Filed: Mar. 04, 2009
Latest Update: Mar. 28, 2017
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 07-4818 UNITED STATES OF AMERICA, Plaintiff - Appellant, v. DIANE W. PACE, Defendant – Appellee. - BRENT EARL WOOD, Amicus Supporting Appellee. Appeal from the United States District Court for the Eastern District of North Carolina, at New Bern. Terrence W. Boyle, District Judge. (5:05-cr-00044-BO) Argued: January 30, 2009 Decided: March 4, 2009 Before WILKINSON, MICHAEL, and MOTZ, Circuit Judges. Reversed and remanded by unpu
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 07-4818 UNITED STATES OF AMERICA, Plaintiff - Appellant, v. DIANE W. PACE, Defendant – Appellee. - BRENT EARL WOOD, Amicus Supporting Appellee. Appeal from the United States District Court for the Eastern District of North Carolina, at New Bern. Terrence W. Boyle, District Judge. (5:05-cr-00044-BO) Argued: January 30, 2009 Decided: March 4, 2009 Before WILKINSON, MICHAEL, and MOTZ, Circuit Judges. Reversed and remanded by unpub..
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 07-4818
UNITED STATES OF AMERICA,
Plaintiff - Appellant,
v.
DIANE W. PACE,
Defendant – Appellee.
-----------------------------------
BRENT EARL WOOD,
Amicus Supporting Appellee.
Appeal from the United States District Court for the Eastern
District of North Carolina, at New Bern. Terrence W. Boyle,
District Judge. (5:05-cr-00044-BO)
Argued: January 30, 2009 Decided: March 4, 2009
Before WILKINSON, MICHAEL, and MOTZ, Circuit Judges.
Reversed and remanded by unpublished per curiam opinion.
ARGUED: Anne Margaret Hayes, OFFICE OF THE UNITED STATES
ATTORNEY, Raleigh, North Carolina, for Appellant. Robert Daniel
Boyce, BOYCE & ISLEY, P.A., Raleigh, North Carolina, for
Appellee. ON BRIEF: George E. B. Holding, United States
Attorney, J. Gaston B. Williams, Assistant United States
Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Raleigh, North
Carolina, for Appellant. Brent Earl Wood, Cary, North Carolina,
Amicus Supporting Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
The United States appeals from a judgment of acquittal and
conditional new trial granted to Diane Pace after a jury
convicted her of eight charges relating to fraudulent
misrepresentations made to investors in a venture capital fund.
Despite the jury’s verdict, the district court found the
Government’s evidence insufficient as a matter of law to sustain
Pace’s convictions. For this reason, the district court granted
Pace a judgment of acquittal and, in the event of a reversal of
this judgment, a new trial. Because substantial evidence in the
record supports the jury’s verdict that Pace acted with an
intent to defraud investors, we reverse both the judgment of
acquittal and the conditional grant of a new trial, and remand
the case for sentencing.
I.
A.
Between 1996 and 2000, Stanley Van Etten formed several
venture capital companies based in Raleigh, North Carolina,
under the name “Mayflower Venture Capital” (Mayflower). Two of
these companies, Mayflower Funds I and II, solicited money to
invest in various “portfolio companies,” which ranged from
magazines to Internet start-ups. This case centers on Mayflower
Fund III, which a five-member committee managed. These five
3
Mayflower Fund Managers were Diane Pace, who had a securities
background, an attorney (Brent Wood), a CPA (Tom Eilers), and
two salesmen (John Brothers and Scott Pollack) (collectively,
the “Fund Managers”).
One of the Mayflower portfolio companies was BuildNet, a
private software firm with products designed to coordinate
aspects of the home-building industry. Both Fund I and Fund II
invested in BuildNet. On March 20, 2000, 1 BuildNet registered
with the SEC in preparation for a highly-anticipated initial
public offering (IPO).
Mayflower investors were eager to participate in the
BuildNet IPO, and Mayflower had leverage from its previous
investments in BuildNet. On March 10, a letter from the Fund
Managers informed Fund I and II investors that Mayflower was in
the process of putting together Fund III “to take advantage of
. . . the success surrounding BuildNet.” A March 29 letter from
Van Etten and Pace informed investors that Fund III would have
the “primary purpose” of purchasing BuildNet IPO shares. It
explained that Fund III was open only to Fund I and II investors
and that “[a]ny funds not used to purchase [BuildNet] IPO shares
. . . will be returned to the ‘lenders’ within 60 days from the
effective date of the BuildNet IPO,” or within 60 days if
1
Hereinafter, all dates are from 2000 unless otherwise
indicated.
4
BuildNet withdrew its SEC registration.
