United States District Court, Eastern District of Pennsylvania
On February 19, 2014, defendant Matthew McManus was convicted by a jury of conspiracy to commit mail and wire fraud in violation of 18 U.S.C. § 371 (Count 1), two counts of wire fraud in violation of 18 U.S.C. § 1343 (Counts 4 and 6), three counts of money laundering in violation of 18 U.S.C. § 1957 (Counts 17-19), obstruction of justice in violation of 18 U.S.C. § 1505 (Count 32), and making false statements to the federal government in violation of 18 U.S.C. § 1001 (Count 33) for his involvement in an advance fee fraud scheme with five co-conspirators who have all pleaded guilty.
McManus was the co-owner of Remington Financial Group (“Remington”), which held itself out as a company that could provide financing to borrowers seeking loans for commercial projects ranging from multi-million dollar real estate deals to movie productions. Remington offered to connect borrowers to financing, but required borrowers to pay advance fees in order to receive the promised funding. In reality, Remington failed to secure, or even attempt to secure, financing for the vast majority of borrowers who paid these advance fees. Ultimately, McManus, his co-owner and partner Andrew Bogdanoff, and their employees at Remington collectively defrauded 1946 people out of $26 million by collecting advance fees based on the promise of financing that was never available and would never arrive.
McManus now brings post-trial motions for a judgment of acquittal pursuant to Federal Rule of Criminal Procedure 29(c) (“Rule 29”), or in the alternative, for a new trial pursuant to Federal Rule of Criminal Procedure 33 (“Rule 33”), challenging his convictions for money laundering (Counts 17-19), making false statements to the federal government (Count 33), and obstruction of justice (Count 32). For the reasons discussed below, I will deny the motions.
The evidence at trial showed that Remington operated a business model whereby a borrower could ostensibly secure funding by following a two-step due diligence process. Tr. Jan. 24, 2014 at 54:1-4. After an intake in which the borrower provided basic information about the project to be financed, a Remington employee sent the borrower a Letter of Interest (“LOI). Id. at 57:15-57:25, 59:16-59:18. If the borrower paid a nonrefundable fee ranging from $5000 to $10, 000 the borrower proceeded to the next phase in which a Remmington analyst purportedly conducted the first due diligence process and prepared a Phase I report. Id. at 72:6-72:20, 89:4-89:13, 94:14-94:20. Following this report, the borrower received a term sheet. Id. at 96:8-96:13. If the borrower paid a second nonrefundable fee ranging from $10, 000 to $15, 000, the borrower proceeded to the next phase in which a Remmington analyst purportedly conducted further due diligence. Id. at 98:8-96:13, 127:20-127:21, 132:7-132:10. At the end of this process the analyst prepared a further report that was meant to be “investor-ready.” Id. at 138:2-138:4.
Remington operated primarily out of two offices. The office located in Scottsdale, Arizona, was run by Bogdanoff; the office located in Philadelphia, Pennsylvania was run by McManus. Tr. Feb. 7, 2014 at 234:9-234:21; Feb. 11, 2014 at 117:23-118:10; Feb. 6, 2014 at 28:6-28:25. The Arizona office originated the bulk of Remington’s deals, conducting the intake process and sending LOIs to potential customers. Tr. Jan. 29, 2014 at 201:22-201:27; 208:12- 208:18. Philadelphia operated as a “back office” for many of the projects originated in Arizona, with Philadelphia’s analysts conducting much of the due diligence for Remington. Jan. 24, 2014 at 95:13-95:15; Tr. Feb. 10, 2014 at 175:6-176:1. The projects originating in Arizona and transferred to Philadelphia were known as the “Arizona pipeline.” Tr. Jan. 29, 2014 at 203:3-203:5. The government argued at trial that the due diligence process employed by the Arizona office and the Arizona pipeline in the Philadelphia office was ultimately a scheme devised to secure the nonrefundable advance fees from borrowers who paid those fees believing that Remington was genuinely seeking financing for their projects.
The government offered evidence showing how Remington’s scheme successfully lured borrowers into paying these advance fees by implying or stating that investors were already interested in their projects and that financing was imminent, despite the fact that no lender had even seen the project. The LOI, for example, told borrowers that it was “pleased to advise” them of “our lender’s interest to provide financing.” Tr. Jan. 24, 2014 at 63:9-63:19. But at the time the LOIs were sent, Remington had not shown the project to any lenders. Id. at 65:11-65:13; Tr. Jan. 29, 2014 at 206:11-207:5. The term sheet claimed to be “a continued expression of interest from [Remington] and a selected lender to progress into the transaction’s Phase II due diligence, ” and promised “[p]reparation of an extensive due diligence report and site visit, [and] presentation of the due diligence report to one of the investors identified by [Remington] as having a particular appetite for this transaction, ” despite the fact that these lenders and investors did not exist. Tr. Jan. 24, 2014 at 109:10-109:20, 127:24-128:11, 129:6-129:11; Tr. Jan. 29, 2014 at 211:12-213:3. The term sheets also carefully warned that any final commitment was subject to “final approval from [Remington’s] lenders and/or investors”—again, lenders and investors that did not exist. Id. at 128:1-128:11; see also, Tr. Jan. 29, 2014 at 191:19-22 (Remington employee testifying that he would not contact any lenders until after completion of Phase II due diligence.)
