Opinion
Case No. CR2-06-129(1).
June 8, 2009
OPINION AND ORDER
I. INTRODUCTION
At the start of the new millennium, National Century Financial Enterprises, Inc. ("National Century") appeared to be a thriving financing company with a national reputation as a leader in its field. As it turned out, that reputation was built on smoke and mirrors. When nearly a decade of fraud perpetrated by the company finally came to light in 2002, public investigations quickly followed, culminating in criminal charges brought against eleven owners and senior executives. Some of the accused pleaded guilty and cooperated with the Government's investigation and prosecution. In March of 2008, five Defendants — Donald H. Ayers, Rebecca S. Parrett, Randolph H. Speer, Roger S. Faulkenberry, and James E. Dierker — were convicted of all charges against them. On October 31, 2008, following a three week jury trial, Defendant Lance K. Poulsen ("Poulsen") was convicted of all charges against him.
The final Defendant, James K. Happ, was tried separately and acquitted in December 2008.
Poulsen now seeks a judgment of acquittal from the jury's verdicts under Federal Rule of Criminal Procedure 29(c)(1). He also seeks a new trial under Fed.R.Crim.P. 33. For the reasons described below, the Court DENIES Poulsen's motion.
II. STANDARD OF REVIEW
Following a jury verdict of guilty, Federal Rule of Criminal Procedure 29(c) permits a defendant to move for a judgment of acquittal on the grounds that the evidence presented was insufficient to convict him. Trial courts decide Rule 29(c) motions under a standard deferential to the jury's verdict. The court asks whether, "after viewing the evidence 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." Jackson v. Virginia, 443 U.S. 307, 319 (1979). The court does not "weigh the evidence, assess the credibility of the witnesses, or substitute [its] judgment for that of the jury." United States v. Wright, 16 F.3d 1429, 1440 (6th Cir. 1994). Rather, the court will "draw all available inferences and resolve all issues of credibility in favor of the jury's verdict." United States v. Salgado, 250 F.3d 438, 446 (6th Cir. 2001). For these reasons, a defendant "bears a very heavy burden" in making out a sufficiency-of-the-evidence challenge to his conviction. United States v. Davis, 397 F.3d 340, 344 (6th Cir. 2005). Indeed, a motion for judgment of acquittal will be granted only "where the prosecution's failure is clear." Burks v. United States, 437 U.S. 1, 17 (1978).Federal Rule of Criminal Procedure 33 provides that "[u]pon the defendant's motion, the court may vacate any judgment and grant a new trial if the interest of justice so requires." Whether to grant a Rule 33 motion is left to the sound discretion of the district court. United States v. Wheaton, 517 F.3d 350, 361 (6th Cir. 2008). The defendant bears the burden of proving that a new trial is warranted. United States v. Davis, 15 F.3d 526, 531 (6th Cir. 1994.)
A motion for new trial under Rule 33 may be granted if the jury's verdict was against the manifest weight of the evidence. United States v. Hughes, 505 F.3d 578, 592 (6th Cir. 2007). When considering the weight of the evidence, the district court may assess the credibility of witnesses. Id. at 593. This type of motion, however, should only be granted in the "extraordinary circumstance where the evidence preponderates heavily against the verdict." Id. (internal quotation marks omitted).
III. ANALYSIS
Poulsen asserts that he is entitled to a judgment of acquittal under Rule 29 because the evidence presented at trial was insufficient to convict him. He also claims that he is entitled to a new trial under Rule 33. He asserts two main arguments in support of that claim. First, he argues that the guilty verdicts were against the manifest weight of the evidence. Second, he argues a new trial is warranted because he was entitled to, but did not receive, a unanimity instruction on Count 1. Each of these claims will be addressed below.
Poulsen further states that he incorporates all of the arguments propounded by his convicted co-defendants in support of their respective Rule 29 and Rule 33 motions. The Court rejected those arguments and denied those motions in its comprehensive August 1, 2008 Opinion and Order on Defendants' Post-Trial Motions (doc. no. 758). As Poulsen has asserted no additional arguments in support of those motions, the Court DENIES Poulsen's motion, to the extent that it is based on those grounds, for the reasons laid out in the August 1, 2008 Order.
A. Sufficiency and Weight of the Evidence
Poulsen argues that the evidence at trial was insufficient to convict him and that his convictions were against the manifest weight of the evidence. Poulsen was charged in twelve counts of the superseding indictment as follows: Count 1 (conspiracy), Counts 2-7 (securities fraud), Count 10 (wire fraud), Count 17 (money-laundering conspiracy), and Counts 18-20 (concealment of money laundering). The Government alleged that Poulsen committed these offenses by advancing funds to National Century clients in which he had an ownership interest, without purchasing the required amount of eligible receivables; by approving the use of false data in investor reports; by ordering the transfer of funds between National Century's funding programs to conceal shortfalls; by delaying the date on which month-end compliance tests of the funding programs were held to conceal shortfalls; and by improperly transferring investor funds to satisfy a lawsuit settlement obligation of a company in which he held an ownership interest. Following trial, the jury convicted Poulsen on all counts.
Poulsen was also initially charged with money laundering in Count 23 of the superseding indictment, but the Government voluntarily dismissed that charge during trial.
Poulsen also was indicted in Count 27, dealing with forfeiture of the Defendants' assets, but that count was not before the jury.
At the close of the Government's case in chief, Poulsen moved for a judgment of acquittal, as permitted by Rule 29(a). The Court denied his motion and explained in detail the basis for its decision by citing to the documentary and witness testimony that, if credited by the jury, would support Poulsen's conviction. Poulsen renewed his motion at the close of trial and the Court again denied it for the same reasons it had previously given.
Poulsen now renews his motion a third time. In his briefing, Poulsen generally attacks the sufficiency and weight of the evidence. The Court once again finds that the jury was presented with ample evidence from which it reasonably could have concluded that Poulsen committed the offenses with which he was charged.
The trial record in this case demonstrates that Poulsen had considerable opportunities to, and in fact did, attack the Government's evidence against him by putting on his own defense case and by extensively cross-examining the Government's witnesses and challenging its documentary evidence. The record also shows that the evidence against Poulsen was substantial. Besides Poulsen and his wife, four former National Century employees testified. Three of those witnesses — Jon Beacham, Sherry Gibson, and Jessica Bily — were senior executives with intimate knowledge of the company's operations and how it perpetrated investor fraud. Each of those executives admitted to engaging in criminal conduct and they all implicated Poulsen in the criminal conspiracy. The fourth National Century employee witness, William Parizek, was hired by Poulsen in 1996 to work as a senior executive at the Company. He testified that he quit after only 10 weeks because he learned of the extensive fraud at National Century and Poulsen's role in it. Besides National Century insiders, the Government put on witness testimony from investors whose money, unbeknownst to them, was improperly used to make unsecured loans to healthcare providers. The Government also called to the stand representatives of the healthcare providers, who confirmed that they asked for, and received, hundreds of millions of dollars in National Century loans that the providers had little ability to pay back.
The Court will not exhaustively review every witness's testimony or every piece of evidence, but will here summarize the most probative testimony and evidence that the jury reasonably could have relied upon and that support the jury's guilty verdicts.
1. National Century's Business Model
National Century was a healthcare-financing company based in Dublin, Ohio. Prior to its collapse in November 2002, it had been the largest privately-held healthcare-financing company in the United States. Poulsen was an owner and Chief Executive Officer of National Century. Ayers and Parrett were the other two owners. Ayers worked as the company's Vice Chairman and Chief Operating Officer, and Parrett was Vice Chairman and Secretary/Treasurer. She also supervised National Century's Servicer Department. Speer was an Executive Vice President and Chief Financial Officer, and Faulkenberry was an Executive Vice President in charge of National Century's Client Development Department.
