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Debentures > HYIP > U.S.
v Rude
88 F.3d 1538, 97 Cal. Daily Op. Serv. 5143 (9th Cir.
07/10/1996)
U.S. Court of Appeals, Ninth Circuit
No. 95-30198, No. 95-30205, No. 95-30207, No. 95-30208
filed: July 10, 1996.
UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
MORREON B. RUDE, DEFENDANT-APPELLANT. UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
V. STAFFORD Y.L. MEW, DEFENDANT-APPELLANT. UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
V. CHARLES E. ANDREWS, DEFENDANT-APPELLANT. UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
V. RODNEY H.S. KIM, DEFENDANT-APPELLANT.
Appeals from the United States District Court for
the Western District of Washington. D.C. No. CR-94-05246-3-FDB. D.C. No.
CR-94-05246-01-FDB. D.C.
No. CR-94-05246-06-FDB. D.C. No. CR-94-05246-02-FDB. Franklin D. Burgess,
District Judge, Presiding. Original Opinion Previously Reported at:,.
Charles A. Johnston, Felker, Lazares & Johnston, Tacoma, Washington,
for defendant-appellant Rude; Ronald G.S. Au, Honolulu, Hawaii, for defendant-appellant
Mew; Stephen E. Robinson, Fleeson, Gooing, Coulson & Kitch, Wichita,
Kansas, for defendant-appellant Andrews; Ronald D. Ness, Port Orchard, Washington,
for defendant-appellant Kim.
Robert M. Westinghouse and Carl Blackstone, Assistant United States Attorneys,
Seattle, Washington, for the plaintiff-appellee.
Before: Donald P. Lay,*fn* Eugene A. Wright and Edward Leavy, Circuit Judges.
Opinion by Judge Lay.
Author: Lay
LAY, Circuit Judge:
These consolidated appeals involve a scheme to defraud investors, including
Unity House, Inc., a Hawaii non-profit corporation, of several million dollars.
Morreon B. Rude, Rodney H.S. Kim, and Stafford Mew appeal their judgments
of conviction for wire fraud, money laundering, and conspiracy. Charles Andrews,
who pleaded guilty to one count of testifying falsely before a grand jury
in exchange for cooperation in the prosecution of the other defendants, appeals
his sentence. We affirm.
THE "PRIME BANK NOTE" SCHEME
At trial the government adduced evidence that the defendants conspired to
induce investments in what they termed "prime bank note" transactions.*fn1
The subject transactions were described to potential investors as a form
of international bank paper purchased from issuing banks at a discount and
sold to wholesale banks for a profit. Defendants held themselves out as persons
experienced in such transactions and assured potential investors that the
notes would yield monthly returns of roughly two to five percent. They further
represented that the investments would not be at risk and in fact would remain
in the investors' own accounts. Each of these representations was false.
The scheme began in May 1992, when Morreon Rude and Stafford Mew incorporated
North Pacific Investments, Inc. ("NPI"), a Washington corporation,
as a means of perpetrating defendants' fraudulent activities.
In December 1992, after several furtive attempts to sell the notes to third
parties, representatives of Unity House, a Hawaii non-profit company with
assets of more than $50 million, agreed to invest $10 million in the notes.
They asked Roderick Rodriguez, the executive director of Unity House, to
contact Bank of America to obtain a letter of credit, but Bank of America
declined. Mew, NPI's principal, offered to procure a letter of credit from
a European bank on behalf of Unity House. Mew represented that an account
for Unity House could be opened at Credit Suisse in Geneva, Switzerland,
and that the money would remain in the bank earning interest. The representatives
of Unity House accepted Mew's proposal. Anthony Rutledge, the president of
Unity House, and Mew signed a Limited Power of Attorney and a Private Participation
Agreement, each prepared by Kim, authorizing the arrangement, whereunder
NPI was given a general power of attorney in order to transfer funds out
of the Credit Suisse account. Mew then enlisted the help of Charles Andrews,
a commodities broker with a seat on the Chicago Mercantile Exchange, who
met him in Geneva, Switzerland to establish the account. On January 19, 1993,
Unity House transferred $10 million to the Credit Suisse account.
Between February and April 1993, Mew effected transfers of all $10 million
from Credit Suisse to NPI's account at Seafirst Bank. In April, Rutledge
received a letter from Mew stating that NPI was holding $625,000 in earnings
for Unity House, and in July 1993 Rude transferred $650,000 to Unity House.