In addition to the misleading language regarding phantom lenders in the LOIs and term sheets, Remington operated the Northbridge Capital Fund (“Northbridge”) to differentiate Remington from standard brokers. As was explained to the jury, a fund is a “committed pool of capital” that is already “in the bank, [and] ready to use” to finance selected projects. Tr. Feb. 6, 2014, 49:8-50:1. Standard brokers do not have direct access to a fund to finance projects; they merely shop projects to lenders and investors. Tr. Jan. 24, 2014 at 87:12-87:20. By contrast, Remington employees were able to point to Northbridge and claim that Remington had exclusive access to its own funds and the ability to finance projects, through Northbridge, as though Remington was an actual lender. Id. at 87:20-87:23. For example, a Remington employee told a borrower that he was on the investment committee for Northbridge, that the loan had been approved, and that the borrower therefore needed to send a term sheet fee to complete the deal. Tr. Feb. 6, 2014 at 50:19-51-9. Remington also sent marketing letters to potential customers claiming that “[Remington] manages, exclusively, the Northbridge Capital Fund, a $350, 000, 000 fund, which specializes in bridge, mezzanine[, ] and distressed properties.” Id. at 167:25-169:18, 171:12-171:15; Gov’t Ex. 2901. And Remington falsely advertised on its website that Northbridge had provided financing for projects it had not, including $1.8 million for a retail property in Buckhead, Georgia, Id. 173:25-176:2, and $2.5 million for a real estate project in Dayton, Ohio, Id. 176:179:9. In truth, Northbridge funded a single $325, 000 loan in its lifetime. Id. at 166:24-167:21; Tr. Jan. 31, 2014 at 115:15-115:19. The money for this loan was collected from McManus and four others—McManus’s business associates, friends, and family—who ultimately lost their investment. Tr. Jan. 31, 2014 at 117:7-117:14, 118:5-118:6. Despite Remington’s claims of Northbridge’s prowess as a financing source, and its practice of holding Northbridge out as a fund from which Remington was directly able to finance projects, Northbridge never had the capability to make another loan, and, in fact, never made a second loan.
Remington’s false claims that lenders and funding were available successfully misled borrowers who paid advance fees believing that funding for their project was imminent either directly through Remington and Northbridge, or through third party lenders. One borrower testified that, in January 2007, he made inquiries to Bogdanoff to determine whether Remington “actually had the money in hand” to fund his project. Tr. Jan. 30, 2014 at 260:13-261:25, 271:4-271:8. Bogdanoff introduced the borrower to McManus as the “founding partner of Northbridge, ” and told the borrower that McManus would be “happy to assist” him. Id. at 271:18-271:25. And McManus assured the borrower that Northbridge would fund his project and that the “fee was being charged to hold the money.” Id. at 273:25-274:12. From this interaction, the borrower understood that Northbridge would be “the funding source for his project” and that the funds were already available. Id. at 272:21-273:1. Another borrower testified that he surrendered $25, 000 in LOI and term sheet fees believing that there were investors already interested in funding his project. Tr. Jan. 24, 2014 at 106:14-106:22, 110:8-110:14, 117:17-117:19.
After borrowers paid the LOI and term sheet fees, believing that investors were already interested in financing their projects, Remington then directed the borrowers to change the terms of their projects in impossible ways in order to secure the financing. One borrower, for example, having already paid $25, 000 in advance fees based on the promise that investors were already interested in financing his movie production, was ultimately told that he needed to partner with a “big movie studio” before he could get financing. Tr. Jan. 24, 2014 at 105:6-105:24, 110:8-110:14. At this point in the process, the scheme fell apart. Remington stopped responding to the borrower’s communications, as the borrower learned that no financing was, in fact, imminent; that no lenders had ever been interested in his project; and that no money had ever been available or set aside to fund his project. This resulted over and over. As one borrower testified, “it suddenly seemed like a wild goose chase, ” a “constant wheel” of Remington employees “deflecting” his calls and requesting more and more information—often information he had previously provided. Id. at 116:19-117:6. And when he sent the information, he would not hear anything from Remington for “two, four, five, six, seven weeks” and follow-up emails were met with “more silence.” Id. at 118:16-118:23.
