United States v. Alphonso I. Waters, Jr. (11th Cir. September 2019)
Wire Fraud/Elements – Intent to defraud exists where a defendant lies about the nature of a bargain to induce another to enter the bargain, even if the victim may experience a windfall or profit from the bargain.
Jury Instructions – District court did not abuse its discretion by refusing to instruct the jury on the difference between a “scheme to defraud” and a “scheme to deceive” where the defendant’s proposed instruction did not also include a definition of “harm” as a consequence of misrepresenting the nature of a bargain.
Alphonso Waters, Jr. appealed his conviction for two counts of wire fraud. Waters had obtained a $6 million loan from a private lender by presenting the lender with a fake letter from the IRS that appeared to approve a payment plan for Waters to pay off outstanding federal tax liens. He had also sent a follow-up letter to the lender vouching for the authenticity of the IRS letter. Ultimately, the lender refused to go through with the deal based on the letter.
At trial, the judge rejected Waters’ proposed jury instructions that distinguished between a “scheme to defraud” and a “scheme to deceive.” Citing language from the Eleventh Circuit’s 2016 opinion in United States v. Takhalov, Waters wanted the judge to instruct the jury that “to defraud, one must intend to use deception to cause some injury; but one can deceive without intending to harm at all” and that a defendant only commits fraud if he intends “to obtain, by deceptive means, something to which the Defendant is not entitled.” At sentencing, the court found no actual or intended loss amount under the Sentencing Guidelines since Waters had offered an $8 million building he owned as collateral for the $6 million loan.
On appeal, Waters argued that 1) the trial court abused its discretion by not instructing the jury on the difference between fraud and deceit and 2) there was insufficient evidence to convict him of wire fraud because the government failed to prove that Waters intended to harm the lender. The Court disagreed with both arguments.
First, the Court began by distinguishing Takhalov, where the Court had reversed the fraud convictions of bar owners who had hired women to pose as tourists and lure customers to the defendant’s bars and nightclubs. The Court there held that the defendant’s use of deception in using women to act as tourists was not a “scheme to defraud,” since “a schemer who tricks someone to enter into a transaction” without the intent to harm them has not “defrauded” them, “even if the transaction would not have occurred but for the trick.” The Court in Takhalov emphasized, however, that a person harms another by lying to them about “the nature of the bargain itself.”
In the instant case, the Court held that the district court did not abuse its discretion by rejecting Waters’ proposed instructions. Waters’ proposed instruction deliberately did not include the language from Takhalov defining a scheme to defraud as a lie about the “nature of the bargain.” This crucial language, the Court explained, would allow the jury to distinguish the difference between a victim of a lie who hasn’t been harmed because he received what he paid for, and a victim who has been harmed by a misrepresentation regarding the value or authenticity of the transaction. Therefore, unlike in Takhalov, Waters had lied about the “nature of the bargain” itself by falsely portraying his liquidity and tax obligations.
The Court also rejected Waters’ second argument that there was insufficient evidence that he intended to harm the lender, arguing that the IRS letter did not affect the bargain between the parties in light of the projected cash flow from Waters’ clinic and the “over-collateralization” of Waters’ $8 million building. The Court held that there was ample evidence that Waters intended to harm the lender through the fake IRS letter. When the lender discovered Waters’ undisclosed tax liens, he considered a “deal killer,” and when persuaded to continue working with Waters, he continued viewing the liens as a “gating issue” that had to be resolved before a loan would be issued.
Ultimately, the Court held, Waters committed wire fraud because he lied to the lender about the nature of the bargain, which would have resulted in the lender spending considerable time and resources mitigating its losses in the event of a default, and the $8 million building offered as collateral was not appraised for that value until after the deal with the lender fell through. Waters’ material misrepresentations would have defrauded the lender had the lender gone through with the loan.
Appeal from the Northern District of Georgia
Opinion by E. Carnes, joined by J. Carnes and Clevenger (by designation from Fed. Circuit)