Submitted April 13, 2015
Appeals from United States District Court for the Western District of Missouri - Kansas City.
For United States of America, Plaintiff - Appellee (13-3335, 13-3336, 13-3337, 13-3338, 13-3338): Kathleen D. Mahoney, Assistant U.S. Attorney, Daniel M. Nelson, Assistant U.S. Attorney, U.S. Attorney's Office, Kansas City, MO.
Isreal Owen Hawkins, Jr., Defendant - Appellant (13-3335), Pro se, Forrest City, AR.
For Isreal Owen Hawkins, Jr., Defendant - Appellant (13-3335): Stephen C. Moss, Assistant Federal Public Defender, Federal Public Defender's Office, Kansas City, MO.
For Teresa Brown, Defendant - Appellant (13-3336): Russell J. Shankland, Shook & Hardy, Kansas City, MO.
Teresa Brown, Defendant - Appellant (13-3336), Pro se, Bandera, TX.
Johnny Heurung, Defendant - Appellant (13-3337), Pro se, Littleton, CO.
For Johnny Heurung, Defendant - Appellant (13-3337): David Andrew Kelly, Kelly & Symonds, Lee's Summit, MO.
For William Miller, Defendant - Appellant (13-3338): David Guastello, The Guastello Law Firm, Kansas City, MO.
William Miller, Defendant - Appellant (13-3338), Pro se, Yankton, SD.
Martin Roper, Defendant - Appellant (13-3339), Pro se, Texarkana, TX.
For Martin Roper, Defendant - Appellant (13-3339): Jack F. West, Kansas City, KS.
Before BYE, BEAM, and SMITH, Circuit Judges.
BEAM, Circuit Judge.
Isreal Hawkins, Teresa Brown, Johnny Heurung, William Miller, and Martin Roper were convicted of various crimes related to their involvement in promoting and/or selling stock for Petro America Corporation (Petro America), an unregistered company that had no value. The defendants appeal their convictions and challenge rulings the district court made with respect to various pre-trial and post-trial motions, juror selection, and numerous evidentiary issues. Heurung also appeals his sentence. We affirm.
On June 15, 2011, a grand jury sitting in the Western District of Missouri issued a superseding indictment (the " Indictment" ) charging the defendants and seven additional alleged coconspirators with conspiracy to commit securities fraud and wire fraud, in violation of 18 U.S.C. § 371. The Indictment further charged Hawkins with aiding and abetting securities fraud, in violation of 15 U.S.C. § 77q and 18 U.S.C. § 2; aggravated currency structuring, in violation of 31 U.S.C. § § 5324(a)(3) and (d)(2); money laundering, in violation of 18 U.S.C. § 1957; and two counts of wire fraud, in violation of 18 U.S.C. § 1343. In addition to the conspiracy charges, Brown was charged with one count of securities fraud and six counts of wire fraud; Heurung was charged with two additional counts of wire fraud; and Miller was charged with one count of money laundering and one count of wire fraud. The remaining counts in the Indictment related to the seven other alleged coconspirators, all of whom pled guilty to various charges. Hawkins, Brown, Heurung, Miller and Roper maintained their innocence and proceeded to trial. Hawkins' defense theory was that Petro America was a legitimate company and that the government was prosecuting the codefendants so that it could confiscate the company's substantial assets. The remaining defendants acknowledged that Petro America was a sham but claimed they had believed in good faith that the company was real and that they could promote and/or sell its stock. A jury found each defendant guilty on all charged counts.
A. Summary of the Petro America Scam
Between September 2008 and November 2010, more than 12,000 investors purchased Petro America's stock, at a cumulative cost of at least $10.2 million. During this time period, Hawkins, Heurung and others relentlessly represented to shareholders and prospective investors that Petro America was an oil, gas and mining company that had acquired numerous assets collectively worth hundreds of billions of dollars and that the company's stock would soon be traded on a public exchange. In reality, Petro America had no board of directors, engaged in no profitable business activities, kept abysmal financial records, and never took any substantial steps to " go public." Further, Petro America's assets essentially amounted to ownership of a small company whose stock was traded on the pink sheets, typically for fractions of a penny, and a vaguely defined stake in a packaging company that never earned Petro America a cent of profit. Instead, it appears that all of Petro America's income came from the sale of the company's stock to private investors, that only a small portion of the investors' funds were used for legitimate business purposes, and that Hawkins syphoned off most of the company's money into his own pocket. The record further indicates that Hawkins gifted millions or billions of shares to his coconspirators, who in turn sold the stock to private investors and kept most or all of the proceeds. In sum, the government's evidence overwhelmingly established that Petro America was a sham entity that had no real value and that Hawkins, along with several of his coconspirators, used the company as a vehicle to dupe thousands of unwitting investors out of millions of dollars.
