U.S. v. Lowry

409 F.Supp.2d 732

UNITED STATES of America, v. Charles Gilman LOWRY and Charles Monroe Grooms, Jr., Defendants.

No. CRIM.6:05-CR-00010.

United States District Court, W.D. Virginia, Lynchburg Division.

January 5, 2006.

COPYRIGHT MATERIAL OMITTED

Paul Graham Beers, Glenn Feldmann Darby & Goodlatte, Roanoke, VA, James Joseph Angel, Attorney at Law, Lynchburg, VA, for Charles Gilman Lowry and Charles Monroe Grooms, Jr.

C. Patrick Hogeboom, III, Thomas L. Eckert, United States Attorneys Office, Roanoke, VA, for United States of America.

MEMORANDUM OPINION

MOON, District Judge.

This matter is before the Court on Defendant Charles Lowry's December 12, 2005 Motion to Dismiss Superceding Indictment. In a December 20, 2005 motion, Co-Defendant Charles Grooms adopted Lowry's motion and also requested the dismissal of additional counts. A hearing on the motion was held on December 22, 2005. After the hearing, Grooms filed a motion to sever various counts. For the reasons stated below, the Court will deny Lowry's motion to dismiss in its entirety; deny Grooms' motion to dismiss in part and grant it in part; and grant Grooms' motion to sever.

BACKGROUND

Defendant Lowry is an attorney licensed to practice law in Virginia. In documents provided to investors by both Defendants, Grooms is described as the program manager and agent for High Yield, Inc., a corporation located in St. Vincent and the Grenadines.

The original indictment in this matter was brought on February 17, 2005, and the facts alleged therein are as follows. Defendants convinced seven named and other unnamed investors to transfer a total of $2 million to attorney escrow accounts opened by Lowry. They fraudulently represented that the investors' funds would remain in Lowry's accounts safe and risk-free while earning high returns. Instead, Defendants caused the $2 million to be transferred in two $1 million batches to a South Carolina escrow account, where it was combined and subsequently transferred to an account at Norwest Bank in Minnesota.¹ When the investors repeatedly requested return of their money, Defendants represented that the money was still in Lowry's escrow account, that its return was only temporarily delayed, and that it would soon be returned. Throughout the scheme, Defendants played on the investors' Christian faith, which Defendants purported to share.

Count One of the original indictment charges that beginning in September 1999 and continuing through 2004, Defendants conspired to commit wire fraud. The alleged goal of the conspiracy was to obtain money from investors, and keep it as long as possible without raising suspicion. To this end, Defendants required the investors not to disclose their investment with Defendants to anyone, and represented that the investors' money was their own. As overt acts in furtherance of the conspiracy, Count One alleges, inter alia, that Lowry prepared an investor document entitled "High Yield, Inc., Profit Participation Agreement" that was signed by Grooms as Program Manager and by Lowry as attorney and escrow agent, and that Lowry prepared and distributed to investors of documents entitled "Charles G. Lowry Attorney Trust/Escrow Agreement" and "Attorney Trust/Escrow Account Safekeeping Receipt Certificate."

Counts Two and Three charge that on or about February 23, 2000, and April 5, 2000, respectively, Defendants caused wire transfers from accounts in the Western District of Virginia to a South Carolina attorney escrow account for the purpose of executing the fraudulent scheme.

On June 23, 2005, the Government obtained a superceding indictment in this matter. Counts Two and Three are virtually identical in the original and superceding indictments. Count One is expanded in two principal ways. First, the conspiracy is alleged to have commenced in September 1998 — one year earlier than alleged in the original indictment. Further, while the original indictment charged only a conspiracy to commit an offense against the United States, the superceding indictment also charges that Defendants conspired to defraud the United States by impeding the lawful functions of Treasury Department and the IRS in the assessment and collection of income taxes.

The superceding indictment also contains twelve additional charges. Count Four alleges that between August 1997 and March 2004, Grooms executed a scheme to defraud a health care program — Medicaid — by knowingly submitting fraudulent financial and income information to the Amherst County Department of Social Services ("Department"); Count Fourteen alleges that in February 1999 Grooms knowingly provided false and misleading information to the Department to obtain food stamp benefits. Counts 5-7 allege that for the calendar years of 1999, 2000, and 2003, Grooms willfully and unlawfully failed to file income tax returns. Counts 8 and 9 charge Lowry with willfully and unlawfully failing to file reports on June 30, 2000, and June 30, 2001, respectively, of overseas financial accounts which had a balance over $10,000; Counts 10-11 charge Grooms with the same offenses. Counts 12 and 13 charge that on October 13, 2000, and October 15, 2001, respectively, Lowry willfully made false representations on his 1040 forms to the IRS. Count 15 contains a civil forfeiture count against Lowry and Grooms for the unlawful conduct alleged in Counts 1-3, while Count 16 is a forfeiture count against Grooms for the Medicaid and food stamp fraud alleged in Counts Four and Fourteen.

