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United States v. Beasley

United States District Court, E.D. Michigan, Southern Division

April 16, 2015

UNITED STATES OF AMERICA, Plaintiff,
v.
JEFFREY BEASLEY, ET AL., Defendants.

OPINION AND ORDER DENYING DEFENDANTS' RULE 29 MOTIONS FOR ACQUITTAL AND RULE 33 MOTIONS FOR A NEW TRIAL [431, 432, 434, 435] AND JOINDERS [436, 437, 438, 439, 442, 444, 445]

NANCY G. EDMUNDS, District Judge.

On December 8, 2014, following an extensive jury trial that began on October 16, 2014, Defendants Jeffrey Beasley, Paul Stewart, and Ronald Zajac ("Defendants") were found guilty of conspiring to commit honest services fraud in violation of 18 U.S.C. § 1341 et seq (Count 1). In addition, Defendant Beasley was convicted of two counts of extortion under the Hobbs Act, 18 U.S.C. § 1951, [1] and one count of bribery in violation of 18 U.S.C. § 666 (Counts 2, 4, and 7 respectively).

Currently before the Court are various post-verdict motions filed by Defendants seeking either acquittal or a new trial under Federal Rules of Criminal Procedure 29 and 33. More specifically, Beasley argues that (1) the evidence was insufficient to establish the essential elements of the crimes, and (2) the Government's closing argument was unduly inflammatory. (Dkt. 434). Beasley's motion is joined by Zajac in its entirety (Dkt. 438), and by Stewart only with regard to the alleged impropriety of the Government's closing. (Dkt. 445). With respect to Stewart's motions, he likewise argues that the evidence was insufficient to establish his guilt and also maintains that there was a constructive amendment and/or prejudicial variance to the indictment. (Dkt. 431 & 432). Stewart's motions are joined by Beasley and Zajac without exception. (Dkt. 436, 437, 439). Finally, in addition to raising many of the same challenges as Beasley and Stewart, Zajac argues that (1) the Seventh Superseding Indictment is barred by the statute of limitations, and (2) the Court erred by admitting certain recorded conversations involving Bernard Kilpatrick. (Dkt. 435). Zajac's motion is joined by Beasley with regard to his sufficiency of the evidence, constructive amendment/variance, and prosecutorial misconduct arguments, (Dkt. 442), and by Stewart with respect to his statute of limitations and prosecutorial misconduct challenges. (Dkt. 444).

For the reasons stated more fully below and on the record at the April 8, 2015 hearing, the Court DENIES Defendants' motions.

I. Background

The City of Detroit maintains two pension funds for its employees: the General Retirement System ("GERS") and the Police and Fire Retirement System ("PFRS") (collectively, the "Retirement Systems"). The Retirement Systems are governed by two separate Boards of Trustees ("Trustees") whose primary responsibility is to serve and protect the collective interest of all fund beneficiaries. Part and parcel of this obligation is the duty to manage and invest the assets of the Retirement Systems in a prudent manner. This requires, among other things, the consideration of new investment opportunities proposed by individuals interested in doing business with the Retirement Systems. The evidence presented at trial centered on the corrupt "pay-to-play" relationship between certain Trustees, the General Counsel to the Retirement Systems, and individuals seeking investment funds. In very simplistic terms, the scheme involved a series of bribes and kickbacks in exchange for votes in favor of various investment proposals pending before the Retirement Systems.

Between 2010 and 2013, the Government indicted six individuals in connection with this scheme: Jeffrey Beasley, the former Treasurer for the City of Detroit and, by virtue of his office, Trustee to the Retirement Systems; Paul Stewart, an elected Trustee of the PFRS; Ronald Zajac, General Counsel to the Retirement Systems; Chauncey Mayfield, chief executive officer of Mayfield Gentry Realty Advisors, LLC and investment advisor to the Retirement Systems; George Stanton, chief of staff to a former trustee of the PFRS; and Roy Dixon, owner of Onyx Capital Advisers, LLC, a private equity firm seeking investment funds from the Retirement Systems. With the exception of Beasley, Stewart, and Zajac, all Defendants reached a plea agreement with the Government and testified at trial.