Hawkins founded Petro America in the summer of 2007. Hawkins incorporated Petro America in Kansas and subsequently registered the company in Missouri as a foreign corporation. In or around September 2008, Hawkins and several coconspirators, including Brown, Miller, and Roper, began selling Petro America's stock to private investors, many of whom resided in Missouri. It is undisputed that the coconspirators' sale of stock in Missouri was unlawful because Hawkins had not registered the stock with the Securities Division of the Missouri Secretary of State (" Securities Division" ) nor qualified for an exception from, or an exemption to, registration. See Mo. Rev. Stat. Ann. § § 409.1-102, 409.3-301, and 409.4-401 (collectively stating it is unlawful for a person to offer or sell an unregistered security in Missouri unless the security is a federally covered security or fits within an enumerated exemption and that persons transacting business as a broker-dealer of securities generally must be registered with the state). This fact came to light in early October 2008 after the Securities Division began receiving complaints from consumers around the country about an email that Roper sent out on September 20, 2008. Roper's email claimed that Petro America was an oil and gas company that was worth $68 million, that the company would go public within six months, and that investors would make $200,000 off a $100 dollar investment. The email also instructed investors to send funds directly to Roper and provided his address and a Missouri phone number.
The Securities Division began investigating Petro America in early October 2008. As part of this process, officials from the Securities Division interviewed Roper, who admitted that he knew Petro America's stock was not registered, that he was not registered to sell securities, and that sending the email was a " mistake." Roper also indicated that he was familiar with securities law and had even taken a series of examinations that are prerequisites to becoming a registered broker of securities in the State of Missouri. See Mo. Code Regs. Ann. tit. 15, § 30-51.030(2)(A).
On November 12, 2008, the Securities Division issued a Cease and Desist Order (the " Order" ) that prohibited Petro America, Hawkins, Roper, their agents, and anyone " with knowledge of [the] Order" from offering or selling or aiding in the offering or selling of Petro America's securities in Missouri until the company registered its securities or qualified for an exemption to registration. The Order explicitly stated that Hawkins and Roper had used unlawful means to promote and sell the company's stock, including (1) making misleading statements about the value of the stock; and (2) omitting to state numerous material facts, such as information related to the company's financial condition, the background of the company and its officers, and that the company's stock was not registered. See Mo. Rev. Stat. Ann. § 5-501(2) . The Securities Division mailed the Order to Petro America, Hawkins, and Roper and posted the Order on the Missouri Secretary of State's website. Although Hawkins and Roper initially tried to challenge the Order, they quickly abandoned these efforts and took a number steps to resolve their issues with the Securities Division, including paying fines and consenting to the Order. The record establishes, however, that Hawkins never took substantial steps to register Petro America's stock or qualify for an exemption to registration in Missouri or any other jurisdiction.
It is undisputed that each of the defendants read the Order shortly after it was issued and that the Order remains in effect to this day. Nevertheless, between November 2008 and November 2010 the defendants collectively flouted virtually every mandate contained in the Order. Hawkins, apparently in an attempt to get around the Order, began " gifting" shares to various coconspirators, including Brown, Miller and Roper, who continued to support Petro America and promote the company's stock. The coconspirators in turn sold their shares to investors, and some of the coconspirators, including Brown, also kicked back a portion of their profits to Hawkins. The record indicates that Brown derived $3,047,202 by selling Petro America stock to thousands of investors and that she transmitted more than $1,000,000 of these proceeds back to accounts that Hawkins personally owned or controlled. Similarly, Miller and Roper derived $165,431 and $93,420, respectively, from the sale of Petro America stock to dozens of investors. Based on the evidence it is unlikely that Heurung sold Petro America stock to private investors. However, as discussed in more detail below, Heurung played a key role in illegally promoting Petro America's stock to investors, and he received approximately $260,000 in " commissions" for his efforts.