Poulsen was separately indicted in October 2007, on charges of obstruction of justice and witness tampering based on his efforts to improperly interfere with the anticipated trial testimony of Sherry Gibson. As a result of the allegations in this indictment, Poulsen's trial counsel was disqualified from continuing his representation and Poulsen was forced to obtain new counsel. With the February 4, 2008 trial date in this matter looming, the Court severed Poulsen to give his new attorneys adequate time to prepare his defense and to ensure that the other defendants were not prejudiced at trial by Poulsen's obstruction and witness-tampering activities.
National Century financed healthcare providers, such as hospitals, clinics, and nursing homes, by purchasing the providers' medical accounts receivable for less than their full value. In exchange for selling their receivables at a discount, the providers were paid for the patient services they had rendered much sooner than if they had to wait to collect from third-party insurers, like Medicare or Blue Cross.
Purchasing medical accounts receivable was only half of National Century's business model. The company then issued bonds to large institutional investors, such as pension funds and mutual funds, for which its pool of receivables served as collateral. In other words, National Century's bonds were "asset-backed securities," the "asset" being the pool of medical receivables that secured the bonds. The proceeds from the sale of the bonds were used to purchase additional receivables while the principal and interest owed to the investors was paid off through the ongoing collections on the receivables.
National Century operated its healthcare-financing programs through two subsidiaries, NPF VI and NPF XII (sometimes referred to herein as "the programs"). NPF VI and XII were governed by an Indenture, which delineated in legal terms the relationship and responsibilities among three parties: the issuer of the bonds, the servicer of the receivables, and the investment trustee. NPF VI and XII issued bonds to investors. Another National Century subsidiary called National Premier Financial Services ("National Premier"), serviced the receivables, meaning that it collected pertinent data about each receivable submitted by the healthcare providers, determined which receivables were eligible for purchase, and then oversaw their collection. Finally, JP Morgan Chase ("Chase") was the trustee for NPF VI and Bank One was the trustee for NPF XII. The trustees' job was to monitor the VI and XII program accounts on behalf of the investors to ensure that National Century observed all program requirements regarding how the investors' money was to be used and protected against losses.
The former National Century executives who testified at trial referred to the company's Servicer Department, rather than its National Premier subsidiary, when discussing servicer operations. For simplicity's sake, the Court will do the same.
2. National Century's Representations to Investors
National Century depended upon investors to make its financing programs work. It communicated its business model and marketed its NPF investment vehicles mainly through the Private Placement Memoranda ("PPM") that accompanied its bond offerings and, less formally, through regular investor presentations.
Consistent with the definition of an asset-backed security, National Century told investors that its bonds were secured by medical accounts receivable. Furthermore, National Century represented that the investors' money would be used only to purchase eligible accounts receivables. Similarly, the PPMs for NPF VI and XII specify that the programs are "special-purpose" companies whose business was restricted "to the purchase of Eligible Receivables and highly-rated investments" and the issuance of notes to investors. (Gov. Ex. Series III-2 and III-3.)
"Eligible" receivables were, almost exclusively, restricted to those for which medical services had already been provided. Jon Beacham, National Century's Executive Vice President of Securitizations, testified that, as defined by the PPM, an "eligible receivable," "refers to work that's actually been performed. It's for bona fide services that have been rendered." (Trial Tr. Vol. I, 229.) Sherry Gibson, the Executive Vice President in charge of National Century's Compliance Department, agreed. She testified that an "eligible receivable" was, with a few specific exceptions, one in which medical services had already been provided to a patient and the bill to the insurer had been submitted. The only thing that remained was for the insurer to pay the receivable. According to Beacham and Amy Boothe, a National Century investor, the company underscored this "services-already-rendered" requirement of an eligible receivable by telling investors that the receivables it purchased were patient specific, meaning that they identified a specific patient, a specific date of service, and a specific dollar amount.
Gibson clarified that "capitation payments," which are monthly payments of a fixed amount to a healthcare service provider based on a census of the number of patients in the physician's geographic area, qualified as eligible receivables. Similarly, disproportionate share payments, which are payments given by a State to a service provider who treats a disproportionate share of indigent patients compared to other providers, qualified as eligible receivables. Gibson testified, however, that "advances" to a healthcare provider without the purchase of eligible receivables based merely on the cash flow needs of the healthcare provider, discussed later in this Opinion, were distinct from disproportionate share or capitation payments and were not permitted by National Century's governing documents. When asked if advances without the purchase of receivables were based on disproportionate share payments, Gibson answered:
No. As I've said, there were receivables based funding, then other types of possible receivables related collateral, which would have been here where we're talking about capitation and disproportionate share; and then once you've exhausted that, then there would be non-receivables based advances. There is no other form of collateral available the NCFE would consider eligible to track on its system.
(Trial Tr. Vol. VI, 1395.)
The specific date of service was important because another eligibility requirement concerned the age of the receivable. National Century told investors that any receivables older than 180 days (i.e., the medical procedure giving rise to the receivable had been performed more than 180 days earlier) were ineligible for purchase, and that any purchased receivables that did not collect within 180 days were returned to the healthcare providers where they originated. This temporal feature of what constituted an eligible receivable was meant to minimize the risk of non-collection. As Beacham explained, the older the receivable, the less likely it was to pay out.
The fully secured nature of the bonds and the strict criteria governing what counted as eligible collateral were just two of the attributes that National Century touted as evidence of the reliability of its bonds. In addition, National Century emphasized certain "credit enhancements" embedded in its NPF programs. These included "over-collateralization" and reserve accounts, both of which were intended to protect investors from losses resulting from receivables that did not pay out.
"Over-collateralization" meant that the value of the receivables exceeded the value of the outstanding bonds, so that a $97 bond was backed by a $100 receivable. The reserves consisted of funding withheld from the providers and set aside in cash accounts. Beacham and Jessica Bily, a senior executive in National Century's Funding Department, testified about how these two safeguards worked in practice by describing National Century's process for determining the amount of funding healthcare providers received in exchange for their accounts receivable. Gibson and Bily testified to the following:
A healthcare provider that entered into a financing agreement (called a sales and subservicing agreement) with either NPF VI or NPF VII sent its accounts-receivable data to National Century's Servicer Department each week. The Servicer Department reviewed the data, determined which receivables were eligible for purchase, and reported the total value of the eligible receivables to National Century's Funding Department. The Funding Department then performed a series of calculations to figure out how much money the provider was entitled to receive, based on the total amount of eligible receivables it had submitted. Beacham and Bily described these calculations by giving an example of an eligible receivable totaling $100.
First, the Funding Department applied a 97 percent "advance rate" to the $100 receivable, resulting in a net eligible receivable of $97. The 3 percent withheld in funding to the provider constituted the "over-collateralization."
Next, National Century deducted approximately 17 percent of the total value of the receivable and held it in cash accounts called "reserves." The reserves functioned as a cushion against the risk of non-collection of a receivable. In other words, if a receivable did not pay out as expected, National Century could draw on the reserves to offset the loss, and the investors would not be out any money.
Thus, after subtracting the 3 percent in over-collateralization and the 17 percent in reserves, a provider could expect to receive about $80 in funding for submitting a $100 receivable.
National Century also deducted "program costs" from the funding allocation due to the providers. The program costs were similar to interest and accounted for how National Century made its money in the transaction.
Thanks to these credit enhancements, National Century's bonds were given a "AAA" rating. This meant that the bonds involved the least amount of risk of any investment instrument, and were similar to Government Treasury bonds in reliability. Not surprisingly, National Century highlighted its AAA rating as another reason investors should buy its bonds.
