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United States v. Lillemoe

United States District Court, D. Connecticut

March 16, 2017

UNITED STATES OF AMERICA
v.
BRETT LILLEMOE AND PABLO CALDERON, Defendants.

          RULING RE: LILLEMOE'S MOTION FOR A JUDGMENT OF ACQUITTAL, OR IN THE ALTERNATIVE, A NEW TRIAL (DOC. NO. 336) AND CALDERON'S MOTION FOR A JUDGMENT OF ACQUITTAL OR FOR A NEW TRIAL (DOC. NO. 337)

          Janet C. Hall United States District Judge

         I. INTRODUCTION

         On November 9, 2016, defendant Brett Lillemoe was convicted of one count of conspiracy and five counts of wire fraud, and defendant Pablo Calderon was convicted of one count of conspiracy and one count of wire fraud.[1] Lillemoe and Calderon each timely filed a Motion for a Judgment of Acquittal, pursuant to Rule 29 of the Federal Rules of Criminal Procedure. In the alternative, Lillemoe and Calderon move for a new trial pursuant to Rule 33 of the Federal Rules of Criminal Procedure. (Doc. Nos. 336, 337).

         For the reasons set forth below, both Motions are denied.

         II. BACKGROUND

         On February 20, 2015, the grand jury returned a twenty-three count Indictment against Brett Lillemoe, Pablo Calderon, and Sarah Zirbes. Indictment (Doc. No. 1). The Indictment charged Lillemoe with one count of conspiracy to commit wire fraud and bank fraud, nineteen counts of wire fraud, one count of bank fraud, and one count of money laundering. Id. at ¶¶ 1-56. The Indictment charged Calderon with one count of conspiracy to commit wire fraud and bank fraud, nineteen counts of wire fraud, one count of bank fraud, one count of money laundering, and one count of false statement. Id. at ¶¶ 1-56. Almost all of the counts in the Indictment revolved around the defendants' involvement with the Export Credit Guarantee program (“GSM-102”), a program run by the United States Department of Agriculture (“USDA”). The only exception was Count Twenty-Three, which alleged that Calderon made a false statement in connection with the Federal Bureau of Investigation's investigation into the defendants' scheme. Id. at ¶¶ 55-56.

         In order to accurately describe the scheme at issue in the trial, it is first necessary to describe a typical GSM-102 transaction. The GSM-102 program is a federal program designed to encourage agricultural exports to developing countries. See 7 C.F.R. § 1493.10(a) (2014) (describing the program's purpose “to expand U.S. agricultural exports by making available export credit guarantees to encourage U.S. private sector financing of foreign purchases of U.S. agricultural commodities on credit terms.”).[2] In a standard GSM-102 transaction, a U.S. exporter would enter into an agreement with a foreign importer of U.S. agricultural goods to import goods to an approved developing nation. 7 C.F.R. § 1493.10(d). The foreign importer would then approach an approved foreign bank for a letter of credit naming the U.S. exporter as the beneficiary. See 7 C.F.R. § 1493.20(k) (noting that the letter of credit must be issued by a “CCC-approved foreign banking institution”). The letter of credit would be payable on presentation of certain shipping documents named in the letter of credit, such as a bill of lading, to the bank. See UCP 600, Ex. 2603, Art. 15.[3] The foreign bank would then approach a U.S. bank, asking the U.S. bank to “confirm” the letter of credit, whereby the U.S. bank would commit to pay the beneficiary on behalf of the foreign bank that issued the letter of credit in exchange for a promise by the foreign bank to pay back the U.S. bank with interest. See id. at Art. 8. If the U.S. bank confirms the letter of credit, the U.S. bank must pay the beneficiary of the letter of credit when the conditions of payment, as set out in the letter of credit, are satisfied. Id. The GSM-102 program facilitates these transactions by guaranteeing a portion, most commonly 98%, of the money promised in the letter of credit in the event that a foreign bank defaults on its obligation to repay the debt. See Trial Tr. at 788:9-15.