The genesis of the Government's theory of the case-and the evidence presented at trial-revolved around several investment proposals pending before the Retirement Systems between 2006 and 2009, and the parties, trips, and backroom discussions simultaneously taking place between Defendants and the investors seeking the Trustees' vote of approval. While the specific role of each individual is explored more fully in the analysis that follows, the Government presented a plethora of evidence linking Defendants to an extensive and elaborate scheme designed to line their own pockets at the expense of fund beneficiaries. Indeed, as the evidence made clear, Defendants' conduct represents a depressingly common dynamic that has plagued Detroit city government for much of the last decade. Against this backdrop, the Court endeavors to address the multitude of Defendants' legal and evidentiary challenges to the jury's verdict in this case.

II. Rule 29 Motions for Acquittal

At the close of the Government's case, Defendants moved for a judgment of acquittal. (Dkt. 370, 373, 375). The Court denied Defendants' individual motions, finding sufficient evidence in the record to submit the charges in the challenged counts to the jury. (Dkt. 422, Mot. J. Acquittal Hr'g Tr. 16-17, 37-39, 64). The trial continued to a jury verdict of guilt as to each Defendant on the charges described above. Defendants' renewed Rule 29 motions are, to a large extent, a refined version of their previous arguments. The Court incorporates by reference its prior findings and conclusions set forth on the record, and rejects any challenges not specifically raised-and developed-in Defendants' post-trial motions for the reasons stated therein.

A. Standard of Review

"Evidence is sufficient to sustain a conviction if after viewing the evidence in the light most favorable to the prosecution, and after giving the government the benefit of all inferences that could reasonably be drawn from the testimony, any rational trier of fact could find the elements of the crime beyond a reasonable doubt." United States v. Driver, 535 F.3d 424, 428-29 (6th Cir. 2008) (internal quotation marks and citations omitted). "In examining claims of insufficient evidence, this court does not weigh the evidence presented, consider the credibility of witnesses, or substitute [its] judgment for that of the jury." Id. (internal quotation marks and citation omitted). As the Sixth Circuit recently observed, "defendants bear a heavy burden when asserting insufficiency of the evidence arguments." United States v. Wettstain, 618 F.3d 577, 583 (6th Cir. 2010). That is because "[c]ircumstantial evidence alone is sufficient to sustain a conviction and such evidence need not remove every reasonable hypothesis except that of guilt, " and "the uncorroborated testimony of an accomplice alone may support a conviction." Id. (internal quotation marks and citations omitted).

B. Analysis

The Court begins with Defendants' individual challenges to the sufficiency of the evidence and then addresses their arguments concerning an alleged constructive amendment/variance to the Indictment. In addition, the Court also briefly discusses Zajac's statue of limitations argument.

1. Individual Sufficiency of the Evidence Arguments

The jury found Beasley, Stewart, and Zajac guilty as charged in Count 1 of the Seventh Superseding Indictment (the "Indictment") for conspiring to commit honest services fraud in violation of 18 U.S.C. § 1341. Stewart and Zajac have both lodged specific challenges to the sufficiency of the evidence supporting their convictions under Count 1, which the Court addresses here.

As the Court instructed the jury, the essential elements necessary to convict a defendant of conspiracy to commit honest services fraud beyond a reasonable doubt are: (1) the individual knowingly devised or participated in a scheme to defraud current and former beneficiaries of the Retirement Systems of their right to the honest services of certain public officials or their representatives through bribery or kickbacks; (2) an individual identified in the count did so knowingly and with an intent to defraud; (3) that same individual committed a material misrepresentation or concealment of a material fact; and