Beacham testified that National Century held monthly day-long presentations to attract investors. The day typically began with an overview of the company by Poulsen or one of the other principals. Following that, the presentation was structured into multiple half-hour segments during which the other owners and senior executives described the operations of their particular departments. Poulsen regularly participated in investor presentations and made himself available for investor questions throughout the presentation. Besides explaining the mechanics of National Century's receivables-financing programs, Poulsen and his co-defendants boasted that their company was a market leader in securitizing healthcare receivables and that they had a depth of knowledge and experience in the healthcare industry worthy of investors' confidence.
Amy Boothe and Terrence Glomski were asset managers at Alliance Capital and Lincoln Capital, respectively, whose clients were large institutional investors. Both testified at trial that they reviewed the Private Placement Memoranda that accompanied National Century's note offerings, that they attended one or more presentations by National Century's executives, and that they performed their own independent research and analysis before deciding to invest millions of dollars of their clients' money in National Century's bonds. Both also testified that they relied on National Century's representations regarding how its NPF programs worked, including its promises to the effect that: (1) the bonds were backed by medical accounts receivable; (2) the investors' money would be used only to purchase "eligible" receivables, meaning receivables generated in connection with completed medical services that had already been billed to the insurer and that were less than 180 days old; (3) the investors were protected by the over-collateralization of their bonds and cash reserves; and (4) the bonds were AAA rated and therefore entailed little risk. All of these things, Boothe and Glomski testified, were critical to their positive investment decisions, and the absence of any of them would have affected how they viewed National Century's bonds.
3. The Fraud
The former National Century employees who testified at trial believed that the company's business model was a good one. At various points, however, each of them came to realize that the way National Century explained its operations to investors was not the way it actually operated. Although, National Century represented that it financed healthcare providers — using investors' money — based strictly on the providers' submission of eligible accounts receivable, such was not the case. Instead, the evidence at trial showed that National Century financed certain providers in whatever amounts were necessary to satisfy the providers' budgetary needs. So, if a provider needed two million dollars one week to pay its operating expenses, National Century wired it two million dollars, irrespective of the total amount of receivables the provider submitted, whether those receivables were "eligible," or whether the provider submitted any receivables at all. This practice was known within the walls of National Century as "advancing," and it was kept carefully hidden from investors for many years. The most important effect of advancing was to convert the investors' bonds from what they believed were secured investments, backed by medical receivables, into risky unsecured loans to the healthcare providers.
Former executives at three of the "advanced to" healthcare providers testified that National Century's principals (Poulsen, Ayers, and Parrett) held ownership interests in these providers. The Government's summary witness corroborated their testimony and added to it by explaining that Poulsen and his fellow National Century principals had an ownership interest, sometimes as much as 100 percent, in a total of six providers that regularly received advances. (Trial Tr. Vol. V, 980-88; Gov. Ex. Series IX-107.) Just as troubling, the providers who received advances were teetering on the brink of insolvency and thus were in no position to pay National Century back. This instability, coupled with the inability to secure other forms of financing, was the reason the healthcare providers were borrowing from National Century in the first place. The implication created by this testimony was that Poulsen and the other National Century principals corrupted the company's operations, and a good business model, in order to keep their other business ventures afloat.
Since the loans they received from National Century were not backed by receivables, National Century could not collect on the loans by collecting on the receivables.
The Government also introduced evidence showing that the senior executives' compensation was tied to the amount of financing National Century provided, irrespective of whether it got eligible receivables in return. The senior executives therefore had an incentive to go along with the principals' scheme because they stood to benefit if National Century met its financing targets, even if that financing was in the form of unsecured loans, rather than based on eligible receivables, as it was supposed to be.
Poulsen contends that there was insufficient evidence presented at trial to establish that that an agreement and scheme to defraud existed between him and his co-defendants as required for, respectively, conspiracy and wire fraud convictions. He further argues that there was insufficient evidence that he acted with an intent to deceive or to deprive victims of money as required for conviction on the securities fraud and wire fraud. The Government, however, produced substantial evidence inculpating Poulsen on each of those Counts. Indeed, the jury reasonably could have concluded that Poulsen participated in the alleged conspiracy and scheme to defraud with the requisite intent: (1) by actually authorizing unsecured advances to healthcare providers; (2) by concealing the advances from investors, as well as the disastrous effect advancing had on the NPF VI and NPF XII programs; (3) by directly ordering Gibson to falsify investor reports and the statistical data presented in the PPM; and (4) by representing these securitized programs to be something other than what they were. See United States v. Hunt, 521 F.3d 636, 647 (6th Cir. 2008) (tacit understanding among the parties established by a chain of reasonable inferences sufficient to establish agreement for conspiracy conviction); United States v. Crossley, 224 F.3d 847, 856 (6th Cir. 2000) (Government need not prove conspiracy agreement through a formal written agreement).
Originally, only Poulsen, Ayers, and Parrett could authorize advances. By 2001, however, the authority to approve advances had been extended to the Executive Vice Presidents (including Faulkenberry and Speer), Dierker, and Happ. Bily testified about the internal procedures National Century implemented to track information about advances, including who had authorized them. The requesting executive would typically call or email Bily (or her Funding Department staff) to convey instructions to make an advance. The Funding Department staff would then prepare an "advance request form" documenting the date, amount, and recipient of the advance, as well as the authorizing executive. Once completed, the advance request forms were forwarded to the authorizing executive for his or her signature. Bily testified that she sometimes had difficulty collecting the required signatures, but that this was not an obstacle to actually effectuating the advances. In fact, the normal procedure was for the funding to go out the door before the authorizing executive had signed the advance request form.
Bily testified that Poulsen and his co-defendants authorized numerous advances. She identified advance request forms covering the period of 1999 through 2002 that documented approximately sixty advances authorized by Poulsen, forty authorized by Ayers, eighty advances authorized by Parrett, four hundred authorized by Speer, and sixteen authorized by Faulkenberry. Not only do the advance request forms show which defendant approved the particular advance, but they also show that other defendants were carbon-copied so that they too were aware of the advancing. Bily testified that Poulsen was not only aware of the advancing, but that he also directed that program costs and reserves were to be taken out of advances. That directive benefited Poulsen and the other National Century executives financially because executive bonuses were based on program costs.
With the exception of Poulsen, every National Century employee who testified — Bily, Beacham, Gibson, and William Parizek — stated that advancing was not permitted by the program documents and was hidden from investors. Bily testified that she was so concerned about the impropriety of the advances that, beginning in 2001, she kept copies of the advance request forms in her home. She explained that she did this "to protect [her]self and other people [in the company] that were involved in processing the advances." (Trial Tr. Vol. III, 616).
Bryan Weiss and Craig Porter, executives with healthcare providers that had financing agreements with National Century, both confirmed at trial that their respective organizations (MediManager and California Psychiatric Management Services ("California Psychiatric"), and Home Care Concepts of America ("HCCA")/Home Medical of America ("HMA")) had received millions of dollars in advance funding from National Century in excess of their submission of eligible receivables. Weiss testified that by 2002, MediManager owed National Century approximately $100 million, a debt he described as "insurmountable." He also testified that California Psychiatric, for whom he also worked, received advances from National Century. Weiss testified, and the government's summary witness, Jeffrey Williams, confirmed, that Poulsen indirectly held an ownership interest in MediManager. Likewise, Porter testified that HCCA/HMA's total debt obligation to National Century ultimately climbed to $300 million and that the company had poor financial prospects. As was the case with MediManager, Porter and Williams testified that Poulsen held an indirect ownership interest in HCCA/HMA.