         The program is administered by the Commodity Credit Corporation (“CCC”), an agency within the USDA. 7 C.F.R. § 1493.10 (a) (2014). An exporter who wishes to take advantage of the GSM-102 program must first have a firm export sale in place, and then may submit an application to the CCC for a guarantee on the transaction. 7 C.F.R. § 1493.40 (2014). The guarantee will cover the exporter or their assignee in the event that the foreign importer or foreign bank defaults on its obligation under the letter of credit. 7 C.F.R. § 1493.10(a) (2014). That way, if the foreign bank refuses to pay or defaults on the letter of credit, the U.S. exporter will be left with only a small fraction of a loss, thereby encouraging foreign exports to developing nations by reducing the risk of nonpayment.

         The GSM-102 program has also been utilized to finance a different type of transaction, which was referred to during trial as a third party GSM-102 transaction. In a third party transaction, a non-exporting third party will buy the rights to a bill of lading for a GSM-102 eligible shipment, so long as the actual exporter did not apply for a GSM-102 guarantee on the same shipment. The third party will then use the shipping information provided by the physical exporter to apply for a GSM-102 guarantee. Next, the third party will execute a transaction with a foreign entity based in the country that the commodity was actually shipped to, essentially mirroring the sale of the physical goods. This foreign entity is often a subsidiary or a related entity to the third party's domestic entity. The foreign buyer then applies for an irrevocable letter of credit from a foreign bank naming the domestic entity as the beneficiary to finance the sale. Finally, the foreign entity sells the rights to the goods back to the original, actual exporter for an amount less than they were bought for. Through this sale, the third party effectively pays a fee for “renting” the trade flow from the actual exporter.

         Meanwhile, the letter of credit is then forwarded to a U.S. bank, which will confirm the letter of credit, and pay the third party on presentation of the various documents named in the letter of credit. The third party will then forward those funds to the foreign bank who originally issued the letter of credit. The effect of this convoluted transaction is to create a loan from the U.S. bank to the foreign bank that is guaranteed by the CCC through the GSM-102 program. The legality of the third party transaction was not at issue during the trial. See Jury Charge (Doc. No. 323) at 47 (“Participating in the GSM-102 Program as a financial intermediary is not, in itself, illegal.”).

         Instead, the Indictment alleged that Lillemoe and Calderon, who positioned themselves as third parties in GSM-102 transactions, conspired to commit bank fraud and wire fraud by materially altering shipping documents. Indictment at ¶¶ 27-28. Specifically, the Indictment alleged that Lillemoe and Calderon created multiple entities to maximize their share of the limited numbers of GSM-102 guarantees, which were split pro rata among applicants, id. at ¶ 29-33; Trial Tr. at 799:17-800:21, and altered bills of lading marked “copy non negotiable” by whiting out that marking and stamping the word “original” in its place, id. at ¶ 40. The Indictment also alleges that Lillemoe and Calderon altered documents by adding shading to portions of documents to make the alterations less apparent. Id. at ¶ 41.

         The scheme that the government described at trial involved the defendants using altered bills of lading to secure loans from U.S. banks to foreign banks, and charging the foreign banks a fee for the service. Specifically, the government offered evidence that the defendants had purchased the rights to copies of bills of lading marked “Copy - Non-Negotiable, ” whited-out those markings, and then applied their own stamp to mark the bills of lading “Original.” They then presented these altered documents to two U.S. banks, Deutsche Bank and CoBank, causing the banks to disburse funds according to the terms of the letters of credit. The government also put forth evidence that the defendants changed dates of bills of lading in order to ensure that they could utilize as much of the GSM-102 guarantees as possible.

         The evidence presented by the government at trial consisted, inter alia, of (1) the GSM-102 program files that contained the documents that were submitted to the U.S. banks; (2) the unaltered bills of lading that were provided to Lillemoe and Calderon; (3) testimony from a CoBank employee, Holly Womack (“Womack”); (4) testimony from a Deutsche Bank employee, Rudy Effing (“Effing”); (5) testimony from a USDA employee, Jon Doster (“Doster”); (6) testimony from FBI Special Agent Steven West; and, on rebuttal, (7) testimony of an expert on letters of credit, James Byrne (“Byrne”). The defense case consisted of, inter alia, three experts: (1) testimony of an expert on bills of lading, Professor Michael Sturley; (2) testimony of an expert on letters of credit, Vincent O'Brien (“O'Brien”); and, (3) testimony of an expert on the GSM-102 program, Professor Steven Lindo (“Lindo”). The defendants also introduced various character witnesses, and defendant Brett Lillemoe testified in his own defense.