Unity House was not aware, however, that the money was simply part of its
original investment; it understood the payment as a return on its investment,
and in fact did not learn of NPI's activities until September 1993, when
Rutledge was interviewed by law enforcement agents. In addition, Mew and
Rude transferred $2 million to a discretionary account from which Andrews
traded until November, when the remaining $350,000 was seized. Andrews received
$400,000 in commissions during the course of the trading, and the balance
of that $2 million was lost. Another substantial portion of the money was
deposited in various accounts and used to trade stocks and commodities, generating
losses of approximately $3,667,000. Federal agents seized most of this money.
Of the remaining funds, Mew and Rude together received $588,538; Kim received
$106,666; and Gonzales received $792,000. The defendants never purchased
any prime bank notes or letters of credit, though they maintain that they
attempted to do so.
Law enforcement investigations led to a grand jury proceeding in August
1993. Rude then first admitted that Unity House was the source of the $10
million transferred to NPI's Seafirst account. He claimed the money was a
loan, and records he produced referred to the transaction as such. In November
1993, federal agents seized the funds in NPI's various accounts. Kim, Rude,
Mew, and Jack Gonzales*fn2 were indicted on April 20, 1994.
Andrews appeared before a grand jury in Seattle on December 15, 1993. During
his testimony, he failed to disclose the number of times he had met Mew,
in an effort to conceal the fact that he and Mew had been in Switzerland
to set up the Credit Suisse account. On September 14, 1994, the grand jury
returned a superseding indictment charging Andrews, along with Mew, Kim,
and Gonzales, with conspiracy, wire fraud, and money laundering. Andrews
was also charged with making a false declaration to the grand jury. He later
admitted that he had testified falsely and entered a plea to that charge
in exchange for his agreement to cooperate in the prosecution of the other
defendants.*fn3 The remaining four defendants proceeded to trial, and a jury
convicted them on all counts on March 21, 1995. Kim, Rude, and Mew were sentenced
on June 9, 1995.*fn4
CHARLES ANDREWS
Andrews argues that the district court erred in the imposition of his sentence
by failing to make factual findings requisite to the application of U.S.S.G. § 2J1.3(c)(1)
(1994), which provides:
If the offense involved perjury, subornation of perjury, or witness bribery
in respect to a criminal offense, apply § 2X3.1 (Accessory After the
Fact) in respect to that criminal offense, if the resulting offense level
is greater than that determined above.
Andrews acknowledges that cross-referencing U.S.S.G. § 2X3.1 would
have been appropriate had the district court found that he committed perjury "in
respect to" the criminal offense of money laundering, for which his
co-defendants were convicted, but suggests the court applied § 2X3.1
notwithstanding its failure to make such a finding, thus violating both § 2J1.3
and Fed. R. Crim. P. 32(c)(3)(D). Although he objected to the presentence
investigative report's characterization of the facts, he suggests the court
simply deferred to the probation officer's recommendation to cross-reference § 2X3.1
without addressing his objections.
Contrary to Andrews' claim, we find that the district court was aware that
it needed to make such a finding, and that it did so. See Excerpts of Record
D at 28 ("That will be my finding, that the offense level will be based
on that cross reference."). Rule 32(c)(1) does not require the court
to articulate the reasoning for its finding. See United States v. Karterman,
60 F.3d 576, 583 (9th Cir. 1995); United States v. Fagan, 996 F.2d 1009,
1016 (9th Cir. 1993); United States v. Peters, 962 F.2d 1410, 1415 (9th Cir.
1992). Although the court did not articulate the facts upon which it relied
in ruling as it did, we are satisfied that the requisite finding was made.
The remaining issue is whether the court's finding that Andrews committed
perjury in respect to the money laundering offenses of his codefendants was
justified. U.S.S.G. § 2J1.3(c)(1) requires only that the defendant's
perjury be "in respect to a criminal offense" for cross-referencing
to be justified. The Guideline requires neither that the defendant have committed
perjury in respect to his own criminal offense, nor that he have committed
perjury in respect to an adjudicated criminal offense. Provided an indictment
and conviction are forthcoming, as they were here, and so long as the defendant
knew or had reason to know, at the time of his perjury, that his testimony
concerned such a criminal offense, the "in respect to" element
of § 2J1.3(c)(1) is satisfied.
At the time of his perjured testimony, Andrews knew that Mew was under investigation
for money laundering and wire fraud, as verified by a memorandum he prepared
and sent to Mew following his interview with federal agents, and the seizure
warrant itself, which detailed the factual basis for the forthcoming allegations.
Andrews also knew that Mew did not want him to tell the grand jury about
the Credit Suisse account - a fact which belies his claim that he thought
the charges arose from a legitimate business transaction. These facts demonstrate
that Andrews' perjury was "in respect to" the other defendants'
money laundering offenses. We find no error in the district court's sentencing
of Andrews.