(4) in furtherance or execution of this scheme the individual used the mails or interstate wire communications. See (Trial Tr. Vol. 31 at 30); Sixth Circuit Pattern Instruction 10.01; United States v. Dimora, 879 F.Supp.2d 718, 731-32 (N.D. Ohio 2012). Thus, in order to obtain a conviction for conspiracy to commit honest services mail fraud, the Government was required to show that (1) two or more persons conspired, or agreed, to commit honest services fraud, and (2) that each individual knowingly and voluntarily joined the conspiracy. (Trial Tr. Vol. 31, 23-24).

a. Defendant Stewart

Stewart's sufficiency challenge to Count 1 can be summarily disposed of for several reasons. First, while Stewart expressly renewed his initial challenge to the sufficiency of the evidence in his post-trial Rule 29 motion, he failed to offer any new discussion that the Court hasn't already considered and rejected. Indeed, the entirety of Stewart's argument on this score is as follows: "[a]s previously argued in Stewart's Rule 29 motion that was filed at the close of the government's case... there was constitutionally insufficient evidence for the pre-amended charge in Count 1 to go forward...." As such, the Court sees little value in revisiting its prior decision denying Stewart's sufficiency challenge. See (Trial Tr. Vol. 26, 16-17).

As a more practical matter, however, Stewart's own admissions at trial virtually foreclose him from making any argument concerning the sufficiency of the evidence. In August of 2007, for example, Stewart admitted to receiving $5, 000 in cash "from a number of investment sponsors and money managers who were in attendance at [a birthday] party" organized on his behalf by Defendant Zajac. (Trial Tr. Vol. 27, 74-75). Indeed, the Government elicited testimony from at least three individuals (Chris Jackson, Derek Batts, and Tom Zdrodowski) with business before the PFRS who acknowledged making a cash contribution to Stewart's party. Id. Moreover, the testimony of these individuals was clear that the purpose of their contributions was to "endear" themselves to Stewart and the other Trustees.

The birthday party is hardly the most damning of Stewart's admissions. In December of 2007, for example, he admitted to receiving "a $5, 000 casino chip from Jim Papas...." (Trial Tr. Vol. 27 at 96). As a third-party marketer, Papas frequently sought investment funds from the PFRS. In fact, in the same month Stewart acknowledged receiving the casino chip, Papas was paid "$600, 000 as a third-party marketer for [the BlackEagle] transaction...." ( Id. at 98). As if the timing of the BlackEagle deal was not suspicious enough, Stewart also acknowledged receiving "approximately 10 to $11, 000 from Steve Pankake"-another third-party marketer-during a time when Pankake was actively pitching a real estate investment before the PFRS. ( Id. at 57-58). In the end, Stewart voted in favor of the deal, resulting in a "consultant fee" to Pankake of over $500, 000. Stewart openly admitted that he failed "to disclose to [his] fellow board members that [he] had received 10 to $11, 000 in cash from Steven Pankake" prior to voting in favor of his deal. ( Id. at 60). While the courts have been clear that "the government does not have to prove an explicit promise to perform a particular act made at the time of payment", United States v. Ganim, 510 F.3d 134, 144 (2d Cir. 2007), Stewart's conduct strongly suggests the he "understood that he... was expected to exercise some influence on the payor's behalf as opportunities arose, " which is all that is required. United States v. Abbey, 560 F.3d 513, 518 (6th Cir. 2009).

Finally, in addition to the direct evidence of guilt supplied by Stewart, a number of individuals doing business with the PFRS offered their own accounts of illicit dealings with Stewart. Perhaps the most incriminating testimony came from Robert Shumake, an investment promoter with a significant interest in the infamous "ICG Leaseback" deal. According to Shumake, he provided cash to Stewart on at least four separate occasions in order to influence Stewart's vote on various deals pending before the PFRS. See (Trial Tr. Vol. 8, 93, 97, 99, 100). Most notably, around November of 2007, Shumake, at the suggestion of Zajac, provided Stewart with $2, 500 in "entertainment expenses" during a conference in New York. ( Id. at 93). The following month, Stewart voted in favor of restructuring the ICG Leaseback deal and converting the PFRS' $40 million equity position into a loan transaction. ( Id. at 90). According to the terms of the new deal, the PFRS paid the managing member (Robert Shumake) a two percent "acquisition fee" for restructuring the transaction. (Gov't Ex. ICG-26_011). In other words, Stewart's relationship with Shumake-not unlike his ties to Roy Dixon, Steve Pankake, and Jim Papas-symbolizes precisely the type and character of conduct constituting honest services fraud.

