9th Circuit Sets Limits on Mail Fraud Liability
(CN) - The 9th Circuit on Monday upheld the mail fraud conviction of an embezzler in a ruling that delineates when a scheme is deemed "complete."
Thomas Tanke was convicted on five counts of bank fraud and two counts of mail fraud for embezzling more than $192,000 from his employer from November 2002 through February 2004.
Tanke worked for Azteca Construction Company, owned by Rafael Martin and his family. The Martins also ran a construction equipment rental service.
As vice president of operations, Tanke had the authority to approve and issue checks from Azteca's accounts. He used Azteca checks to pay for more than $74,000 in personal expenses, including a car lease, financing for an Audi A4 Quatro and a BMW, credit card payments and jewelry.
He then fudged the records to conceal these payments, issuing bogus invoices and modifying the carbon copes of Azteca checks.
"For example, a false invoice from 'Onyx Corporation,' ostensibly for '[p]igging of lines and testing of all pipe,' was actually a $10,027.92 payment for a BMW Z4," the ruling states.
Tanke also diverted seven checks payable to Martin, Azteca and the equipment rental company, totaling more than $117,000, into the account of his consulting company, Cedar Creek Associates.
He was sentenced to five years and 10 months in prison and ordered to pay about $243,000 in restitution.
Tanke challenged one of the mail fraud convictions, claiming it was based on a "lulling letter" he sent Martin in September 2004, two months after he left Azteca. The letter, framed as a bogus invoice from Tanke's consulting company, stated that Martin's businesses owed Cedar Creek nearly $160,000 for consulting work.
The government claimed that the letter constituted mail fraud because it was meant to cover up the scheme.
But the three-judge panel in San Francisco refused to recognize what it called "an implied attempt to conceal."
"Such open-ended liability is of great concern," Judge Raymond Fisher wrote.
"In sum, we hold that mailings designed to avoid detection or responsibility for a fraudulent scheme fall within the mail fraud statute when they are sent before the scheme is completed," Fisher wrote. "To determine when a scheme ends, we look to the scope of the scheme as devised by the perpetrator."
Once that scheme "has been fully executed, then the mailing, even if sent to facilitate concealment of the scheme, falls outside the statute," the court concluded.
Fisher acknowledged that a reasonable jury could infer that Tanke's fraudulent scheme had ended in July 2004, after he embezzled the last of the money and no longer worked for Azteca. Under that theory, the September letter was "simply an after-the-fact coverup."
'It is also plausible, however, that a reasonable jury could have found that the Cedar Creek cover story was part of Tanke's embezzlement scheme from the outset or as it evolved over time - just another misrepresentation to facilitate diversion of Azteca's and CERS's funds into Tanke's bank accounts," Fisher wrote.
"Under the totality of the circumstances, a reasonable jury could have found that the Cedar Creek cover story was a link in the fraudulent chain rather than a post-completion coverup."
The panel also upheld the lower court's decision to enhance Tanke's sentence based on the scheme's sophistication and on Tanke's misrepresentations during a bankruptcy proceeding.
But the court vacated part of the lower court's restitution order, saying Tanke should not have to pay more than $44,000 for fraudulent credit card charges and $1,800 for wage over-payments that weren't tied to his crimes.
Judge J. Clifford Wallace wrote separately "to point out the opinion's limited holding and unnecessary reasoning."
"First, the majority's narrow focus on the singular circumstance of the 'time gap' between fraudulent acts and the lulling letter is misleading, because it suggests a 'statute of limitations' approach to liability," Wallace wrote.
"Second, the majority incorrectly dismisses the weight of precedent from our sister circuits," he added, referring to rulings that have extended liability for mail fraud based on the "totality of the circumstances."