Petro America's widespread success at attracting investors can largely be attributed to the tenacious efforts Hawkins, Heurung and Brown put into pitching the company. The record also indicates that Roper, and to a lesser extent Miller, played significant behind-the-scenes roles with the company. Around the time the Securities Division started investigating Petro America, Hawkins and Heurung both began hosting separate weekly " shareholder meetings." Hawkins typically hosted his meetings in front of a live crowd at various locations in and around Kansas City, but the meetings were also broadcast via conference calls to interested parties, at times numbering in the thousands. Between October 2008 and October 2010, Hawkins hosted at least 50 shareholder meetings. Brown, Roper and Miller regularly attended these shareholder meetings, and there is some evidence that Roper occasionally helped lead or facilitate the meetings. Various witnesses described the Hawkins-led meetings as being akin to pep rallies with religious overtones. Witnesses stated that Hawkins often arrived fashionably late, flanked by a group of pastors who became known as the Ministers' Alliance, and that the room " exploded" when he entered. Hawkins often prayed during his meetings and claimed that Petro America was a blessing from God that would benefit the community and transform shareholders into millionaires and billionaires. Hawkins also claimed that Petro America would significantly reduce unemployment and stated that he hoped his humanitarian efforts would earn him a Nobel Peace Prize. Several witnesses stated that Hawkins' portrayal of himself as a deeply religious man who had support from the religious community lent both Hawkins and Petro America an air of credibility and significantly contributed to their decision to invest in the company.
Hawkins used his platform at the shareholder meetings to spew misinformation about Petro America's financial condition and its supposed progress in preparing a public offering. Hawkins regularly represented that Petro America was on the verge of " going public," and claimed the company's delay in accomplishing this feat was due to minor glitches in paperwork or government interference in Petro America's affairs. Hawkins also frequently claimed that Petro America had entered into lucrative oil and gas contracts or had acquired valuable mining claims that were worth billions of dollars. Indeed, by early 2010, Hawkins was regularly claiming that Petro America had $284 billion in assets, which, according to one expert witness, would dwarf the assets owned by companies such as Wal-Mart and Coca-Cola. Ironically, however, a hat was sometimes passed around at the shareholder meetings to collect donations to pay for the meetings. Hawkins at various times justified the company's need to collect donations for meetings, attorneys, and other costs by explaining that Petro America was rich in assets, but poor in cash.
Starting in or around October 2008, Heurung began discussing Petro America in weekly conference calls he hosted. Various witnesses described Heurung as Petro America's financial expert, and Heurung claimed that he traveled around negotiating contracts and acquiring assets for Petro America. Heurung also represented to shareholders that Petro America was worth more than Wal-Mart and AT& T, that he had inside knowledge of Petro America's efforts to go public, that attorneys and CPAs were going over the company's " asset values" and " accounting values" with a " fine-tooth comb," and that the company's shares would soon be traded publicly and at astronomically high values. Heurung also used his platform to persistently pitch other (rather dubious) investment opportunities, including trading in " strips and coupons" and creating tax shelters in Panama. The record further indicates that Heurung and his secretary, Joy, organized and hosted a cruise for Petro America shareholders.
While Hawkins and Heurung served as the public pitchmen for Petro America, Brown was known as the company's " communications highway" and the person you went to " if you needed to get something from [Hawkins]." Brown regularly sent investors written summaries of Hawkins' shareholder meetings and fielded questions from people about Petro America. The record further indicates that Brown was a primary person to whom prospective investors were referred, that she sold Petro America's stock to over one thousand people and that she signed various agreements on behalf of the company.
As for Roper, the record indicates that he played a role in promoting the company and bolstering Hawkins' credibility. As noted above, Roper authored an email that was widely distributed and lured numerous investors into the Petro America scam. Roper was also a pastor and was a member of the Minister's Alliance. Various witnesses also testified that Roper was close to Hawkins, was " very high up" in Petro America and was considered Hawkins' " right-hand man." The record further indicates that, although Roper had some familiarity with Missouri's securities laws and was explicitly named in the Order, he continued to aggressively promote and sell Petro America stock that Hawkins gifted to him, and even created a website that he used to sell the stock.
The record indicates that Miller played a more minor role in Petro America. Witnesses stated that Miller was close friends with Hawkins and was part of Hawkins' " inner circle" until early 2010, when the two men apparently had a falling out. Miller also attended most of Hawkins' shareholder meetings, but there is little to no evidence that Miller spoke at any of the meetings or helped run them. Indeed, aside from hosting a shareholder Christmas party, it appears that Miller's activities on behalf of the company consisted of selling shares that Hawkins gifted to him and updating friends, family members, and others about events at Petro America.
Throughout the course of the Petro America scam, Hawkins, Heurung and other coconspirators went to great lengths to convince shareholders and prospective investors that Petro America was a legitimate company that was rapidly acquiring valuable assets. In October 2008, Petro America acquired a vaguely-defined interest in a packaging company, Performance Packaging, that utilized an underground storage facility in its business operations. The record establishes that Petro America never exercised control over, or received any financial benefit from, Performance Packaging. Nonetheless, Hawkins and Heurung regularly boasted that Petro America had acquired Performance Packaging and would use the underground facility to store oil. Petro America issued ...