Accordingly, the Court finds that there was substantial evidence in support of the jury's verdict that the cash and other gifts received by Stewart were intended to influence his official actions as a trustee with the PFRS. Stewart's motion for acquittal is thus DENIED.

b. Defendant Zajac

Defendant Zajac was likewise convicted of conspiracy to commit honest services fraud under Count 1 of the Indictment. The focus of his Rule 29 evidentiary challenge revolves around the Government's alleged failure to prove the existence of a conspiracy.

As the Court instructed the jury, the Government was required to prove two elements in support of the conspiracy component charged under Count 1. First, there must be a criminal agreement to achieve an unlawful objective. More specifically,

the government must prove that two or more persons conspired, or agreed, to cooperate with each other to commit the crime of mail fraud and/or wire fraud. This does not require proof of any formal agreement, written or spoken. Nor does this require proof that everyone involved agreed on all the details. But proof that people simply met together from time to time and talked about common interests, or engaged in similar conduct, is not enough to establish a criminal agreement. An agreement can be proved indirectly, by facts and circumstances which lead to a conclusion that an agreement existed.

(Trial Tr. Vol. 6, 16-17). Next, the Government must produce evidence establishing each individual Defendants' connection to the conspiracy. In other words,

the government must prove that [each defendant] knew the conspiracy's main purpose, and that he voluntarily joined it intending to help advance or achieve its goals. This does not require proof that the defendant knew everything about the conspiracy, or everyone else involved, or that he was a member of it from the very beginning. Nor does it require proof that the defendant played a major role in the conspiracy, or that his connection to it was substantial. A slight role or connection may be enough. But proof that the defendant simply knew about a conspiracy, or was present at times, or associated with members of the group, is not enough, even if he approved of what was happening or did not object to it. Similarly, just because the defendant may have done something that happened to help a conspiracy does not necessarily make him a conspirator.

(Trial Tr. Vol. 6, 17-18).

The Sixth Circuit is in accord with the definitions of "agreement" and "connection to the conspiracy" provided by the Court. Indeed, of particular relevance here, "proof of a formal agreement is not necessary; a tacit or material understanding among the parties will suffice." United States v. Avery, 128 F.3d 966, 970-71 (6th Cir. 1997). Moreover, the existence of a conspiracy "may be inferred from circumstantial evidence that can reasonably be interpreted as participation in the common plan." Id. at 971 (citation omitted). Once a conspiracy is shown beyond a reasonable doubt, however, a defendant's connection to the conspiracy "need only be slight." Id. Similarly, "a defendant's knowledge of and participation in a conspiracy may be inferred from his conduct and established by circumstantial evidence." United States v. Salgado, 250 F.3d 438, 447 (6th Cir. 2001).

Review of the record reflects ample evidence indicating that Zajac, as general counsel to the Retirement Systems, was intimately involved in a conspiracy with Beasley, Stewart, and several individuals with business before the boards to deprive Detroit city pensioners of their right to the honest services of the Trustees. In fact, several events portrayed over the course of the trial suggest that Zajac operated as the chief architect of the conspiracy, working behind the scenes to facilitate the bribes and kickbacks at the very heart of the scheme.