The following day, Van Etten sent an internal memorandum to
the Fund Managers. This March 30 memorandum explained:
All of the money being depositing into Fund III is a
loan. These funds will be used to manage the short-
term cash flow obligations [of Fund III] as well as to
pay for all BuildNet IPO shares. . . . [A]ny money
not invested in BuildNet will be returned to the
investor[s] . . . .
The Government maintains that this memorandum evidences Van
Etten’s plan to use the Fund III money not solely for the
BuildNet IPO, but as, essentially, a bridge loan for Mayflower
until the IPO went through.
B.
The Fund Managers sent several letters to Fund III
investors over the coming few months, updating them on the
progress of the BuildNet IPO and the status of their
investments. The Government maintained at trial that these
documents created and perpetuated a belief by investors that
Fund III money was to be used solely for the BuildNet IPO or
else returned -- when, in fact, Mayflower invested this money in
other companies.
In a May 3 “Update Memorandum,” the Fund Managers explained
that they believed that the BuildNet IPO remained “on-track” and
informed investors that the formal legal documentation for Fund
III would be forthcoming. It went on to explain that Fund III
5
investors would soon be asked whether they wished to convert
their loan into preferred units, which “will be used to invest
in the BuildNet IPO.”
The May 13 “Term Sheet” -- sent by Van Etten and Pace to
Mayflower investors, with Wood listed as “Securities Counsel” --
offered a summary of the terms of Fund III. It distinguished
between common units in Fund III, which had rights “in all Fund
III investments,” and preferred units, which had “equal rights
and pro-rata beneficial ownership rights exclusively in the
BuildNet IPO, which will be cashed out and distributed once
BuildNet trades publicly” (emphasis added).
The May 25 “Offering Circular” constituted the official and
lengthy legal documentation for Fund III. The formal terms of
the Offering Circular appear to give the Fund Managers authority
to invest Fund III money in other companies. The accompanying
“Letter of Instruction” and “Notice of Loan Conversion,”
however, give the clear impression that the preferred units will
be used only for BuildNet’s IPO. For example, they explain that
“[b]y converting to [preferred units] the undersigned also
understands that he, she or it will not be participating in the
other investments of the Venture Capital Fund” and that “[t]he
preferred units exist strictly to facilitate the upcoming
BuildNet IPO.” Most Fund III investors converted to preferred
units.
6
In an “Update Memorandum” dated July 18, the Fund Managers
sought to calm investors concerned with the delay in BuildNet’s
IPO. Despite the fact that investors’ money had been invested
in other companies and was illiquid by this time, the Fund
Managers reiterated that preferred investors in Fund III would
have their money returned within 60 days if BuildNet withdrew
its SEC registration.
An August 2 letter (signed only by Van Etten) continued to
profess a belief that the BuildNet IPO would go through. It
also encouraged preferred unit holders to convert their
investments to common units, so that “[y]our money will be
working for you today earning profit opportunities, as opposed
to sitting in the Preferred fund until BuildNet goes public.”
In reality, this money was not “sitting” in any fund, but had
already been invested in other companies.
On October 24, BuildNet withdrew its SEC registration. On
November 20, the Fund Managers sent a third “Update Memorandum”
informing preferred investors that, pursuant to the terms of the
promissory note, they had the option to request that their
investments be returned. However, it encouraged investors to
convert their preferred units to common units. Most investors
asked for a return of their investment. In response, investors
were sent individual letters informing them that “it does not
appear that the invested funds can be paid” back as promised.
7
Of the approximately $15 million loaned by investors to
Fund III, only about $422,000 was ever returned to them. The
bulk of the money ($13 million) was invested in other portfolio
companies, with the rest going to Mayflower Capital and
administrative expenses.
C.
On the basis of these facts, the Government charged Diane
Pace, Brent Wood, and Stanley Van Etten with six counts of mail
fraud in violation of 18 U.S.C. §§ 1341 & 2 (2006), one count of
conspiracy to commit mail fraud in violation of 18 U.S.C. § 371,
one count of wire fraud in violation of 18 U.S.C. §§ 1343 & 2,
and one count of conspiracy to commit money laundering in
violation of 18 U.S.C. § 1956(h). 2 Van Etten eventually pleaded
guilty, as did three of the five Fund Managers: Eilers, Pollack,
and Brothers. The remaining two Fund Managers, Pace and Wood,
pleaded not guilty and preceded to a joint trial; Eilers,
Pollack, and Brothers agreed to cooperate and testified for the
prosecution at that trial.
2
The six counts of substantive mail fraud correspond to the
six documents described above. The conspiracy count alleges an
unlawful agreement among Van Etten and the Fund Managers to send
these misleading letters to investors. The money laundering
count alleges that the defendants used the fraudulently-obtained
funds to prop up Mayflower’s non-BuildNet investments, and thus
obscure the misuse of investor money.