MediManager was 100 percent owned by Poulsen and the other National Century principals. Specifically, MediManager was owned by Intercontinental Investment Associates which was owned by Poulsen and his wife, Parrett, and Ayers.
HMA/HCCA was 100 percent owned by Poulsen and the other National Century principals. Specifically, HMA was owned by a company called Thor which was owned by Poulsen and his wife, Parrett, and Ayers. HCCA was owned by Intercontinental Investment Associates which was owned by Poulsen and his wife, Parrett, and Ayers.
4. The Cover-Up
National Century went to extraordinary lengths to conceal what it was really doing with investors' money. The evidence adduced at trial showed that in its monthly reports on the status of the NPF programs, in its presentations to investors, and in its dealings with outside professionals (such as auditors), National Century executives routinely falsified data and disguised the true nature of its affairs. Indeed, the jurors had an evidentiary basis from which they reasonably could believe that the purpose of an entire National Century department — the Compliance Department — was to cover up the fraud by distorting and inventing information for the outside world that would make the company appear to be a proven success.
Before detailing the elaborate efforts that went into maintaining the illusion that was National Century, a bit more background about the NPF programs is necessary.
NPF VI and XII each consisted of three different accounts that were supervised by the independent trustees (Chase and Bank One, respectively) that monitored both programs. These included the collection account, purchase account, and reserve account, and were intended for the purposes that their names suggest: The collection account collected payments on the accounts receivable National Century had bought from the providers; the purchase account was funded with investors' money and was supposed to be used to purchase more eligible receivables; and the reserve accounts held the nearly 17 percent in reserves deducted from the providers' weekly funding wires as a way to offset any losses incurred through non-payment of a receivable. The testimony at trial established that, as one might expect, National Century's ongoing advances to healthcare providers without receiving a commensurate amount of eligible receivables in return wreaked havoc on the VI and XII program accounts. Because of the magnitude of the problem, National Century took great pains to conceal the deficiencies, lest the investors catch on to the fraud scheme.
The healthcare providers, rather than National Century, initially collected the payments on the receivables and then forwarded them to the NPF collection account. This fact will be important later in the opinion, during a discussion of testimony concerning Poulsen's warning to the investors that an immediate wind down of the VI and XII programs could prompt the providers to keep the collections for their own use, rather than send them to National Century, as they were obligated to do.
The Indentures governing the VI and XII programs set forth several compliance tests that the programs had to meet to avoid an "event of default." The compliance tests set requirements for the amount of reserves and the type and age of the receivables. If a program was out of compliance with any test, a "principal amortization event" would occur, meaning that the funding program would end and the investors bonds would be repaid.
The Indentures for both programs required National Century to prepare monthly investor reports, one for each program. The investors used the reports to monitor the performance of the programs and make sure that they were functioning as they were supposed to. To that end, the reports provided a snapshot of the status of the three accounts comprising each program as of the monthly "determination date," i.e., the reports were based on information gathered from the accounts on a fixed date each month. If any of the accounts were out of balance — for instance, if the reserve accounts did not meet the specified level of approximately 17 percent — that would be treated as "an event of default" and the entire NPF VI and XII programs would crater.
The investor reports also provided information about the age of the purchased receivables and how quickly the pool of receivables was "turning over," i.e., how long it took for the receivables to collect. Beacham testified that the age of the receivables was an important metric to investors, because the older the receivables were, the less likely they were to pay down. Thus, if a report showed that the collateral pool contained receivables older than 180 days, that too could trigger a default, bringing down the defaulted program, and possibly National Century along with it.
The investor reports were prepared by the Compliance Department, at the direction of Sherry Gibson, who headed up that department. Gibson testified that, due to National Century's regular advances to healthcare providers the purchase, collection, and reserve accounts were all too low relative to the amount of eligible receivables National Century had actually purchased. This fact had to be hidden.
One way that National Century concealed the fraud was by moving money between program accounts before the determination date, which was initially at month's end, and then moving the money back after the determination date. At first, National Century moved money from a program's purchase account into its reserve accounts. But, as the practice of advancing continued unabated, the magnitude of the problem grew, and intra-program transfers were not enough to make up the shortages.
As a result, National Century decided to stagger the determination dates for NPF VI and XII. Rather than hold them on the same day at the end of each month, as it had been doing, National Century chose the last day of one month as the determination date for one NPF program, and the first day of the next month as the determination date for the other NPF program. That way, money could be moved back and forth between the NPF VI and XII program accounts to meet the requisite reserve balances. The trial testimony established that the change in the determination date was made at Poulsen's direction.
Another way that National Century manipulated the preparation of the investor reports was simply to falsify their data. This was done at Poulsen's direction. He instructed Gibson never to issue an investor report that showed any sort of non-compliance. Consequently, she testified that the data in the investor reports were "manipulated in whatever way necessary to show compliance on the investor report." (Trial Tr. Vol. VII, 1450.) At trial, Gibson exhaustively testified about the various ways in which she falsified investor reports. She also identified and explained manipulations in several specific investor reports. She further testified that from the inception of NPF VI in May 1995, every single one of its investor reports contained false and fabricated data. The same was true for every single investor report issued for NPF XII, which opened in March 1999. The investor reports had to be signed by a National Century principal before they could be issued. According to Gibson, only Poulsen ever did so because Ayers refused.
The manipulation of investor-report data did not stop with the reports themselves. The VI and XII program accounts were reviewed by outside auditors. To cover its tracks with them, National Century, per Gibson, had to create all the backup data that went into producing the investor reports. This data was also necessarily false because it had to match the false data shown in the investor reports. Gibson testified that she told Poulsen that she could not give auditors the actual back-up data because it didn't match the investor reports. He instructed her to "do whatever was necessary" to pass the audit. (Trial Tr. vol. VII, 1506.)
National Century also falsified the data given to the investors in the supplemental PPMs. Gibson explained that the receivables data, "pool statistics," presented to investors in the PPMs were always manipulated and falsified. This was true for both the NPF VI and the NPF XII PPMs. According to Gibson, "the data was manipulated as necessary to show the investors what we thought they wanted to see and what would . . . make the portfolio look as if it performed the way it was supposed to." Gibson testified that she had discussions with Poulsen about the disparity between what the receivables data in the PPMs actually looked like and how it was supposed to look. Poulsen directed her to "make the data look like the portfolio was performing properly and to keep the rating agencies and the investors from asking questions about the portfolio."
Yet another way National Century concealed its fraudulent activities was by inputting ineligible and non-existent collateral into the Servicer Department's computer tracking system to make it appear as though there was sufficient collateral to support National Century's advances. This was necessary to mislead the outside auditors who performed the company's annual financial audit. These auditors did not confirm that the collateral appearing in the computer database actually consisted of eligible medical accounts receivable, but simply compared the providers' total amount of liabilities with the total amount of collateral they had submitted. National Century therefore worked to identify any other asset that a healthcare provider had — including real estate, and medical equipment — and then included these assets as collateral supporting the funding advances in its computer tracking system. Of course, this additional collateral did not consist of eligible accounts receivable, and no mention was made either to the outside auditors or to the investors that National Century was counting such non-receivables assets as collateral.
National Century also kept defaulted accounts receivable on the Servicer's computer tracking system to make it appear that the company had more eligible receivables. Receivables aged over 180 days were supposed to be considered "defaulted" and removed from the system because they were unlikely to pay out. National Century, however, did not do so. Gibson testified that the company "froze" the aging of receivables on its tracking system thereby keeping defaulted receivables on the tracking system. This allowed the company to conceal the high number of superannuated receivables from investors and create the false appearance that there were more eligible receivables to back advances. Again, this practice was not revealed to investors or other National Century outsiders.