RUDE, KIM, AND MEW
Rude, Kim, and Mew jointly and individually have raised various claims on
appeal. They challenge (1) the sufficiency of the evidence to sustain their
convictions; (2) the legal sufficiency of the Superseding Indictment and
the government's variance therefrom; (3) multiple aspects of the jury instructions;
and (4) the conduct of the prosecution during trial.*fn5 Mew raises separate
claims that the district court erroneously (1) admitted evidence of other
crimes involving fraudulent misconduct under Fed. R. Evid. 404(b); (2) denied
his motion for a continuance; and (3) denied his motion to suppress evidence
which was allegedly illegally seized from his residence.
THE SUFFICIENCY OF THE EVIDENCE
Defendants claim that the evidence was insufficient to support their wire
fraud convictions, under Counts One through Five, for violating 18 U.S.C. § 1343.
They observe that they were not charged with wire fraud for the initial wiring
of funds from Hawaii to Credit Suisse, but rather for the transfers of funds
from Credit Suisse to Seafirst Bank, and for returning funds to Unity House
in the sum of $650,000. Defendants maintain that the latter transfers were
not in furtherance of the fraud, as the wire fraud was completed at the point
when Unity House wired $10 million from Hawaii to Credit Suisse. If the wire
fraud counts cannot be sustained, their argument continues, their convictions
for money laundering and conspiracy must also be overturned, since the latter
counts were dependent upon the underlying wire fraud convictions. In support
of these contentions, defendants rely upon United States v. Lane, 474 U.S.
438, 88 L. Ed. 2d 814, 106 S. Ct. 725 (1986), United States v. Maze, 414
U.S. 395, 38 L. Ed. 2d 603, 94 S. Ct. 645 (1974), and Kann v. United States,
323 U.S. 88, 89 L. Ed. 88, 65 S. Ct. 148 (1944).
The defendants' argument is without merit, for it is clear that the $650,000
wire transfer, as well as the transfers from Credit Suisse to Seafirst, the
defendants' bank, were at a minimum either "incident to an essential
part of the scheme," or "a step in [the] plot." See Schmuck
v. United States, 489 U.S. 705, 711, 103 L. Ed. 2d 734, 109 S. Ct. 1443 (1989)
(quotations omitted) (alteration in original). The monies returned to Unity
House, for example, were intended to create the impression that Unity House
was earning an immediate, substantial return on its investment, as promised
by the defendants. This transfer therefore was not only relevant to the fraudulent
conspiracy, but extended the overall scheme by "'lulling the victims
into a false sense of security, postponing their ultimate complaint to the
authorities, and therefore making the apprehension of the defendants less
likely than if no [transfers] had taken place.'" See Lane, 474 U.S.
at 451-52 (quoting Maze, 414 U.S. at 403); see also United States v. Sampson,
371 U.S. 75, 80-81, 9 L. Ed. 2d 136, 83 S. Ct. 173 (1962). The instant case
is distinguishable from the fraudulent credit card scheme involved in Maze,
where the goods were immediately obtained by the fraud, and where parties
other than the defendants completed the underlying mail transfers. See 414
U.S. at 402-05.
Regarding the transfers from the Credit Suisse account to Seafirst, the
defendants overlook the fact that their fraud was not complete until the
$10 million deposited in Credit Suisse (in Unity House's account) was within
their complete control. Unity House was falsely promised that its money would
remain in the Credit Suisse account. Although effecting a transfer to Credit
Suisse was a step in the scheme, the final steps did not occur until defendants
effected transfers to and from the Seafirst account, thus placing the funds
outside of Unity House's account, outside of the scope of Unity House's authorization,
and within their own control. See United States v. Sindona, 636 F.2d 792,
802 (2d Cir. 1980) ("A scheme to defraud is not complete until the proceeds
have been received and use of the mail or wires to obtain the proceeds satisfies
the jurisdictional element."), cert. denied, 451 U.S. 912, 68 L. Ed.
2d 302, 101 S. Ct. 1984 (1981). Thus, we find the evidence sufficient to
sustain the wire fraud counts.
Specific Intent
Rude suggests the only evidence offered to prove that he possessed the requisite
specific intent to defraud concerned his acts in arranging the $650,000 wire
transfer to Unity House and in wiring notes of corporate minutes unrelated
to the case. We have already rejected Rude's argument that the wire transfers
to and from the Seafirst account, including the transfer to Unity House,
were not part of the scheme to defraud. As to his claim that his involvement
was otherwise limited to wiring corporate minutes, a review of the record
does not support this assertion.