8
The Government’s theory at trial was that Van Etten and the
Fund Managers (including Pace and Wood) deliberately
misrepresented to investors that their money would be held in a
separate account and used for the BuildNet IPO only. In fact,
management used the money as a bridge loan to invest in other
portfolio companies and thus prop up Funds I and II, which had
made unsuccessful investments. The Government acknowledges that
the Fund Managers may have believed that the investor money
would ultimately be repaid, but correctly maintains that this
does not excuse the fraudulent misrepresentations. See United
States v. Curry, 461 F.3d 452, 458 (4th Cir. 2006).
At trial, Pace did not dispute that the documents described
above were sent to investors, and that management in fact used
the Fund III money to invest in companies other than BuildNet.
She did dispute her involvement in the scheme and her intent.
Pace maintained that her role in Fund III was solely
administrative, that she was not aware of many documents until
after they had been sent to investors, and that she did not know
what other members of management had told investors. Pace
testified that she believed that the investors had authorized
her and the other Fund Managers to invest their money in other
portfolio companies.
After a nine-day trial, a jury convicted Pace (and Wood) of
all counts but the charge of wire fraud. Following the verdict,
9
the defendants renewed their motions for a judgment of
acquittal, which they had originally made at the conclusion of
the Government’s case-in-chief. The district court granted
these motions and conditionally granted a new trial. The
district court justified both the judgment of acquittal and the
conditional new trial on the ground that the evidence was
insufficient for a reasonable juror to conclude that the
defendants had a specific intent to defraud investors. The
Government timely noted this appeal.
II.
The district court rested its decision to grant a new trial
solely on its assessment that “a rational trier of fact could
not review the evidence and conclude that either Wood or Pace
acted with a specific intent to defraud investors or to launder
money.” On appeal, Pace adopts the district court’s view that
the Government failed to present sufficient evidence that she
acted with an intent to defraud. The Government points to the
testimony of Pace’s co-conspirators and other circumstantial
evidence from which, it asserts, the jury could infer such an
intent.
A.
Federal Rule of Criminal Procedure 29 provides that a
district court “must enter a judgment of acquittal [when] the
10
evidence is insufficient to sustain a conviction.” Fed. R.
Crim. P. 29(a). We review a district court’s grant of a
judgment of acquittal de novo, assessing whether, taking the
evidence in the light most favorable to the Government, a
rational trier of fact could have found all of the elements of
the charged offense beyond a reasonable doubt. See United
States v. Singh, 518 F.3d 236, 246 (4th Cir. 2008).
With respect to the counts of substantive mail fraud, the
Government was required to prove (1) the existence of a scheme
to defraud, and (2) the use of mails to execute the scheme.
United States v. Vinyard, 266 F.3d 320, 326 (4th Cir. 2001). To
prove the first element, the Government must show that “the
defendants acted with the specific intent to defraud, which ‘may
be inferred from the totality of the circumstances and need not
be proven by direct evidence.’” United States v. Godwin,
272
F.3d 659, 666 (4th Cir. 2001) (quoting United States v. Ham,
998
F.2d 1247, 1254 (4th Cir. 1993)).
With respect to the count of conspiracy to commit mail
fraud, the Government was required to prove (1) an agreement to
commit mail fraud, (2) willing participation by the defendant,
and (3) an overt act in furtherance of the agreement. United
States v. Edwards, 188 F.3d 230, 234 (4th Cir. 1999).
Conspiracy to commit mail fraud also requires that the
Government show that the defendant acted with a specific intent
11
to defraud. Ham, 998 F.2d at 1254. This specific intent may be
proven wholly by circumstantial evidence. United States v.
Burgos, 94 F.3d 849, 858 (4th Cir. 1996) (en banc).
With respect to the count of conspiracy to commit money
laundering, the Government was required to prove (1) an
agreement to commit money laundering existed, (2) the defendant
knew that the money laundering proceeds had been derived from
illegal activity, and (3) the defendant knowingly and
voluntarily joined the conspiracy. Singh, 518 F.3d at 248.
Because each of these crimes requires, at most, 3 that the
Government prove that Pace acted with a specific intent to
defraud -- and the parties only dispute the evidence of this
element -- we must reinstate the jury verdict if the Government
presented sufficient evidence from which a reasonable juror
could find the required intent beyond a reasonable doubt.
B.
Pace’s alleged co-conspirators, Pollack and Brothers,
provided the Government’s strongest evidence of Pace’s
fraudulent intent. On July 23, Pollack sent an email to Wood,
with a copy to Pace. At the time, Pollack was looking to secure
3
On appeal, the Government argues that conspiracy to
launder money in violation of 18 U.S.C. § 1956(h) does not
require a specific intent, but only knowledge of the conspiracy.
