Appeal
from the United States District Court for the Northern
District of Georgia D.C. Docket No. 1:16-cr-00407-TCB-JSA-1
Before
ED CARNES, Chief Judge, JULIE CARNES, and CLEVENGER, [*] Circuit Judges.
ED
CARNES, CHIEF JUDGE:
In this
wire fraud case, we are once again confronted with the
question of when a lie is just a lie and when it is a federal
crime. "It is conceded that there is a class of lies,
voluntary, aimless, yet weak and wicked lies,"
Green's Adm'r v. Bryant, 2 Ga. 66, 68
(1847), that our law does not forbid. And the federal wire
fraud statute "forbids only schemes to defraud,
not schemes to do other wicked things, e.g., schemes
to lie, trick, or otherwise deceive." United States
v. Takhalov, 827 F.3d 1307, 1310 (11th Cir.), as
revised (Oct. 3, 2016), opinion modified on denial
of reh'g, 838 F.3d 1168 (11th Cir. 2016). "The
difference," we have explained, "is that deceiving
does not always involve harming another person; defrauding
does." Id.
Alphonso
Waters, Jr., relies on that distinction to argue that the
lies he told in the process of obtaining a $6 million loan
did not amount to fraud. He sought that loan in 2013 from a
private lender who discovered that Waters had several
years' worth of federal tax liens outstanding. To calm
the lender's concerns, Waters sent it a letter that
appeared to be from the IRS approving him for a payment plan
to pay off the tax liens. Then he sent the lender another
letter stating that, as far as he knew, the first letter
really was from the IRS. Both of those letters were lies --
lock, stock, and barrel; stem to stern, top to bottom. But,
Waters argues, they weren't statutorily damned lies; they
weren't lies constituting wire fraud because they
didn't affect the bargain between the parties. He reasons
that any lie he told about his creditworthiness was harmless
because the collateral for the loan was worth $8.4 million,
which is more than the total amount of the loan. We are not
convinced.
I.
BACKGROUND
A.
The Scheme
Waters
was the CEO of Family Practice of Atlanta, a medical practice
he owned and operated with his wife, Dr. Sondi Moore-Waters,
a physician. He ran the business side of things, she ran the
medical side. [Id.] Sometime around 2011 they
decided they needed a bigger building for the growing
practice. They formed Sondial Properties, LLC (a portmanteau
of the couple's names, Sondi and Al), and the company
borrowed about $4 million in the form of two different
construction loans from JP Morgan Chase Bank. Those loans
matured on October 18, 2013, and Sondial immediately
defaulted on them because of delays and cost overruns with
the construction.
Waters
sought the help of a commercial mortgage broker in finding a
$6 million transitional loan so he could pay back the $4
million to Chase and also finish construction. Waters'
broker, Tony Baldwin, contacted Chesterfield Faring, Ltd., a
real estate services and investment firm that specialized in
finding funding for lapsing or lapsed loans.
Chesterfield's CEO was a man named Larry Selevan. Selevan
and his company helped borrowers find loans by researching
the financial viability of a proposed project and packaging
that information so potential lenders could easily decide
whether to provide financing.
Selevan
proposed the loan project to Colony Capital, LLC. Colony was
a private equity firm and real estate investment trust that
provided financing for commercial realty projects deemed to
exceed a bank's normal risk profile. Michael Sanchez, the
senior vice president of Colony, oversaw Sondial's loan
application. He understood that the loan "had to be
closed very quickly" so Waters could pay off Chase and
meet construction deadlines. On October 25, 2013, Sanchez
sent Chesterfield a term sheet outlining the terms and
conditions that Colony proposed for the loan. Under the
proposal Colony would lend Sondial $6 million and, in
exchange, it would receive a first priority mortgage on the
new building and rights to all leases and rents there, as
well as about a 7% interest rate for the two-year initial
term. Al Waters signed the term sheet on behalf of Sondial.
With
the terms of the loan all set, the due diligence phase began.