         On November 3, 2016, the case was submitted to the jury. On November 9, 2016, the jury returned a verdict of guilty for Lillemoe on Counts One of conspiracy and Counts Two through Six of wire fraud and returned a verdict of guilty for Calderon on Count One of conspiracy and Count Six of wire fraud. See Verdict (Doc. No. 324).[4] A co-defendant, Sarah Zirbes (“Zirbes”), who had been charged with them in Counts One and Seven through Twenty Two, was acquitted of all charges. Id.

         All of the counts of wire fraud for which the defendants were convicted involved a transaction with CoBank. Indictment at 23. The letter of credit in the transaction was issued by a bank in Russia, IIB, and the goods were shipped on a vessel called Cool Express. See Ex. 250 (GSM-102 file for the transaction). Thus, at trial, the transaction was referred to as the “Cool Express transaction.”

         III. LEGAL STANDARD

         Rule 29 of the Federal Rules of Criminal Procedure requires the court, on motion by a defendant, to “enter a judgment of acquittal for any offense for which the evidence is insufficient to sustain a conviction.” Fed. R. Crim. P. 29(a). The defendant who challenges the sufficiency of his conviction “faces an uphill battle, and bears a very heavy burden.” United States v. Mi Sun Cho, 713 F.3d 716, 720 (2d Cir. 2013) (citation and internal quotation marks omitted). This is because the court in deciding a motion for a judgment of acquittal must view the evidence in the light most favorable to the government, draw all inferences in favor of the government, and must defer to the jury's assessment of witness credibility. United States v. Hawkins, 547 F.3d 66, 70 (2d Cir. 2008). The question for the court is whether “any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Mi Sun Cho, 713 F.3d at 720 (quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979). The court must view the evidence in its totality. United States v. Cassese, 428 F.3d 92, 98-99 (2d Cir. 2005). Additionally, the court must be careful not to substitute its determination of the weight of the evidence, or the inferences to be drawn, or the credibility of the witnesses, for that of the jury. Id.

         Rule 33 of the Federal Rules of Criminal Procedure allows the court, on motion of the defendant, to vacate any judgment and grant a new trial if it is in the interest of justice. Granting a motion for a new trial should be done sparingly, and only if “the trial court is convinced that the jury has reached a seriously erroneous result or that the verdict is a miscarriage of justice.” United States v. Triumph Capital Grp., Inc., 544 F.3d 149, 159 (2d Cir. 2008) (citation omitted). In resolving a motion for a new trial under Rule 33, the court is permitted to reevaluate the evidence, but “generally must defer to the jury's resolution of conflicting evidence.” United States v. Ferguson, 246 F.3d 129, 133-34 (2d Cir. 2001).

         IV. DISCUSSION

         The moving defendants advance five separate arguments in their briefs. See Mem. of Law in Supp. of Def. Brett Lillemoe's Mot. for J. of Acquittal, or in the Alternative, a New Trial (Doc. No. 336-1) (“Lillemoe Mem.”); Memo. of Law in Supp. of Def. Pablo Calderon's Mot. for J. of Acquittal or for a New Trial (Doc. No. 338) (“Calderon Mem.”) These defendants make three separate arguments that the evidence was insufficient to support the convictions of wire fraud. See Lillemoe Mem. at 3-4; Calderon Mem. at 1. These defendants also argue that the evidence was insufficient to convict the defendants of conspiracy. Id. They ask the court to enter a judgment of acquittal or, in the alternative, a new trial. Id. Lillemoe also requests that the court grant a new trial because the court did not admit into evidence the GSM-102 regulations that went into effect in December 2014, more than 2 years after the time period alleged in the Indictment. See Indictment at 6 (alleging that the timeframe of the conspiracy was from about September 2007 to about January 2012).

         For the reasons that follow, the court is unpersuaded by the moving defendant's arguments. Indeed, the evidence was more than sufficient to permit a rational trier of fact to determine that the moving defendants committed wire fraud and conspiracy, and the court properly exercised its discretion under Rule 403 of the Federal Rules of Evidence to exclude the evidence of subsequent revisions to the governing regulations.

         A. The Sufficiency of the Evidence that the Defendants Committed Wire Fraud

         To convict Lillemoe and Calderon of the crime of wire fraud, as charged in Counts Two through Six, the jury had to find that the government had proven ...


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