See Brief of Appellant at 53. Because we conclude the evidence
sufficed to show a specific intent, we do not reach this issue.
12
a short-term loan for Mayflower from two of its investors, but
explained that he did not wish to disclose confidential
financial information to them because:
If these two investors, or any of several investors
for that matter, find out that their “IPO money” has
been spent as it has . . . in my opinion we will not
only not get this bridge loan, additional larger
problems may be brought on by these investors.
Both Wood and Pace testified that the July 23 email provided
their first knowledge that investors had been told that Fund III
preferred units were to be limited to investment in BuildNet.
Wood’s response email indeed professed ignorance: “I am not
sure what was told to investors when they originally loaned
money to Fund III. I very carefully prepared the notes so that
the money could be used for any purpose we deemed appropriate.”
Pollack, however, contradicted this claim, testifying that
he was “surprised” at Wood’s email response “because I’m quite
sure that everyone of us [i.e., the five Fund Managers] knew
what investors were told” (emphasis added). Brothers
corroborated Pollack’s testimony, stating that “we told every
single investor, and everybody knew, that [Fund III] was for the
sole purpose of investing into BuildNet IPO.” He further
explained that “[w]e talked as a group and said this is what
we’re doing . . . we said we’re going to borrow this money for
the IPO shares.”
13
In addition to this co-conspirator testimony, the
Government presented other evidence of Pace’s intent. One
Mayflower investor, Stephen Lack, testified that his impression
that investments in the BuildNet IPO would be separated from
other Fund III investments came from a personal meeting with
Pace and Van Etten. Another investor testified that Brothers
told him in March 2001 that “[the Fund Managers] had known in
the summer of 2000 that the money was gone, but were afraid to
disclose it to investors.” Although Pace denies knowing about
some of the documents sent to investors detailed above, many of
these documents appear to be sent from her (as a Fund Manager)
or contain her signature; her knowledge of these documents was a
fact question properly left to the jury. Moreover, financial
records introduced by the Government indicate that Pace bore
personal responsibility for disbursing $5,452,281 of Fund III
money to non-BuildNet companies.
The Government thus presented evidence from which a jury
could conclude that Pace (1) knew what the investors were being
told, and yet (2) disbursed their money to companies other than
BuildNet. To be sure, Pace contradicted this evidence in her
testimony, which professed ignorance of the misrepresentations
made to investors. But her co-conspirators explicitly stated
that “everyone of us knew” what was going on. The jury was thus
free to disbelieve Pace and, moreover, view her false
14
exculpatory testimony as probative of her intent. In short,
viewing the evidence in the light most favorable to the
Government, as we must, the Government presented evidence more
than sufficient for a rational juror to conclude that Pace had
the specific intent to defraud and launder money. The district
court therefore erred in granting Pace a judgment of acquittal.
III.
The Government next asserts that the district court erred
in conditionally granting a new trial. We review a district
court’s grant of a new trial for an abuse of discretion. United
States v. Wilson, 118 F.3d 228, 237 (4th Cir. 1997). The
district court may order a new trial if the evidence weighs so
heavily against the verdict that to deny a new trial would be
contrary to the “interest of justice.” Fed. R. Crim. P. 33;
United States v. Campbell,
977 F.2d 854, 860 (4th Cir. 1992).
Unlike a judgment of acquittal, a district court may consider
the credibility of witnesses and need not view the evidence in
the light most favorable to the government in determining
whether to grant a new trial. Campbell, 977 F.2d at 860.
Although the decision to grant a new trial lies within the
discretion of the district court, respect for the role of the
jury demands that a court exercise this discretion “sparingly,”
United States v. Smith, 451 F.3d 209, 217 (4th Cir. 2006), i.e.,
15
only when “the evidence weighs so heavily against the verdict
that it would be unjust to enter judgment.” United States v.
Arrington, 757 F.2d 1484, 1485 (4th Cir. 1985). Here, the
district court offered only a single sentence to explain its
decision to grant a new trial, asserting, without support, its
conclusion that “the evidence in this case weighs heavily
against the verdict.” We do not believe a district court should
overturn a jury verdict so lightly. Because the court did not
otherwise explain its decision, 4 we must presume that it granted
a new trial for the same reasons it granted a judgment of
acquittal: that the evidence was insufficient to support the
verdict. Because we have concluded that the evidence was
sufficient, we must find the grant of a new trial an abuse of
discretion.
IV.
For the foregoing reasons, we reverse the district court’s
judgment of acquittal and its conditional grant of a new trial.
We remand for further proceedings consistent with this opinion.
REVERSED AND REMANDED
4
For example, the district court did not offer any reason
why it (unlike the jury) found Pace credible, or Pollack and
Brothers incredible.
16