Waters and Moore-Waters filled out a personal financial
statement for Colony, listing their assets, income,
liabilities, and things of that nature. To say the least,
they weren't as forthcoming as they should have been. The
couple left blank the line asking them about any unpaid
income taxes, and they listed "0" as the amount or
value of outstanding liens and other "assessments
payable." Truth be told, the couple had nearly half a
million dollars of outstanding federal tax liens filed
against them. And the truth was told, or at least uncovered,
when Colony ran a background check a few weeks later that
turned up the tax liens.[1]
As you
can imagine, that discovery wrenched the lending process to a
halt. When he found out about the liens Sanchez was
"very very angry" because it "was an item that
absolutely should have been disclosed" earlier in the
process. He saw the lack of disclosure as a "deal
killer" because he didn't want "to close a
transaction with [those] outstanding liens." Sanchez
explained:
This [sort of thing] is disclosed up front. This is something
that when you find out during when you run a background check
and hear for the first time, that that [sic] is a huge red
flag in terms of whether or not, you know, this borrower has
been disclosing and been forthright on what his financial
condition is.
Selevan,
the CEO of Chesterfield, encouraged Sanchez not to walk away
from the deal and to work with Waters while they tried to
come up with a solution to the tax liens. Sanchez agreed to
wait and see. He considered the liens a "gating
issue" that had to be resolved before the loan could be
closed. Waters' attorney, David Gentry, understood that.
Because he did, on December 13, 2013, he sent the IRS
Taxpayer Advocate a letter asking for approval of a payment
plan and requesting that the IRS provide "immediate
assistance" so Waters could close the loan with Colony
by December 18.
Also on
December 13, Waters himself called his Congressman's
office to ask for help getting the tax liens removed. The
constituent services representative told him that the lien
removal process typically took 30-45 days, but that it would
take longer for him because the IRS had already closed for
the holidays and would not begin processing any new requests
until January. Waters told the representative to send the
request to the IRS anyway, which she did.
Paraskevidekatriaphobics would note that December 13 was a
Friday.
The
following Monday, December 16, Waters emailed Gentry a letter
that seemed to be from the IRS. It was also dated December
16, 2013, and appeared to be on "Department of the
Treasury: Internal Revenue Service" letterhead and bore
the seal of the IRS Office of the Chief Counsel. It stated in
full:
December 16, 2013
VIA U.S. MAIL AND FACSIMILE
Re: Case No. 5684374
Dear Taxpayers:
We are in receipt of your letter submitted to us by the
office of The Honorable Hank Johnson, Member, U.S. House of
Representative[s] regarding Case No. 5684374 dated December
13, 2013.
The letter dated December 13, 2013 referencing Financial
Hardship - Immediate Assistance needed was a request to
expedite your form 433A which was received in our office
December 2, 2013.
In accordance with Section 5.14.2.1 your request for Partial
Payment Installment Agreement (PPIA) has been approved. A
field representative will contact you in 60-90 days to
discuss in further detail the financial agreement.
I hope you find this letter helpful in the resolution of your
immediate requirements. Please maintain copies of this letter
for your permanent records.
Sincerely,
Rebecca Langford District Director
Four
minutes after receiving the letter, Gentry forwarded it to
Colony's attorney, Beau Baker, and asked if it resolved
Colony's concerns. It did not. Baker worried that the
details of the IRS payment plan the letter referred to were
months away, while the parties were trying to close the loan
in the next couple of weeks. Sanchez, the senior vice
president for Colony, also concluded that the letter was
insufficient because it did not contain any specifics of the
IRS payment plan.
Then
there was the question of authenticity. After talking with
tax experts at his law firm, Baker became concerned that the
letter might not really be from the IRS at all. He did a
Google search for "Rebecca Langford District
Director" and learned that the IRS had phased out the
"District Director" position nine years before,
sometime around 2004. Baker wrote to the IRS to verify the
letter, and Tony Baldwin, the initial mortgage broker, asked
Waters if he had the contact information for Rebecca
Langford. Waters responded that he did not. Undeterred,
Waters sent this letter to Baldwin, Gentry, and Selevan:
December 30, 2013
RE: IRS Letter
To Whom It May Concern:
To the best of my knowledge the letter from Rebecca Langford
IRS District Director and dated December 16 2013 with the
subject matter "Partial Payment Installment
Agreement" is from ...