The prosecution presented evidence that Rude: acted as the front man who
incorporated NPI; opened bank and brokerage accounts; at least once lied
concerning the corporation's equity and income; structured transactions through
the accounts he established to avoid filing Currency Transaction Reports;
concocted board minutes; wired a portion of Unity House's own money back
to it as a purported return on their investment, knowing that no return had
been earned; transferred several millions to other accounts and to himself;
and falsely stated to law enforcement authorities and a federal grand jury
that NPI simply had invested its own funds. A review of the record evidence
plainly shows that Rude specifically intended to participate in the conspiracy.
Kim contends that there is no support for the prosecution's repeated assertions
that he was more than the attorney who drafted the Limited Power of Attorney
and Private Participation Agreement in the Unity House transaction. He suggests
he lacked knowledge of the five bank wires comprising the bases for the charges
and, like Rude, maintains that proof of specific intent may not be based
on constructive knowledge of facts known to others.
We disagree. On several occasions, Kim solicited prime bank note transactions;
falsely claimed to have learned the trade while seeking funding for a client
in Europe in the 1980s; and represented that the prime bank notes would yield
absurdly high returns. He assured that the deal with Unity House would close
by preparing the Private Participation Agreement and Limited Power of Attorney,
which falsely represented that NPI was experienced in prime bank note transactions.
He also structured the conversion of a portion of currency checks payable
to Mew and, finally, offered Roberta Cabral, a Unity House marketing agent,
a bribe to take responsibility for false promises made in one of NPI's subsequent,
unsuccessful prime bank note presentations. Viewing this evidence in the
light most favorable to the government, Kim clearly intended to further the
fraudulent scheme.
THE SUPERSEDING INDICTMENT
The defendants' initial challenge to the legal sufficiency of the superseding
indictment is similar to their challenge to the sufficiency of the evidence.
As recited above, defendants claim that the fraudulent scheme was complete
once Unity House wired the $10 million to the Credit Suisse bank account
established in Unity House's name and that, in consequence, the wirings of
the $10 million to NPI's Seafirst account were not in furtherance of the
scheme and therefore not actionable. Rude and Kim urge that Stafford Mew
was the sole signatory with a general Power of Attorney on Unity House's
account, and suggest there is no evidence to show that they even knew of
those documents or the limited transfer from Unity House to Credit Suisse.
The defendants, however, took integral steps in the fraudulent scheme when
they effected transfers of money from Credit Suisse to their Seafirst account
in the state of Washington. We thus reject this contention.
The defendants also assert that there was a prejudicial variance between
the charges against them and the proof offered at trial. The Superseding
Indictment charged a scheme to defraud investors, including Unity House,
through investments involving the purchase and sale of prime bank debt obligations.
It is clear that the Unity House solicitation was part of a single broad
scheme of fraud which took place over a roughly two-year period. We find
no prejudicial variance between the Superseding Indictment and the evidence
adduced by the government.
Along the same line, the defendants claim that the Superseding Indictment
was multiplicitous because they were punished twice for the same offense.
They assert that the money laundering Counts, Six through Eleven, are merely
a relabeling of the five bank wirings charged in the wire fraud Counts, One
through Five. We find no merit to this claim. An indictment is multiplicitous
if it charges a single offense in several counts. See e.g., United States
v. UCO Oil Co., 546 F.2d 833, 835 (9th Cir. 1976), cert. denied, 430 U.S.
966, 52 L. Ed. 2d 357, 97 S. Ct. 1646 (1977). It is well established, however,
that money laundering and wire fraud are separate offenses. See United States
v. LeBlanc, 24 F.3d 340, 346 (1st Cir.), cert. denied, 115 S. Ct. 250 (1994);
United States v. Piervinanzi, 23 F.3d 670, 680 (2d Cir.), cert. denied, 115
S. Ct. 259 & 267 (1994); see also United States v. Edgmon, 952 F.2d 1206,
1214 (10th Cir. 1991), cert. denied, 505 U.S. 1223, 120 L. Ed. 2d 906, 112
S. Ct. 3037 (1992).
JURY INSTRUCTIONS
The defendants raise several challenges to the district court's jury instructions.
Specifically, they claim that the court erred in failing to instruct the
jury concerning a single scheme to defraud; in instructing the jury that
the defendants need not have succeeded in obtaining money or property or
in causing others to lose money through their scheme; in instructing the
jury on aiding and abetting liability; and in shifting the burden of proof
from the prosecution to the defense.*fn6
Single Scheme to Defraud
Defendants argue that the court erred in failing to instruct the jury concerning
the requirement that they find a single scheme to defraud, as alleged in
the indictment. They rely on United States v. Mastelotto, 717 F.2d 1238,
1247 (9th Cir. 1983), which held:
In a . . . wire fraud case in which a defendant contends that a variance
has occurred between the single scheme charged in each count of the indictment
and the proof at trial, the jury must be instructed that each of the jurors
must find the defendant guilty of participation in the same single scheme
to defraud and that the scheme to defraud in which the defendant is found
to have participated is the same scheme as the overall fraudulent scheme
alleged in the indictment.