When the counting ineligible and defaulted collateral was still not enough to account for the advances, Gibson testified that National Century simply inserted a "plug number" into the computer-tracking system. This "plug number" represented the difference between all the eligible and ineligible collateral National Century loaded on the system for a particular provider and the total amount of funding the provider had received. Bily and Gibson testified that the use of the plug number began at Poulsen's direction. (Trial Tr. vol. III, 579; Vol. VII, 1520.)
Finally, the investor presentations. As already described, Poulsen and his co-defendants all participated in presentations to current and prospective investors, at which they explained National Century's business model and marketed its financing programs. Former executives Beacham, Gibson, and Bily testified that in their interactions with investors, including during their segments of the investor presentations, they did not reveal anything about National Century's practice of advancing, the effects that advancing had on the NPF program accounts, or how National Century falsified its investor reports and the collateral data on its computer database. Bily testified that she never told investors about advancing or falsifications in investor report because she "understood that [she] wasn't supposed to, and . . . was fearful that [she] would lose [her] job if [she] did." Gibson and Beacham testified that they did not tell investors anything about advancing without the purchase of receivables, reserve fluctuations, and falsifications in the investor reports and PPMs, and that they never heard any other senior executive disclose anything about what was really going on. Investors Glomski and Boothe corroborated the testimony of the National Century executives and explained that they were not informed of those fraudulent business practices until the company began to unwind in October of 2002.
5. What Poulsen Knew
The evidence adduced at trial established that Poulsen (as well as the other principals, and the senior executives) knew how the funding advances were dissipating at the NPF program accounts, and further knew what Gibson was doing to keep the fraud under wraps. Bily testified that she attended several meetings with Poulsen and Gibson where the problems caused by advancing were discussed. Gibson testified that she spoke with Poulsen on numerous occasions about what she had to do each month to manipulate the data presented in the investor reports. Gibson also testified that the Compliance Department maintained both the fraudulent investor reports that were actually issued and accurate reports based on the true data, and circulated memos to National Century's principals comparing the two reports to show the nature and extent of the "manipulations."Corroborating Gibson's testimony are numerous memos and emails, addressed to Poulsen and his co-defendants, advising them about the shortages in the NPF program accounts, the falsifications necessary to produce a clean audit and PPM pool statistics, and the nature of the data manipulations that had to be performed to produce a fully compliant investor report. On February 11, 1999, for example, Gibson wrote a memo to Parrett regarding the random audit. Poulsen and Ayers are carbon copied. In that memo Gibson tells Poulsen, Parrett and Ayers:
I know that the random audit is a necessary requirement for the securitization(s); however, due to our business practices, it takes several weeks of preparation before the audit can be scheduled. The preparation time is not due to gathering of copies of reports, obtaining file copies, etc., the delay is due to the necessity of CREATING the backup that matches the investor report . . . It has been necessary to modify/edit/change the original receivables data from the AS400 for investor reporting. Due to advances with no collateral and high volumes of defaulted . . . we are UNDERcollateralized in all portfolios and the investor report numbers are adjusted in order to meet the default triggers. Therefore, whenever the investor reports are audited we have to create special reports that reflect the numbers reported which again differ significantly from the receivables activity actually posted and housed within the AS400.
(Gov. Ex. Series VII-32A.) Shortly thereafter, in a February 25, 1999 memo, Gibson wrote Poulsen, Ayers, and Parrett that "NPF VI is $45,000,000 SHORT in reserves" as a result of funding healthcare providers without purchasing the requisite amount of eligible receivables. Gibson's memo went on, "Please advise — how can we have an investor report . . . with a $45,000,000 shortage in reserves? . . . We are creative with month end and the investor reports — but this is beyond our capability to create. This is a crisis — we need help!" (Gov. Ex. Series VII-32B.)
In June of 1999, Cori Vogelsang, a compliance department employee, circulated a report entitled "Summary of Adjustments to the Investor Report" to Poulsen and the other principals. The reports documents section-by-section the adjustments that were made to an NPF XII investor report "[t]o insure compliance." (Gov. Ex. Series VII-20.) In yet another example, on August 29, 2001 Gibson sent a memo to Poulsen informing him of her difficulty generating pool statistics for an NPF XII supplemental PPM due to the advance funding and concomitant reserve shortages. (Gov. Ex. Series VII-110.) Gibson explained that:
[d]ue to the continual shortage of cash in the reserves, the investor reports, therefore, have OVERSTATED the receivables compared to the actual balances in the AS400 and/or funding systems . . . [w]hile the actual balances in NPF XII are closer to $1.489 billion, the receivables balance in the current investor report for NPF XII is $2,000,382,873.
( Id.) She explained that the disparity between the reported and the actual figures meant that she had to "add receivables on a Seller-by-Seller basis in the static pool in order to match the current investor report for NPF XII." ( Id.) She told Poulsen that she had "added receivables in a somewhat arbitrary fashion to the current Sellers in NPF XII" but was still coming up short. ( Id.) She concluded the memo by asking Poulsen for ideas and advice on how to make the pool statistics appear to be in compliance.
Particularly damning to Poulsen are the "Lance Copy" investor reports that Gibson sent to Poulsen for his approval. The Lance Copy reports were draft copies of the investor reports which were sent to Poulsen for his sign-off before the official investor report was released. Gibson explained that she periodically prepared Lance Copy reports when she had "a question about how to meet compliance or to highlight areas of noncompliance" or to "advise [Poulsen] of some specific problem that [she] had of noncompliance in the report." (Trial Tr. vol. VII, 1469.)
The draft reports include Gibson's handwritten marginalia, which highlight and explain to Poulsen the specific manipulations she had made to the underlying data to fake compliance. Several of the draft reports include Poulsen's handwritten notations explicitly "ok-ing" the manipulations. For example, on the Lance Copy of the July 1995 investor report for NPF VI, Gibson noted that one section of the report contained arbitrary numbers because National Century did not track the data that had to be reported — a problem she had already discussed with Poulsen. Underneath her note, which read "Arbitrary #'s no info available," Poulsen wrote "OK" thereby approving the presentation of fictitious figures to investors. (Gov. Ex. Series I-1.) The other Lance Copy investor report drafts track Poulsen's approval of other similar fabrications and his own suggestions on how to manufacture the appearance of compliance. (Gov. Ex. Series II-101, 102.)
Similarly inculpatory was a September 23, 2002 report, prepared by Gibson, that gave a side-by-side comparison of the numbers reported to investors in the August 2002 NPF VI investor report and the actual figures in the program's accounts. (Gov. Ex. Series VI-21.) The report was circulated to Poulsen and the other senior executives. It laid out the changes that were made to each specific section of the investor report. Among other things, the report noted that 74% of NPF VI's receivables were ineligible and that advances unsupported by any receivables accounted for 55.2% of the total receivables on NPF VI's receivables tracking system.
Finally, Gibson testified in great detail about Poulsen's attempt to bribe her to change her testimony in this case. Gibson recounted how Poulsen approached her through a mutual acquaintance, Karl Demmler, and offered to pay her two million dollars to develop a "mental lapse" and "prevaricate" when testifying at Poulsen and his co-defendants trials. Her testimony was supported by extensive wire tap evidence recording the communications between Poulsen, Demmler, and Gibson. When presented with this evidence, the jury could properly conclude that Poulsen's witness tampering demonstrated his consciousness of guilt. United States v. Mendez-Ortiz, 810 F.2d 76, 79 (6th Cir. 1986).
