeachment.

         The trial lasted seven days. Included on the government's witness list were some spurned investors, a forensic accountant, the bankruptcy trustees, and former Wind Plus workers. The investors described Spalding's representations, omissions, and failures to repay, and underscored that they would not have invested had Spalding been forthcoming about his past and plans. The forensic accountant traced activity on Wind Plus's six bank accounts to show how Spalding diverted company funds for personal expenses. The trustees testified about the bankruptcy proceedings and confirmed that Spalding's filings reflected his penchant for transferring Wind Plus funds outside the enterprise's "ordinary course of business." And the Wind Plus workers explained how Spalding controlled the company but balked at spending money for business purposes. One Wind Plus consultant recalled how Spalding admitted his intent not to repay noteholders.

         Though Spalding did not testify, he mounted a vigorous defense. His trial counsel cast him as an unwary and failed businessman who otherwise paid legitimate expenses. Several defense witnesses, however, belied that narrative. Wind Plus's former corporate counsel, for example, verified that Spalding "us[ed] funds that were invested in Wind Plus in part to pay personal living expenses." (Spalding waived whatever attorney-client privilege he may have enjoyed with Wind Plus's counsel.) Another former officer testified that Spalding "misled" him, and that the company's brass and investors alike "fell in the same trap." This witness also recounted how the board of directors eventually ousted Spalding, only to discover "nothing" to build on besides "[h]ot air." Another former colleague attested that Spalding hid company financials not just from investors, but from corporate officers, too.

         The jury convicted on all six counts and the district court imposed a variant, below-Guidelines term of 180 months in prison.[8] The sentence required Spalding to pay restitution for $3, 391, 146.80 and to forfeit his house.[9] Spalding timely appealed.[10]

         II.

         We start with Spalding's sufficiency challenges. We give the evidence a de novo look, probing "whether, considering the evidence and all reasonable inferences in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." United States v. Gibson, 875 F.3d 179, 185 (5th Cir. 2017) (quoting United States v. Vargas-Ocampo, 747 F.3d 299, 303 (5th Cir. 2014) (en banc)). This is a "highly deferential" task, one requiring us to accept all credibility choices and reasonable inferences the jury made to support its verdict. United States v. Chon, 713 F.3d 812, 818 (5th Cir. 2013).[11] Spalding targets four of his six convictions.

         A.

         First are the mail- and wire-fraud counts. The evidence sufficed to prove each.

         Wire fraud comprises three elements: "(1) a scheme to defraud; (2) the use of, or causing the use of, wire communications in furtherance of the scheme; and (3) a specific intent to defraud." United States v. Harris, 821 F.3d 589, 598 (5th Cir. 2016); accord 18 U.S.C. § 1343. The same is true for mail fraud, except the second element involves "use of the mails," not wires, "to execute [the] scheme." United States v. Lucas, 516 F.3d 316, 339 (5th Cir. 2008) (quoting United States v. Dotson, 407 F.3d 387, 391-92 (5th Cir. 2005)); accord 18 U.S.C. § 1341. For both crimes, showing a "scheme to defraud" requires proof that Spalding "made some kind of a false or fraudulent material misrepresentation." Harris, 821 F.3d at 598 (quoting United States v. Curtis, 635 F.3d 704, 718 (5th Cir. 2011)).

         At issue are the first and third elements: fraudulent scheme and specific intent. The government failed to show both, Spalding maintains, because Wind Plus did some legitimate business. He highlights "change[s] in market conditions" and his lack of "experience or discipline to run such a large operation." Spalding thus suggests that bad luck, not bad faith, explain the unpaid notes.

         A rational jury could disagree. Regarding the fraudulent scheme, the evidence detailed a years-long con comprising patently fraudulent, material misrepresentations. Both government and defense witnesses confirmed Spalding's scheme to induce investments through deception. And no doubt Spalding's misrepresentations were material, for the victims consistently testified that they would not have cut Spalding checks had he been honest. As for his mental state, Spalding's concerted efforts to mask the ruse expose his specific intent to defraud. Consider, for instance, his fake updates, his reluctance to pay for business expenses, or his emails about Wind Plus's "cash burn" during his personal spending spree. Recall also that Spalding promised to take no salary and to use the victims' money on the business, but then funneled funds to himself. Or take the Wind Plus consultant (and defense witness) at his word: Spalding admitted his intention not to repay.

         All that sustains the jury verdict on the mail- and wire-fraud counts.

         B.

         The evidence similarly supported Spalding's conviction on Count Four- giving false testimony during a bankruptcy proceeding.

         Federal law prohibits persons from "knowingly and fraudulently mak[ing] a false oath or account in or in relation to any case under title 11" of the Bankruptcy Code. 18 U.S.C. § 152(2). This crime has five elements: (1) a bankruptcy proceeding; (2) a statement made under penalty of perjury in that proceeding; (3) the statement concerned a material fact; (4) the statement was false; and (5) the defendant made it knowingly and fraudulently. United States v. Grant, 850 F.3d 209, 214 (5th Cir.), cert. denied, 138 S.Ct. 257 (2017); accord United States v. Marston, 694 F.3d 131, 133 (1st Cir. 2012).

         When asked in a creditors' meeting to "describe the noteholders and their relationship with the two Wind entities," Spalding said under oath:

They signed promissory notes with the Wind Plus entity, the corporate parent in Canada, not the Wind Plus subsidiaries that we have shown are in Chapter 7 bankruptcy. A substantial amount of the notes, promissory notes were repaid. There was approximately 20 plus individuals that loaned money to the company. But those notes were back in 2004, 2005.

         The indictment alleged that in those four sentences Spalding managed three falsehoods: (1) there were then over seventy individual noteholders, not "approximately 20 plus"; (2) only nine, not "a substantial amount" of those notes were repaid; and (3) the notes were not limited to 2004 and 2005.

         Spalding insists that his statements were either opinions or literally true, and that therefore the government failed to prove falsity and criminal intent. He chiefly relies on Bronston v. United States, where the Supreme Court held that perjury statutes do not punish "an answer, under oath, that is literally true but not responsive to the question asked and arguably misleading by negative implication." 409 U.S. 352, 352-53, 362 (1973); cf. 18 U.S.C. § 1621.

         This appeal is not the first time Spalding leveled his falsity and intent arguments; the jury heard and rejected them as well. We see no reason to disturb that sound judgment. Rational jurors could have found beyond a reasonable doubt that Spalding knowingly lied about the lenders' number, their repayments, and the relevant timeframe to "deceive or cheat [a] creditor [or] trustee." 5th Cir. Pattern Jury Instructions (Criminal) § 2.08(B) (2015). And the jury reasonably rejected Spalding's position that his answer was literally true or expressed no facts. See United States v. Nixon, 816 F.2d 1022, 1030 (5th Cir. ...


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