Case o' The Week: One to Watch -- Phillips and Mail Fraud
Trick your company into paying your girlfriend tens of thousands of dollars to pay for an expensive Breguet watch, that you have shipped to yourself from out of state, and you’ve done several things: theft, probably, fraud, certainly, money laundering, maybe.
What you haven’t done, however, is commit mail fraud. United States v. Phillips, 2012 WL 6700220 (9th Cir. Dec. 26, 2012), decision available here.
Players: Decision by Sr. D.J. Rakoff, SD NY, joined by Judges Schroeder and Gould.
Facts: Phillips was the CEO of “MOD” – a high-tech start-up in Seattle. Id. at *1. He also fancied fine watches, and bought a pair from an Arizona company, “Feel Good Watches.” Id. After Feel Good shipped him the watches, Phillips paid for them by forging invoices and convincing MOD to (unknowingly) pay his girlfriend as a “consultant.” Id. at *2-*3. Phillips’ girlfriend then paid Feel Good. Id. Phillips was charged with mail fraud (and other crimes) and was convicted after a jury trial. Id. at *5.
Issue(s): “The [mail fraud] scheme charged . . . was that Phillips ‘devise[d] and intend[ed] to devise a material scheme to defraud MOD and to obtain money from MOD by means of material false and fraudulent pretenses, representations and promises and the concealment of material facts.’ Therefore, the scheme was to defraud MOD and to obtain money from MOD. The only asserted use of the mails was Feel Good Watches's mailing of the first Breguet watch to Phillips. Phillips, citing to United States v. Maze, 414 U.S. 395 (1974), argues that the mailing was not in furtherance of the fraudulent scheme to defraud MOD, and that Phillips ‘simply used the money he obtained from MOD to purchase a watch.’” Id. at *6.
Held: “Here, as in Maze, the success of Phillips's fraudulent scheme did not depend in any way on the use of the mails. The fact that Phillips purchased a watch with $30,000 of fraudulently obtained MOD funds, instead of using the funds for his personal benefit in some other fashion, did not in any way affect the scheme ‘to defraud MOD and to obtain money from MOD,’ as charged in [the mail fraud] Count. The fact that payment eventually was made to a watch dealer and that watch dealer mailed a watch in return was not a part of the scheme to defraud MOD and to obtain money from MOD—it was simply the byproduct of that scheme. Put another way, as a result of Phillips's successful execution of his scheme to defraud, he had sufficient funds to pay for the watch.
Therefore, even under the demanding plain error standard, Phillips's mail fraud conviction must be reversed.” Id. at *7 (emphasis in original).
Of Note: While Phillips is great on mail fraud, it is less laudable on prosecutorial misconduct. Phillips testified at trial. In closing argument the AUSA argued that Phillips had told “numerous lies” – both to MOD employees and when he testified. Id. at *10. The Ninth tolerates these two categories of references to lies – lies during the fraud, and lies during testimony – explaining that the prosecutor was “commenting on the evidence.” Id.
The Court emphasizes, though, that the AUSA “did not give his own opinion on defendant’s guilt,” and that the AUSA alleged that Phillips “lied” but didn’t call the defendant a “liar.” Id. “Liar” (the Court assures us) “could have the tendency to overtake the role of the jury as the arbiter of credibility” in a way that “he lied” does not. Id. Verb vs. noun – “lied” vs. “liar”: makes a difference, apparently, when used in closing argument.
How to Use: Mail fraud is a tool frequently abused by the feds in their effort to federalize vanilla state crimes, like theft. In Phillips, Judge Rakoff gives us a brief but valuable description of the lead Supreme Court case on this abuse, United States v. Maze. Id. at *6-*7. Run mail fraud charges through the Phillips test: was the mail just used to buy stuff using the loot of a crime? If so, you’ve got a great mail fraud defense (although you may admittedly have some money laundering problems). See id. at *9 n.9 (discussing the relationship between mail fraud and money laundering theories in Phillips).
For Further Reading: Phillips got hit with an obstruction of justice enhancement in light of his testimony. Id. at *5. For a wince-inducing article on Phillips’ acceptance of responsibility – or lack thereof – see piece here.
Thirty-one year old Phillips was sentenced to four years on eight-year guidelines: another example of just and measured sentencing by D. Wa. Judge Coughenour. See, e.g., blog on Ressam here.
Image of Breguet watch from http://www.priceit.in/price-of-watches/breguet-watch-price/
Steven Kalar, Federal Public Defender N.D. Cal. Website at www.ndcalfpd.org