Decided: May 31, 2012
The Fourth Circuit Court of Appeals reversed William Roosevelt Cloud’s money laundering convictions applying State v. Santos, 553 U.S. 507 (2008). Cloud’s convictions all stemmed from a complex mortgage-fraud scheme where Cloud would dupe buyers with good credit into purchasing property as an ostensible joint-real estate investment with Cloud; unbeknownst to the buyers, however, the property had already been “flipped” by Cloud who was making a profit on each deal and who had in his pocket a group of lawyers, loan officers, and mortgage brokers all of whom were perpetuating the conspiracy.
The court first held that the trial judge did not err in allowing victim-impact testimony from a number of buyers who had been swindled by Cloud. Such testimony was relevant, the court stated, because at trial Cloud had defended by arguing that these buyers were not victims, and in fact, they were guilty of committing bank fraud. The court followed a Third Circuit case in concluding that victim-impact testimony is relevant to prove a defendant’s “intent to defraud.”
The court next considered the trial judge’s denial of Cloud’s separate motions for judgment of acquittal under Rule 29 of the Federal Rules of Criminal Procedure. Applying the narrowest concurrence in the Supreme Court’s fractured opinion inUnited States v. Santos, 553 U.S. 507 (2008), the court reversed Cloud’s multiple counts of money laundering because of a “merger problem.” According to the court, a merger problem exists when a defendant is prosecuted for both money laundering and an underlying illegal activity that involved a money transaction to pay for the costs of the illegal activity where the separate money laundering charge is based on the same illegal transaction that the defendant is accused of committing. If the government was allowed to prosecute a defendant who uses the “gross profits”—as opposed to the “net profits”—of his illegal activity to cover the costs of the underlying crime under the money laundering statute, in addition to prosecuting the initial offense, the government would in effect be committing “double jeopardy.” Otherwise, “any crime involving costs would automatically become money laundering when the money received from the crime was used to pay expenses.” Thus, the court noted, the Supreme Court has determined that “[a]n individual cannot be convicted of money laundering for paying the essential expenses of operating the underlying crime.”
Applying this precedent to Cloud’s money laundering convictions, the Fourth Circuit held that various kickbacks and bribes made by Cloud to those complicit in his mortgage scheme constituted the “essential expenses of his underlying fraud.” Because these payments supported convictions for both money laundering and criminal fraud, a merger problem existed; therefore, the court ruled that the money laundering convictions could not stand.
-John C. Bruton, III