6. The Demise of National Century
By October 2002, National Century was no longer able to stay ahead of the problems caused by advancing. At that time, Poulsen contacted the investors to ask them for a waiver of the program compliance requirements. He explained that $350 million had been taken from NPF XII's reserve accounts to fund healthcare providers. According to Terrence Glomski at Lincoln Capital, Poulsen claimed that National Century had obtained sufficient accounts receivable to back the funding. Glomski testified that he was "shocked" to learn about the expenditure of the reserves. He regarded the non-compliance as a straight-up event of default. Amy Boothe of Alliance Capital testified similarly about the gravity of the situation. She said that Poulsen's notice to the investors signaled to them that something had happened that was "not supposed to happen." She stated that Alliance considered the use of cash reserves to fund healthcare providers "a willful violation of the documents." After investigating further, Boothe told her boss that she "thought we might have a really big problem."
The investors began organizing among themselves to try to get to the bottom of what was happening at National Century. Within a few days of Poulsen's request for a waiver, the investors had formed an ad hoc committee, hired forensic accountants and attorneys, and flew to Ohio to meet in person with Poulsen and the senior executives at National Century's headquarters. At that meeting, Boothe testified that she learned for the first time that National Century had been funding healthcare providers without purchasing the requisite amount of eligible receivables in return. National Century's funding programs came to an immediate halt and within a matter of weeks the company had declared bankruptcy and was under investigation by the federal government. Poulsen and his co-defendants were indicted on multiple charges of fraud and money laundering in May 2006.
At the time of National Century's collapse in November 2002, NPF VI had outstanding bonds totaling approximately $900 million, while the outstanding bonds in NPF XII equaled about $2 billion. Glomski testified that at the time of National Century's unraveling, Lincoln Capital's investment in National Century's bonds totaled nearly $50 million, of which it has recovered six cents on the dollar to date. Jeffrey Williams, the Government's summary witness, testified about the extent of National Century's over-funding of the healthcare providers. Performing calculations on National Century's data just as the company would have, Williams concluded between 1999 and 2002, National Century had made over $2 billion in unsecured loans to six healthcare providers. (Gov. Ex. Series IX-109a-f; Trial Tr. Vol. IV, 947-55; Vol. V, 978.) Further, Williams testified that Poulsen had an ownership stake in all six providers.
7. Summary of the Evidence Against Poulsen
As described above, the Government's case against Poulsen was substantial. The testimony of Beacham, Gibson, and Bily was particularly probative, as all three admitted to their own criminal behavior while employed at National Century and implicated Poulsen in the same wrongdoing. The healthcare-provider witnesses confirmed that they received millions of dollars in advances from National Century without submitting eligible receivables in return. The investor witnesses testified that they were effectively duped into believing that National Century's bonds were safe and secured, when in fact they were just the opposite. Taken together, this evidence was more than sufficient for the jury to have concluded that Poulsen was guilty on all counts. Moreover, having reviewed the record, considering the volume and nature of the evidence against Poulsen, the Court concludes that the jury's verdict was not against the manifest weight of the evidence.
Poulsen protests that the witnesses against him were not credible. He postulates that Glomski and Boothe blame him for the losses to the investors they represented, that Beacham and Gibson blame him for their own criminal involvement at National Century, and that Bily was motivated to testify out of fear that she would be indicted if she failed to cooperate. Poulsen, however, neither identifies specific problems with their testimony nor cites to record evidence evidencing demonstrating their bias or unreliability. United States v. Lutz, 154 F.3d 581, 589 (6th Cir. 1998) (affirming denial of motion for new trial based on the credibility of witnesses where the defendant "pointed to no specific problems or conflicts" in witness testimony so "egregious or extraordinary" as to warrant a new trial). Having observed testimony of each of those witnesses at trial and reviewed the full record post-trial, the Court finds their testimony to be credible, consistent, and interlocking. Furthermore, the Court notes that, when directly asked why she was testifying, Boothe answered that she was not testifying to "settle the score" against Poulsen, but because she was under subpoena. (Trial Tr. Vol. XI, 2524.) For these reasons, the Court declines to grant Poulsen a new trial on this basis.
Poulsen next argues that his conspiracy conviction on Count 1 cannot stand because "none of the overt acts alleged in Count One were proven as to Mr. Poulsen." This argument is neither legally required to sustain a conviction nor factually supported by the trial record. First, to sustain a conviction, the Government need only prove that a single member of the conspiracy committed an act in furtherance of the conspiracy. United States v. Carr, 5 F.3d 986, 990 (6th Cir. 1993) (essential elements of a conspiracy include that "one of the conspirators . . . knowingly committed at least one of the overt acts charged in the indictment"). Therefore, Poulsen could be properly convicted of conspiracy even if he himself did not commit an overt act in furtherance of the conspiracy, as long as one of his co-conspirators did.
Second, the evidence at trial established that Poulsen committed several overt acts charged in the Superseding Indictment. For example, as set forth supra in Section III.A.5, the Government proved through Gibson's testimony that Poulsen approved the use of false data in an NPF VI investor report on or before August 21, 1995, (Trial Tr. Vol. VII, 1469-72; Gov. Ex. Series II-1a-b), and that Poulsen instructed National Century's Compliance department to delay the month-end testing of the NPF XII accounts to conceal shortfalls on or about October 28, 1999. (Trial Tr. Vol. VII, 1520, 1527; Gov. Ex. Series VI-38.) Similarly, the Government established through Bily's testimony and documentary evidence that on or about April 27, 1999, Poulsen improperly advanced approximately $1.1 million in NPF VI investor funds to Home Medical of America, a healthcare provider owned in part by Poulsen, without purchasing the required amount of eligible receivables. (Tr. Vol. III, 596-99; Gov. Ex. Series 1-20a-d.) Each of those acts was charged in the Superseding Indictment as an overt act committed by Poulsen. (Superseding Indictment ¶¶ 24, 34, 36.)
Poulsen also contends that his wire fraud and money laundering convictions should be overturned because the evidence at trial did not show that the transactions alleged in those counts were improper under National Century's governing documents, i.e., the Indentures, PPMs, and Sales and Subservicing Agreements. That argument ignores the evidence presented at trial. As discussed above in Section III.A.2-3, National Century employees and investors uniformly testified at trial that advancing without the purchase of eligible receivables violated National Century's governing documents.
With respect to Poulsen's wire fraud conviction, Count 10 of the Superseding Indictment alleges that Poulsen committed an act in furtherance of a wire fraud scheme by authorizing a $1 million advance to Hollywood Emergency Care Specialists, Inc., a healthcare provider in the NPF XII funding program, on March 15, 2002, without purchasing the required amount of eligible receivables. That allegation was substantiated at trial by Bily's testimony and documentary evidence establishing that on March 15, 2002, Poulsen signed an advance request form approving a $1 million advance to Scott Medical, an affiliate of Hollywood ECS, without the purchase of any accounts receivable. (Trial Tr. Vol. III, 599-600; Gov. Ex. Series I-70a.) The Government also produced the Receivables Purchase Report showing that the $1 million was directed to Hollywood ECS, and banking records establishing that the funding was released from NPF XII's account and received by Hollywood ECS's checking account. (Gov. Ex. Series I-70b-d.) As previously discussed, the jury could reasonably find that the wire transfer was part of a broader scheme to defraud investors by misrepresenting National Century's business model to extract billions of investor dollars to fund healthcare providers for Poulsen and his co-defendants own pecuniary gain. Simply put, Poulsen's wire fraud conviction was based on sufficient evidence and was not against the manifest weight of the evidence.