DISCUSSION

Defendants both argue that Counts 1, 2, 3, 8, 9, and 15 of the superceding indictment are barred by the applicable statutes of limitation. Grooms maintains that Counts 14 and portions of Counts 4 and 16 are also time-barred. Lowry also argues that Counts 1, 2, 3, and 15 should be dismissed because they are based on Lowry's alleged violation of the Virginia Rules of Professional Conduct, and as such are insufficient as a matter of law. Defendants further contend that Count One as stated in the superceding indictment is duplicitous, and, finally, that Counts 4, 14, and 16 are improperly joined.²

I. Statute of Limitations

A. Count One — Conspiracy

Defendants first argue that Count One is time-barred³ because the "central purpose" of the conspiracy alleged was accomplished no later than May 30, 2000, when Defendants combined the investors' money and transferred it to the Minnesota bank — more than five years before the superceding indictment was brought. Quoting United States v. Runnells, 36 F.Supp.2d 696, 700 (E.D.Va.1998), Defendants emphasize that "[e]vidence of a cover-up alone is not sufficient to show that a conspiracy has continued."

The Government counters that the conspiracy alleged in Count One continued past the time of the May 2000 wire transfers and into 2004 by way of Defendants' ongoing fraudulent promises and representations to victims that their money remained safe in Lowry's attorney trust account and would soon be returned. (Gov't Resp. at 4). Defendants also allegedly concealed the fact that the investors' funds "was pooled money that belonged to many people." (Sup. Indict. § C ¶¶ 21, 22). These overt acts were integral to the fraudulent scheme and not mere cover-up activity because they lulled victims into a false sense of security, preventing them from contacting the authorities, and enabled Defendants to escape detection by third parties or law enforcement. (Gov't Resp. at 4; Sup. Indict. § B ¶ 3). The lulling and secrecy furthered one of Defendants' goals, which was to enrich themselves by exerting dominion and control over investor assets without the investors' knowledge. (Sup. Indict. § B ¶¶ 1,2).

When a conspiracy "contemplates bringing to pass a continuous result that will not continue without the continuous co-operation of the conspirators to keep it up, and there is such continuous cooperation," the conspiracy is a continuing offense. United States v. Kissel, 218 U.S. 601, 607, 31 S.Ct. 124, 54 L.Ed. 1168 (1910). In determining whether a conspiracy is continuing, thereby preventing the statute of limitations from starting to run, a court must focus on the scope of the conspiratorial agreement. Grunewald v. United States, 353 U.S. 391, 397, 77 S.Ct. 963, 1 L.Ed.2d 931 (1957).

With respect to cover-up activity in particular, acts of concealment carried out to achieve the central purpose of a conspiracy would constitute a continuing offense, but concealment intended solely to cover up an already executed crime would not constitute a continuing offense. Grunewald, 353 U.S. at 405, 77 S.Ct. 963. In Grunewald, the Court refused to sustain a conspiracy conviction that depended on the finding of an "implied subsidiary conspiracy to conceal." Id. at 399, 77 S.Ct. 963. No direct evidence of an agreement to conceal existed in the trial record. Instead, the evidence showed only that the conspirators took care to cover up their crime in order to escape detection and punishment, and thus did not justify the finding of a continuing conspiracy. Id. at 402, 77 S.Ct. 963.

The Court subsequently shed some light on when acts of concealment can cause a scheme to be ongoing. In United States v. Sampson, 371 U.S. 75, 83 S.Ct. 173, 9 L.Ed.2d 136 (1962), it reversed a district court's decision to dismiss an indictment, finding that a mailing sent to victims after defendants had already taken their money satisfied the mail fraud's statute requirement that the mails be used "for the purpose of executing" the fraudulent scheme. The defendants allegedly concocted a plan to obtain commission-type fees from businessmen by promising to help them obtain loans or sell their companies. Id. at 77, 83 S.Ct. 173. Defendants never intended to make and in fact did not make any substantial efforts to perform these promised services. Id. The scheme contemplated the use of propaganda, false promises, and half-truths by high-pressure salesmen to convince victims who had already paid defendants "advance...