Consider, for example, Zajac's role in organizing the so-called birthday parties for Beasley and Stewart in 2007. Tom Zdrodowski and others testified that Zajac invited them to the parties and made it clear that all attendees-most of whom were individuals with business before the Retirement Systems-were to bring cash gifts. See e.g., (Trial Tr. Vol. 15, 42-43). Both Beasley and Stewart corroborated Zajac's involvement in their respective parties. Indeed, Stewart testified that "Zajac was instrumental in putting [the party] together" and that he "gave me a envelope, and then later that evening or whatever, I counted the contents of the envelope, and it revealed it was $5, 000." (Trial Tr. Vol. 27 at 73). Beasley's recollection was nearly identical; "Q: Well, while you were a trustee-well, you know, Mr. Zajac handed you an envelope, and it contained $9, 000, correct? A: Yes." (Trial Tr. Vol. 28, 130-31). Perhaps not entirely by coincidence, in October 2007-just months after the birthday parties-Beasley and Stewart voted to increase Zajac's salary as general counsel to the Retirement Systems by over 33%. Certainly, the jury was free to conclude that there was a causal connection between Zajac's "fundraising" efforts and Stewart and Beasley's vote in support of his raise.

In addition, as the Court previously discussed, there is substantial evidence that Zajac was involved in the ICG Leaseback part of the conspiracy. Indeed, Shumake specifically sought Zajac's guidance with respect to restructuring the ICG deal during a pension conference in New York. Zajac's advice was simple: "give money to a few of the trustees for entertainment expenses." (Trial Tr. Vol. 8 at 93). Shumake, recognizing Zajac's influence, obliged and provided Stewart and Martin Bandemer (a trustee of the PFRS) with $2, 500 each. (Id. at 93-94). Within a month after receiving the money, Stewart and Bandemer voted in favor of converting the ICG transaction into a debt position. (Id. at 91-94). A little less than a year later, Shumake provided Stewart and Bandemer with yet another $2, 500 payment at the request of Zajac. ( Id. at 97). At this point, Shumake understood that providing entertainment expenses for the Trustees was "a part of the process" for investment managers. Id.

Zajac's influence-and role in the overall scheme-was perhaps best described by Chauncey Mayfield, an investment advisor to the Retirement Systems:

Q. And why would you be concerned about Ron Zajac's perception of you as a team player or not a team player?
A. Well, I knew that he would oftentimes say we have to keep the trustees happy, and part of that was picking up their tab, and so it was a combination of Ron-I mean, Mr. Zajac and the trustees, the other trustees, that he would share with them, Well, he's not a team player. He doesn't, you know, pay for any drinks or anything like that.'
Q. And why would it be important to you that Ron Zajac or the trustees view you as a team player?
A. Well, I think the most important reason is... you know... to protect my company and my employees.
....
Q. So based upon the influence that you believe that Ronald Zajac had over
the trustees, did you feel compelled to concede to requests that he made to you with respect to covering certain expenses?
A. Yes.

(Trial Tr. Vol. 10, 114-15; 128-29). During the conference in New York, for example, Mayfield covered $10, 000 in limousine expenses so that Zajac and the Trustees could travel together to various dinners and shopping excursions sponsored by "somebody doing business with the pension board." ( Id. at 126-27). This dynamic-providing "entertainment expenses" for the Trustees at Zajac's direction-became embedded in the culture of doing business with the Retirement Systems. See e.g., Trial Tr. Vol. 21 at 10 (Roy Dixon testified that "Mr. Zajac would often ask for money when the board would go on these excursions to Las Vegas and every once in awhile, Florida."); Trial Tr. Vol. 13 at 64 (According to Derek Batts, "Mr. Zajac explained to me that they rotated the bills among the [investment] managers so that no individual manager would be stuck with the bill all the time.").

As time went on, Zajac's requests became more brazen-and personal. Indeed, recorded phone conversations between Bernard Kilpatrick and Michael Wayne suggest that Zajac attempted to shake down investment sponsor Wayne in connection with his request for additional capital to fund the "CROCI" deal. According to the calls, Zajac demanded that Wayne sponsor a trip to London for him and the Trustees in exchange for the additional $10 million investment he was seeking:

the attorney, Ron Zajac, was there talking. So, you know, he pulls me aside and he says, hey, he goes, here's what the deal is. He goes, we want to make this happen in the beginning of the year whether we place the money in January or February, we're trying to get this done. You gotta get back with me in one week. I want ...

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