Turning to Poulsen's substantive money laundering conviction, the elements of a money laundering offense under 18 U.S.C. § 1956(a)(1)(b)(i) are: (1) use of funds that are proceeds of unlawful activity; (2) with the knowledge that the funds are the proceeds of unlawful activity; and (3) conducting or attempting to conduct a financial transaction, knowing that the transaction is designed at least in part, to disguise the nature, location, source, ownership or control of the proceeds. United States v. Prince, 214 F.3d 740, 747 (6th Cir. 2000). Counts 18-20 of the Superseding Indictment allege that Poulsen diverted millions of investor dollars to satisfy the lawsuit settlement obligations of HCCA/HMA, a healthcare provider in which he held a financial interest. Those allegations were substantiated at trial through the testimony of Porter, Bily, and Williams. (Trial Tr. Vol. III, 611-14; Vol. IV, 869-77; Vol. V, 990-1010.) Porter testified that HCCA/HMA, the healthcare provider for which he worked, owed $7.75 million to the Bergen Brunswick drug company to settle a lawsuit between the companies. He explained that after April 2000, HCCA/HMA no longer generated any accounts receivables. Nevertheless, the company still needed cash to satisfy the settlement obligation to Bergen Brunswick. He further testified that he discussed the lawsuit with Poulsen, and specifically HCCA/HMA's need for cash to satisfy the settlement. Porter, Bily, and Williams testified that Poulsen held an ownership interest in HCCA/HMA at that time.
On June 4, 2001, a chain of faxes, emails, and memos documents that Porter asked Speer to wire $7.75 million to cover the costs of the settlement, that Speer discussed the wire with Poulsen, and that Poulsen approved the wires despite the fact that HCCA/HMA had not generated any accounts receivable for over a year. (Gov. Ex. Series V-115, 116, 117; Series VI-4; Series IX-23-26.) Although the memos and faxes establish that the transaction was intended to provide HCCA/HMA with the full amount it needed to satisfy the settlement, the $7.75 million figure was broken up across three wires: a $1.5 million wire to Chartwell Diversified Services, Inc., a company owned by HCCA/HMA; a $1.5 million wire to Lifecare Solutions, another HCCA/HMA owned company; and a $4.75 wire to HMA. The Government introduced bank records showing that $7.75 million was wired from NPF VI to HCCA/HMA's (and its affiliates) accounts on June 5, 2001 and then almost immediately wired from HCCA/HMA's accounts to bank account of the law firm that was to receive the Bergen Brunswick Settlement funds. (Gov. Ex. Series IX-113, 114, and 116; Trial Tr. Vol. V. 990-1010.) From that evidence, as well as the substantial testimony about the impropriety of advances without the purchase of receivables and the concealment of such activities from investors, a rational jury could conclude that Poulsen conducted a financial transaction, involving the proceeds of his securities fraud, and that he knew the funds were the proceeds of his unlawful activity.
The evidence also supports a conclusion that the transaction was designed to disguise the nature, location, source, ownership or control of the proceeds. Even though the June 5, 2001 wires to HCCA/HMA and its affiliates were unsupported by any accounts receivable purchases, a normal receivables purchase report was prepared for the wires. (Gov. Ex. Series IX-26.) A receivables purchase reports was supposed to represent funding sent out in exchange for the purchase of eligible accounts receivable. Accordingly, the use of the purchase report also served to hide the fact that the wires were actually pure conversion of investor funds to satisfy the debts of a third-party company in which Poulsen had a financial stake. Therefore, the Court finds that Poulsen's money laundering conviction was based on sufficient evidence and was not against the manifest weight of the evidence.
Finally, Poulsen argues that his money laundering convictions were improper under United States v. Santos, 128 S. Ct. 2020 (2008) because the Government did not prove that the funds at issue were the profits of any illegal activities. This Court addressed identical arguments advances by Poulsen's co-defendants in its August 1, 2008 Opinion and Order on Defendants' Post-Trial Motions (doc. no. 758, 46-50). As Poulsen has asserted no additional arguments in support of his Santos argument, the Court DENIES Poulsen's motion, to the extent that it is based on Santos. For the reasons set forth in the August 1, 2008 Order, the Court concludes that Poulsen's money-laundering convictions were based upon his transactions in the "profits" of his illegal securities and wire fraud activities. Defendants' money-laundering convictions shall therefore stand.
Poulsen's motion for acquittal and for a new trial based on the sufficiency and weight of the evidence is DENIED.
B. Failure to Give Specific Unanimity Instruction on Count 1
Poulsen also argues that he should be given a new trial because the Court did not give a specific unanimity instruction on the conspiracy charge. According to him, the failure to give a specific unanimity instruction left the jury "confused regarding whether they were required to unanimously find that Mr. Poulsen committed at least one overt act in furtherance of the conspiracy." A specific unanimity instruction is not required unless: 1) a count is extremely complex; (2) there is a variance between the indictment and the proof at trial; or 3) there is a tangible risk of jury confusion. United States v. Sanderson, 966 F.2d 184, 187 (6th Cir. 1992). At trial, the jury was charged on Count 1 according to the Sixth Circuit Pattern Instructions. With respect to the agreement element the jury was charged as follows:
With regard to the first element — a criminal agreement — the government must prove that two or more persons conspired, or agreed, to cooperate with each other to commit the crimes of securities fraud or wire fraud.
This does not require proof of any formal agreement, written or spoken. Nor does this require proof that everyone involved agreed on all the details. But proof that people simply met together from time to time and talked about common interests, or engaged in similar conduct, is not enough to establish a criminal agreement. These are things that you may consider in deciding whether the government has proven an agreement. But without more they are not enough.
What the government must prove is that there was a mutual understanding, either spoken or unspoken, between two or more people, to cooperate with each other to commit the crimes of securities fraud or wire fraud. This is essential.
An agreement can be proved indirectly, by facts and circumstances which lead to a conclusion that an agreement existed. But it is up to the government to convince you that such facts and circumstances existed in this particular case.
One more point about the agreement. The indictment accuses the defendant of conspiring to commit two federal crimes. The government does not have to prove that the defendant agreed to commit both of these crimes. But the government must prove an agreement to commit at least one of them for you to return a guilty verdict on the conspiracy charge.
You must find there was a plan to commit at least one of the crimes alleged in the indictment as an object of the conspiracy with all of you agreeing as to the particular crime or crimes which the conspirator's agreed to commit
Pattern Crim. Jury Instr. 6th Cir. 3.02 (2005); (Trial Tr. Vol. XV, 3524-25.)
With regard to the overt act requirement the jury was charged:
The third element that the government must prove is that a member of the conspiracy did one of the overt acts described in the indictment for the purpose of advancing or helping the conspiracy.
The indictment lists the following overt acts:
(1) On or about November 20, 2001, Poulsen, Ayers, Parrett, Speer, Faulkenberry, and Beacham, through the issuance of NPF XII, Series 2001-4 notes, promised investors that their monies would be used for the purchase of Eligible Receivables.
(2) On or about September 10, 2001, Beacham sent fabricated data to a rating agency.
(3) On or about April 18, 2002, Beacham sent fabricated data to a rating agency.
(4) On or about April 27, 1999, Poulsen, after consultations with Ayers and Parrett, improperly advanced approximately $1.1 million in NPF VI investor funds to a healthcare provider owned in whole or in part by Poulsen, Ayers and Parrett without purchasing the required Eligible Receivables.
(5) On or about July 16, 1999, Ayers improperly advanced approximately $2 million from NPF VI investor funds to a healthcare provider owned in whole or in part by Poulsen, Ayers and Parrett without purchasing the required amount of Eligible Receivables.