If the jurors are not instructed that they must all agree on the existence
of the same scheme to defraud, the defendant's right to a unanimous jury
verdict as guaranteed by article III, § 2 of and the sixth amendment
to the United States Constitution is infringed.
Defendants assert that Instructions 16, 17, 18, and 22, which pertain to
the charges of a scheme, failed to meet this standard.
We find that the instructions were proper and did not deprive the defendants
of their constitutional rights. Although, as we have concluded, the Superseding
Indictment charged and the proof offered supported a finding of a single
scheme, Instruction 16 stated in relevant part:
In order for a defendant to be found guilty of [wire fraud], the Government
must prove each of the following elements beyond a reasonable doubt:
First, the defendant made up a scheme or plan to defraud individual and
organizational investors, including Unity House, Inc., and to obtain money
from the investors by means of false promises or statements, with all of
you agreeing on at least one particular false promise or statement that was
made; . . . .
(Emphasis added.) Instruction 18 stated:
The scheme to defraud charged in the Superseding Indictment is made up of
various acts. It is not necessary for the Government to prove all of them,
as long as sufficient evidence is shown to establish beyond a reasonable
doubt that the scheme, substantially as charged, was set up.
(Emphasis added.) Thus, the instructions required both a unanimous finding
concerning the existence of the underlying false statements and a specific
finding that the scheme found matched that charged in the Superseding Indictment.
We find these instructions proper.
The Successfulness of the Scheme
Defendants also challenge Instruction 22, which stated:
It is not necessary for the Government to prove that the defendants were
actually successful in obtaining money or property by means of false or fraudulent
pretenses, representations, or promises. It is not necessary for the Government
to prove that anyone lost any money or property as a result of the scheme
or plan.
An unsuccessful scheme to defraud is as illegal as a scheme or plan that
is ultimately successful.
This instruction correctly states the law, in that the mail and wire fraud
statutes do not proscribe only successful schemes. See, e.g., United States
v. Olson, 925 F.2d 1170, 1175 (9th Cir. 1991).
Aiding and Abetting Liability
Defendants next challenge Instructions 24 and 34, which instructed the jury
concerning aiding and abetting liability. They assert that this was plain
error, as no defendant was separately charged with aiding and abetting under
18 U.S.C. § 2.
We disagree. Each of the wire fraud and money laundering Counts charged
violations of 18 U.S.C. § 2. Moreover, it is well settled that "aiding
and abetting are implied in every indictment" for a substantive offense.
United States v. Armstrong, 909 F.2d 1238, 1242 (9th Cir.), cert. denied,
498 U.S. 870, 112 L. Ed. 2d 153, 111 S. Ct. 191 (1990).
Burden of Proof
Finally, defendants contend that Instructions 28-31 and 34-37, read together,
effectively shifted the burden of proof from the government to them. Defendants'
arguments are unsupported by any authority and fail to delineate the manner
in which they were prejudiced. We have reviewed them individually and as
a whole, and we find no prejudicial error. Those instructions containing
the substantive elements of the offenses charged each state, in no uncertain
terms, that the government bore the burden of proving its case "beyond
a reasonable doubt."
THE PROSECUTORIAL MISCONDUCT CLAIMS
The defendants urge that they were deprived of a fair trial by prosecutorial
misconduct.
Inflammatory Language
The defendants first allege that the prosecutor's opening statement was
peppered with inflammatory jingles such as "scam," "Ponzi
Scheme," "gibberish," "victim," "outlandish," "charlatan," "con," "deceit," "misrepresentation," "falsehoods," "fool's
mission," "fictitious business entity," "store front
office," and "front person." They acknowledge that each statement
itself may have been harmless, but suggest that their cumulative effect crossed
the line between permissible oratorical tactics and comments calculated to
incite jury prejudice. They maintain that this prejudicial conduct persisted
throughout the trial, including the prosecution's statements in closing argument.
They suggest the prosecutors referred to the defendants as "crooks" or "evil" at
least eleven times; used terms or phrases such as "con man," "charlatans," "trolling
around for victims," "lie," "lies," or "lied" over
90 times; and also used words such as "Ponzi Scheme," "practicing
their craft," "perfecting their craft," and "victim."
