In U.S. v. Broughton, the defendants were charged in one count with conspiracy to commit mail fraud, wire fraud, and insurance fraud and in a second count with money laundering. The fraud conspiracy was a scheme to create fraudulent capitalization for insurance companies. State and federal law requires that companies offering insurance or credit backing on behalf of other companies in the United States must be licensed. To be licensed, a company must show it has sufficient capital to meet the insuree’s obligations and that it possesses sufficient capital reserves in the event of future claims. The capital requirements include Treasury Notes, Certificates of Deposits, stocks, and bonds but this capital can only be claimed as an asset on an insurance company’s financial statement if it is owned and controlled by the company claiming the assets. Beginning around 1996 the I.R.S. launched an insurance fraud investigation that looked at companies/people that “rented” assets that others owned to include in their own balance sheet as assets. The investigation focused on individuals and companies that marketed themselves as insurance providers on the basis of rented assets. Evidently, these fraudulent companies would collect insurance proceeds without intending to pay out any claims.
The I.R.S. investigation led to meeting between a co-conspirator and an I.R.S. agent posing as a businessman looking for assets to start an insurance company. Over time, the defendants described how they market their fraudulent shell company with its “unqualified audit opinion” and they provide the appearance of nonexistent Treasury Notes and CDs as rented assets. The conspirators described how to structure the insurance company with subsidiary companies holding the fraudulent rented assets. The undercover agents agreed to rent $10 million in assets to capitalize their insurance company and made cash payments in exchange.
The defendants moved to dismiss the indictment returned January 17, 2006, on statute of limitations grounds arguing that the statute was improperly suspended under 18 U.S.C. § 3292. This provision allows the district court to suspend the running of the statute of limitations if, prior to filing the indictment, the government makes an official request to a foreign country or court for evidence that reasonably appears to be located in the country to which the request was made. The defendants argued the government failed to satisfy these requirements for the following reasons:
1. The conspiracies were known to the government before it applied;
2. Both conspiracies terminated before the official request was made; and
3. None of the evidence requested or obtained was necessary, sufficient or relevant.
The 11th Circuit rejected these arguments concluding that § 3292 is a procedural mechanism that the government may use, and the district court’s inquiry is constrained by the two elements required by §3292. Relying on U.S. v. Trainor, a federal criminal tax fraud case out of Miami, the court found the government need only show that an official request was made for evidence and that it appeared that at the time of the request the evidence was in the foreign country. It made no difference that the government knew of the conspiracy before sending the official request, that the conspiracy had ended, or that none of the evidence was needed.
The date the defendant sent a last to fraud victims was the last act of the conspiracy of determining when the statute of limitations began to run
The defendant also argued that the statute of limitations for the conspiracy began to run at its termination when the government seized the defendants’ records in 1999. The 11th Circuit did not agree with that event as the conspiracy end and instead found it was March 13, 2001, the defendant sent a final letter to fraud victims. But even if the conspiracy had ended in 1999, with the suspension of the statute of limitations starting from the period of the official request and ending on the date the foreign authority took final action on the request, the indictment was brought timely.
The evidence was sufficient to prove the purpose of the fraudulent scheme was to set up a company designed to lure investors by purporting to provide financial guarantees though the financial guarantees were worthless as the company owned no assets and was based on false financial information.
In case you missed it, please read my previous entry
District Court has authority to reduce a sentence under the FSA Amendments to the crack cocaine sentencing guidelines for this pre-FSA sentence, August 2, 2012