(6) On or about January 6, 2000, Parrett improperly advanced approximately $2 million from NPF XII investor funds to a healthcare provider without purchasing the required amount of Eligible Receivables.
(7) On or about August 3, 2001, Dierker improperly advanced approximately $670,000 from NPF XII investor funds to a healthcare provider owned in whole or in part by Poulsen, Ayers and Parrett without purchasing the required amount of Eligible Receivables.
(8) On or about September 28, 2001, Dierker improperly advanced approximately $720,000 from NPF XII investor funds to a healthcare provider owned in whole or in part by Poulsen, Ayers and Parrett without purchasing the required amount of Eligible Receivables.
(9) On or about April 19, 2002, Faulkenberry improperly advanced approximately $1.5 million in NPF XII investor funds to a healthcare provider without purchasing the required amount of Eligible Receivables.
(10) On or about May 22, 2002, Faulkenberry improperly advanced approximately $500,000 in NPF XII investor funds to a healthcare provider without purchasing the required amount of Eligible Receivables.
(11) On or about May 28, 2002, Happ improperly advanced approximately $1 million in NPF VI investor funds to a healthcare provider owned in whole or in part by Poulsen, Ayers and Parrett without purchasing the required amount of Eligible Receivables.
(12) On or about October 3, 2002, Happ improperly advanced approximately $5.4 million in NPF XII investor funds to a healthcare provider owned in whole or in part by Poulsen, Ayers and Parrett without purchasing the required amount of Eligible Receivables.
(13) On or about August 9, 2002, Speer improperly advanced approximately $300,000 in NPF XII investor funds to a healthcare provider owned in whole or in part by Poulsen, Ayers and Parrett without purchasing the required amount of Eligible Receivables.
(14) On or before August 21, 1995, Poulsen approved the use of false data in an NPF VI investor report.
(15) On or about March 17, 1999, Faulkenberry advised an employee that Poulsen had devised a way to falsify that month's investor report.
(16) On or about October 28, 1999, Poulsen and Speer instructed NCFE's Compliance Department to delay the month-end tests for NPF XII in order to conceal shortfalls in both funds.
(17) On or about December 28, 2001, Poulsen ordered the transfer of approximately $115,075,036 from NPF XII to NPF VI in order to conceal shortfalls in both funds.
(18) On or about January 2, 2002, Poulsen ordered the transfer of approximately $148,048,000 from NPF VI to NPF XII in order to conceal shortfalls in both funds.
(19) In or about May 2000, Faulkenberry falsely denied allegations of financial improprieties and diversions of funds at NCFE in a trade publication.
(20) On or about June 25, 2001, Beacham sent a false statement to a rating agency claiming that information in an investor report had been mistakenly added by a new employee.
(21) On or about September 30, 2002, Parrett, in order to conceal from auditors shortfalls in Eligible Receivables purchased, instructed an NCFE employee to make improper adjustments to NCFE's accounting system, including adding $134 million of ineligible receivables.
(22) On or about October 23, 2002, immediately prior to leaving NCFE to work for a healthcare provider which received funding from NCFE, Happ instructed a subordinate employee to remove safeguards in NCFE's computer system relative to that provider.
The government does not have to prove that all these acts were committed, or that any of these acts were themselves illegal.
But the government must prove that at least one of these acts was committed by a member of the conspiracy, and that it was committed for the purpose of advancing or helping the conspiracy. This is essential.
Pattern Crim Jury Instr. 6th Cir. 3.04 (2005); (Trial Tr. Vol. XV, 3526-30.) The Court also gave a general unanimity instruction. (Trial Tr. Vol. XV, 3550.)
No specific unanimity instruction was required in this case. As an initial matter and as discussed earlier, the jury was not, as Poulsen states, required to "unanimously find that [Poulsen] committed an overt act in furtherance of the conspiracy." See Carr, 5 F.3d at 990. Thus, a unanimity instruction of the sort contemplated by Poulsen would be a misstatement of the law. Instead, as the Court properly instructed, the jury only had to find that "a member of the conspiracy committed one of the overt acts described in the indictment for the purpose of advancing or the conspiracy." (Trial Tr. Vol. XV, 3530.)
Next, the conspiracy count was not "extremely complex." Poulsen correctly points out that the case as a whole involved hundreds of documents; however, that alone does not make the conspiracy count extremely complex. See United States v. Davalos, 4 F.App'x 361, 363 (9th Cir. 2001) (case involving multiple conspiracy counts with overlapping dates not so complex as to require a specific unanimity instruction); United States v. Gutstein, 980 F.2d 739, 1992 WL 354151, at *5 (9th Cir. Nov. 30, 1992) (case involving defendant's conviction for conspiracy to commit securities fraud and wire fraud not so extremely complex that a specific unanimity instruction was required). The Court provided a thorough instruction on the conspiracy count, listing and defining each of the elements that the Government had to prove beyond a reasonable doubt. The Court also gave a general unanimity charge informing the Jury that its verdicts had to be unanimous. These measures alone were sufficient to ensure that the jury was properly apprised of the law and to prevent confusion.
Furthermore, the Court in fact gave a specific unanimity instruction on the object of the conspiracy, cautioning the Jury that it must "find there was a plan to commit at least one of the crimes alleged in the indictment as an object of the conspiracy with all of you agreeing as to the particular crime or crimes which the conspirator's agreed to commit." (Trial Tr. Vol. XV, 3525.) That specific unanimity instruction was sufficient to quell any possible jury confusion arising from the fact that Count 1 alleged a multi-object conspiracy to violate securities law and wire fraud.
Most importantly, there was no indication that the jury was confused by the conspiracy charge in this case. Poulsen argues that the jury was "demonstrably" confused based on a single question posed during deliberation. Although questions from the jury can evidence juror confusion, see United States v. Washington, 127 F.3d 510, 513 (6th Cir. 1997), such was not the case in this instance. During deliberation the jury asked the Court whether they "need[ed] to identify to the Court specific facts [they] used to draw [their] conclusions of guilt or non guilt." (Trial Tr. Vol. XVI, 3558.) That question does not relate to the conspiracy charge and does not evidence confusion with the elements required for conviction on the conspiracy charge. Rather, the jury's question related to the manner in which they were to present their verdicts to the Court.
The Court responded that the Jury need not do so.
Finally, the Court finds that there was no variance between the indictment and the proof at trial. Poulsen baldly asserts that there was a variance without citing any supporting evidence, argument, or authority. As Poulsen has not developed the argument, the Court considers it waived. See Gen Star Nat'l Ins. Co. v. Administratia Asigurarilor de Stat, 289, F.3d 434, 441 (6th Cir. 2002) (undeveloped legal arguments waived); United States v. Lanzotti, 205 F.3d 951, 957 (7th Cir. 2000) (explaining that "[i]t is not this court's responsibility to research and construct the parties arguments.")
Accordingly, as the conspiracy count was not "extremely complex," there was no variance between the indictment and the proof at trial, and there is no evidence that the jury was confused a specific unanimity instruction was not required. Nevertheless, the Court gave a specific unanimity instruction regarding the object of the conspiracy. In sum, the Court properly instructed the jury as to the required elements of a conspiracy conviction as laid out by the Sixth Circuit's pattern instructions. Therefore, the Court DENIES Poulsen's Motion for a new trial on this basis.
IV. CONCLUSION
The Court concludes that none of Poulsen's arguments on behalf of vacating the jury's verdict and granting him a new trial has merit. Poulsen was tried by an impartial jury of his peers and accorded all the procedural protections to which he was entitled. This matter therefore is at an end. Poulsen's Motion (doc. no. 859) is DENIED.