In 2007, in what was ostensibly an attempt to separate from Remington Arizona, and its negative press, McManus founded Bluestone Real Estate Capital (“Bluestone”). While Bluestone was purportedly independent of Remington, it was housed in the same office as the prior Remington Philadelphia office, and staffed by the same employees. Tr. Feb. 6, 2014 at 42:18-43:7, 151:23-24. The government offered evidence that, despite this apparent separation, employees in the Philadelphia office, now ostensibly Bluestone employees, continued to perform work on projects from the Arizona pipeline. Id. at 43:18-44:8, 153:5-153:23; Tr. February 4, 2014 at 53:23-54:5. Deborah Avanesov testified that she worked for both Bluestone and Remington, simultaneously, working from the same desk and using the same computer. Tr. January 31, 2014 at 241:24-243:6. Daniel Gura testified that he simultaneously handled both Bluestone and Remington projects, and records showed that Gura accrued income from projects for both companies, simultaneously. Tr. January 29, 2014 at 218:18-219:3; Gov’t Exs. 3800.
The government also offered Bluestone financial reports that included income and expenses from both Philadelphia deals (now Bluestone) and Arizona deals (Remington’s Arizona pipeline). Gov’t Exs. 3501A, 3501G. And Philadelphia’s Remington/Bluestone employees testified that McManus knew that some of his employees, now ostensibly Bluestone employees, continued to perform work on Arizona pipeline (i.e. Remington) projects. 44:17-45:6. Andrew Benioff testified that he left Bluestone, shortly after its creation, “[b]ecause it was clear that nothing was changing, and Bluestone was turning into Remington Financial Group again.” Id. at 52:1-52:4.
Ultimately, the Federal Bureau of Investigation (“FBI”) conducted an investigation of the advance fee fraud scheme, which involved: interviews of over 50 Remington customers, approximately 35-40 Remington employees, and approximately 35-40 other people connected with the matter, Tr. Jan. 30, 2014 at 204:7-204:15; subpoenas issued to various banks and other financial institutions for Remington records, Id. at 204:22-204:24; and search warrants executed at Remington’s offices in Scottsdale, Arizona and Englewood Colorado, in which approximately 180 items were seized, including 40-45 computers and related media items, and boxes of records, including tax returns, bank statements, and other corporate documents, Id. at 205:22-207:3. Through its investigation the government learned that, from at least 2005 through 2011, McManus, his partner Andrew Bogdanoff, and their employees at Remington collectively defrauded 1946 people of $26 million by collecting advance fees for financing projects, based on the promise of financing that would never come. Id. at 208:9-209:4, 211:16-214:1. According to Special Agent Murphy, approximately $21.5 million in advance fees collected from the Arizona office between 2006 and 2009 were deposited in Remington’s Home National Bank, Id. at 232:16-232:23, and approximately $3.5 million in advance fees collected from the Arizona pipeline in the Philadelphia office between 2006 and 2007 were deposited into Remington’s Republic First Bank account, Id. at 232:24-233:6.
On April 28, 2012, a grand jury returned an indictment charging McManus with conspiracy to commit mail and wire fraud in violation of 18 U.S.C. § 371 (Count 1), two counts of wire fraud in violation of 18 U.S.C. § 1343 (Counts 14 and 16), three counts of money laundering in violation of 18 U.S.C. § 1957 (Counts 17-19), obstruction of justice in violation of 18 U.S.C. § 1505 (Count 32), and making false statements to the federal government in violation of 18 U.S.C. § 1001 (Count 33). A fifteen day jury trial commenced on January 23, 2014, and the jury returned a verdict of guilty on all counts on February 19, 2014.
II. STANDARD OF REVIEW
A. Motion for Judgment of Acquittal
A defendant may file a motion for judgment of acquittal allowing a court to set aside a jury verdict. Fed. R. Crim. P. 29(c). The purpose of Rule 29 is to allow the defendant to test the sufficiency of the evidence offered to support a conviction. See United States v. Cohen, 301 F.3d 152, 156 (3d Cir. 2002). However, “[a] defendant challenging the sufficiency of the evidence bears a heavy burden.” United States v. Casper, 956 F.2d 416, 421 (3d Cir. 1992). “A finding of insufficiency should be confined to cases where the prosecution’s failure is clear.” United States v. Brodie, 403 F.3d 123, 133 (3d Cir. 2005) (internal quotation marks and citations omitted).
In reviewing the record to determine whether there was sufficient evidence to support a conviction, “the court must view the evidence and the inferences logically deducible therefrom in the light most favorable to the government, to determine if there is sufficient evidence to support the factfinder’s verdict.” United States v. McNeill, 887 F.2d 448, 450 (3d Cir. 1989). Moreover, “the trial court’s ruling on the sufficiency of the evidence is governed by strict principles of deference to a jury’s findings.” United States v. Ashfield, 735 F.2d 101, 106 (3d Cir. 1984). “A verdict will be overruled only if no reasonable juror could accept the evidence as sufficient to support the conclusion of the defendant’s guilt beyond a reasonable doubt.” United States v. Coleman, 811 F.2d 804, 807 (3d Cir. 1987) (citations omitted); see also United States v. Salmon, 944 F.2d 1106, 1113 (3d Cir. 1991) (finding that in evaluating the ...