The parties dispute whether defendants objected to the government's use
of inflammatory words at trial.*fn7 Resolving this issue in the defendants'
favor, we nonetheless conclude that the district court did not abuse its
discretion in failing to grant a mistrial (which was not requested by the
defendants) or in sustaining any objection. The district court specifically
found that "the opening and closing remarks, while containing an element
of righteous indignation, were within the boundaries of proper openings and
summations." We agree. The terms "victim," "deceit," "misrepresentation," "falsehoods," "fictitious
business entity," "outlandish," "gibberish," and
even "charlatan" and "scam," for example, are not even
properly characterizable as slang.*fn8 Moreover, the law permits the prosecution
considerable latitude to strike "hard blows" based on the evidence
and all reasonable inferences therefrom. United States v. Baker, 10 F.3d
1374, 1415 (9th Cir. 1993), cert. denied, 130 L. Ed. 2d 289, 115 S. Ct. 330
(1994).
Viewed in their entirety and in the context of the month-long trial below,
the government's choice of terms and phrases was not overly repetitious,
and in fact reasonably described the practices of defendants. As noted in
Guam v. Torre, 68 F.3d 1177, 1180 (9th Cir. 1995), "there is no rule
of evidence or ethics that forbids the prosecutor from referring to the crime
by its common name when examining a witness. There is no rule requiring the
prosecutor to use a euphemism for it or preface it by the word 'alleged.'" See
also United States v. Bracy, 67 F.3d 1421, 1431 (9th Cir. 1995) (upholding
prosecution's reference to defendant as "'the imminent source of evil
in this courtroom - at this moment'"); United States v. Taxe, 540 F.2d
961, 968 (9th Cir. 1976) (upholding in fraud case use of terms "fraud," "scavenger," "parasite," and "professional
con-man"), cert. denied, 429 U.S. 1040, 50 L. Ed. 2d 751, 97 S. Ct.
737 (1977). Although there is a point at which prosecutorial comments are
no longer reasonably descriptive and therefore serve no purpose other than
to incite prejudice in the jury, the prosecution did not cross that point
here, and we decline to impose formalistic restrictions on its vocabulary.
For this reason, we also find no prejudicial error in the allowance of the
prosecution's statements in closing argument.
The Charge of Mischaracterization
The defendants also allege that the government mischaracterized their activities
by implying that trading in prime bank notes was a wholly fictitious concept,
despite the contrary testimony of its own witness, Agent Steven Studhalter,
who defined the term "prime bank."
It is true that the prosecution may neither "assume prejudicial facts
not in evidence," nor "insinuate the possession of personal knowledge
of facts not offered in evidence." Torre, 68 F.3d at 1179-80. Here,
however, the government presented other testimony from which the jury could
conclude beyond a reasonable doubt that the very notion of a "prime
bank note" was fictitious. Neal Aoki, an attorney employed by the Hawaii
Securities Enforcement Unit, testified that the term "prime bank" had
no meaning in the financial industry and was commonly associated with fraud
schemes. A juror could reasonably infer from this testimony that defendants'
business activities were a front. We thus cannot conclude that the government
made prejudicial claims not supported by evidence.*fn9
Vouching
Defendants' final allegation of prosecutorial misconduct is a claim of impermissible
prosecutorial vouching. The prosecution openly greeted a witness passing
in front of the jury box. Rude's counsel objected, but the court simply admonished
the prosecution; it did not provide curative instructions to the jury. The
defendants suggest this was impermissible vouching and grounds for reversal.*fn10
This argument misconceives the doctrine of vouching, which applies where
the prosecutor personally assures the jury concerning a witness's credibility
or expresses a personal opinion regarding the defendant's guilt. Cf. United
States v. Williams, 989 F.2d 1061, 1071 (9th Cir. 1993); United States v.
Necoechea, 986 F.2d 1273, 1276 (9th Cir. 1993). In fact, only one witness
extended his hand to the prosecutor, and our research revealed no case suggesting
it is improper for a prosecutor, without more, simply to shake hands with
a witness upon the close of his testimony in the jury's presence. A prosecutor's
open handshake with a witness neither lends governmental imprimatur to his
testimony nor personally assures the jury of its credibility.
404(b) EVIDENCE
Mew asserts that the court erred in refusing to grant his motion to exclude
evidence of other fraudulent transactions relating to him and dating back
to 1986. At trial, two witnesses, Brian Ajifu and Norman Frank, testified
concerning Mew's prior fraudulent practices. Ajifu testified that he was
enticed to invest $50,000 in a similar scheme by Mew's representation, through
a company with which he associated, ADR Industries ("ADR"), that
he would earn five times his investment within two to three months. Subsequently,
when Ajifu told Mew that he had contacted the FBI, Mew told him not to say
anything and to treat the invested funds as a loan. Frank likewise testified
that, near the same time, Mew promised him a 25% return on his investment
in three months. Frank initially invested $85,000, but when Mew told him
his investment had doubled, he invested another $50,000, all of which was
lost. Mew acted through IBI Financial ("IBI"), another business
entity, during this period. Prior to trial, Mew filed a motion in limine
to exclude the testimony under Fed. R. Evid. Rule 404(b), which was denied.
We review its denial for an abuse of discretion. United States v. Luna, 21
F.3d 874, 878 (9th Cir. 1994).
Mew suggests the testimony of Ajifu and Frank was irrelevant to the Unity
House transaction, remote in time, and insufficient to support a finding
that he committed the other acts. He also notes that this court "has
specifically incorporated Rule 403's probative value/unfair prejudice balancing
requirement into the Rule 404(b) inquiry," United States v. Mayans,
17 F.3d 1174, 1183 (9th Cir. 1994), and suggests the court below failed to
conduct a Rule 403 analysis.
The admission of this evidence withstands the four-part analysis of United
States v. Spillone, 879 F.2d 514, 518-20 (9th Cir. 1989), cert. denied, 498
U.S. 864 & 878 (1990), which holds that prior bad acts evidence is admissible
if it (1) tends to prove a material point; (2) is not too remote in time;
(3) is sufficient to support a finding that the defendant committed the other
act; and (4) in some cases, concerns an offense similar to that charged.
The testimony was relevant to demonstrate defendants' fraudulent intent,
as it established that Mew was not simply a highly optimistic, but negligent,
investor. See United States v. Sarault, 840 F.2d 1479, 1485 (9th Cir. 1988);
United States v. Jenkins, 785 F.2d 1387, 1395 (9th Cir.), cert. denied, 479
U.S. 889, 93 L. Ed. 2d 262, 107 S. Ct. 287 (1986).
We also find the challenged evidence reliable. Both Ajifu and Frank testified
that Mew employed similar, fraudulent investment tactics, around the same
period in time, to induce them to invest. Their testimony not only was specific
concerning the nature of the transactions and the promised returns, but was
corroborated by documentary evidence and sufficient to support a finding
that Mew committed the alleged frauds. The schemes were strikingly similar
to the charged offenses, as each involved "prime bank" notes and
related instruments, and each involved promises of high rates of return.
Nor were the prior acts too remote in time.
Given the similarity and relevance of the offenses, we are not troubled
by the fact that they occurred seven and eight years earlier. This circuit
has not adopted a bright line rule concerning remoteness in time, Spillone,
879 F.2d at 519, and, where the prior acts were similar to those charged,
previous decisions have upheld admission of evidence of acts up to twelve
years old. See United States v. Ross, 886 F.2d 264, 267 (9th Cir. 1989) (acts
occurring twelve years ago not too remote), cert. denied, 494 U.S. 1083,
108 L. Ed. 2d 947, 110 S. Ct. 1818 (1990). As to Mew's claim that the court
below failed to apply Rule 403, we note that the court specifically found
that the probative value of the evidence "outweighed any prejudice which
may be present." This argument is therefore meritless as well.
CONTINUANCE
Mew also contends that the district court erred in denying his request for
a continuance. He asserts that he lacked time to prepare an adequate defense,
given the massive production of exhibits and documents no more than 11 or
12 days prior to trial. This lack of time, and the case's complexity and
his pre-trial detention, assertedly deprived him of a fair trial.
We review a trial court's ruling on a request for a continuance under an
abuse of discretion standard. It is settled that we will reverse only if
the decision is "arbitrary and unreasonable." United States v.
Tham, 960 F.2d 1391, 1396 (9th Cir. 1991).
Although there was a concededly large volume of materials produced by the
government in this case, the defendants were kept informed of this fact by
three separate notices from the government. In addition, it provided an exhibit
list two weeks prior to trial. Jencks materials were provided ten days before
the first witness testified. See Jencks v. United States, 353 U.S. 657, 1
L. Ed. 2d 1103, 77 S. Ct. 1007 (1957).
Furthermore, as the court recognized, a continuance would greatly have inconvenienced
the government, the court, and out-of-state witnesses under subpoena. Nor
has Mew shown the particular manner in which he was prejudiced by the denial
of a continuance: he has not suggested he would have done additional investigation
based on the new discovery, or that he was unable to use the discovery in
cross-examining witnesses or in presenting his defense. In the absence of
any particular proof of prejudice, we cannot say the court below abused its
discretion in denying the continuance, particularly since it perceived a
threat of flight. Moreover, the trial court found that defendant's counsel "came
into the case with the understanding that if you couldn't come in and pick
up the baton and keep the race going, that this was not the case to come
into. I believe your assurance to the Court was that that would be no problem." Thus,
we find no abuse of discretion.
THE FOURTH AMENDMENT CLAIMS
Although each of the defendants' residences as well as the offices of NPI
were searched, only Mew has standing to challenge the search of his residence.*fn11
The search warrant issued in the present case authorized the seizure of the
following documents dating from May 1992 to the present and pertaining to
the defendants and NPI:
Business records . . . Bank account records . . . Brokerage account records
. . . Credit card record statements and payment records . . . Records of
domestic and foreign travel . . . Records pertaining to potential victims
and associates, to include, but not be limited to, telephone toll records,
letters, memos, correspondence, address books, diaries, photographs, video
and audio recordings . . . Currency and other valuable items, such as gold
and jewelry, traceable to fraud and money laundering.
Mew asserts that the search warrant was overly broad in scope and failed
to state with particularity any guidelines for the agents to determine objectively
whether a document to be seized related to wire fraud or money laundering.
He also argues that many of the documents seized by the government pre-dated
May 1992, and that none of these documents pertained to NPI or to the Unity
House fraud.
The Validity of the Warrant
While a search warrant must describe items to be seized with particularity
sufficient to prevent "a general, exploratory rummaging in a person's
belongings," Coolidge v. New Hampshire, 403 U.S. 443, 467, 29 L. Ed.
2d 564, 91 S. Ct. 2022 (1971) (plurality), it need only be "reasonably
specific, rather than elaborately detailed," United States v. Brock,
667 F.2d 1311, 1322 (9th Cir. 1982), cert. denied, 460 U.S. 1022, 75 L. Ed.
2d 493, 103 S. Ct. 1271 (1983), and the specificity required "varies
depending on the circumstances of the case and the type of items involved," United
States v. Spilotro, 800 F.2d 959, 963 (9th Cir. 1986).
The warrant here was sufficiently specific. As the district court noted,
the warrant was limited to post-May 1992 documents, and to records pertaining
to five individuals and one corporation. Any search for relevant documents
is likely to retrieve some information that ultimately is beyond the core
of evidentiary material produced at trial. An objective basis for distinguishing
relevant documents from others is therefore necessary to ensure that the
search is limited. Here, the specification of dates, individuals, and the
NPI corporation, along with a reasonably precise delineation of the type
of records sought, satisfied the specificity requirement. In In re Grand
Jury Subpoenas Dated Dec. 10, 1987, 926 F.2d 847, 857 (9th Cir. 1991), this
court upheld a warrant authorizing the search of an attorney's office for
documents because the list of documents sought "was qualified by the
requirement that the document seized be 'in the name of or have reference
to' [the defendant] or [the persons] or entities that had been linked to
[the defendant] through the investigation." Such is the case here. Moreover,
the agents did not conduct a wholesale seizure of Mew's records, but left "a
large volume" behind. RT 12/16/94 at 137-38.
The district court's finding that Mew's business was "permeated with
fraud," thereby justifying an extraordinarily broad seizure of documents,
bolsters our Conclusion. CR 107 at 6. See United States v. Offices Known
as 50 State Distributing Co., 708 F.2d 1371, 1374-75 (9th Cir. 1983) (broad
search for business records is permissible if probable cause exists to believe
fraud permeates the entire business operation), cert. denied, 465 U.S. 1021,
79 L. Ed. 2d 677, 104 S. Ct. 1272 (1984). The affidavit supporting the search
warrant validates the lower court's finding, as it is clear therefrom that
NPI's central purpose was to serve as a front for defrauding prime bank note
investors. Accordingly, we find that the warrant itself was neither overly
broad nor insufficiently specific.
The Plain View Doctrine
As to the seizure of material outside the scope of the warrant, the government
concedes that its agents seized several documents pre-dating May 1992, but
urges that these documents were properly seized under the "plain view" doctrine.
Mew argues that, under the plain view doctrine, the incriminating character
of the documents must be "'immediately apparent.'" See Horton v.
California, 496 U.S. 128, 136, 110 L. Ed. 2d 112, 110 S. Ct. 2301 (1990)
(quoting Coolidge, 403 U.S. at 466 (plurality opinion)). The record reveals
that the agents had to peruse each document to determine whether it related
to other fraudulent activity.
The government maintains that the pre-May 1992 documents pertained to Mew's
prior fraudulent activities with IBI and ADR, concerning which they had probable
cause. Agent Dana MacDonald, who oversaw the search of Mew's residence, testified
that the agents were informed prior to the search concerning previous criminal
investigations of IBI and ADR. The government thus suggests that the incriminating
nature of these documents was "immediately apparent" to the executing
agents, in conformance with Horton 's requirements. It appears eighteen such
documents were seized and offered into evidence.
We think this is a close question. See Arizona v. Hicks, 480 U.S. 321, 326,
94 L. Ed. 2d 347, 107 S. Ct. 1149 (1987). Just as the officer in Hicks could
not, absent probable cause, upon glancing at a stereo, move it and look for
a serial number, id. at 324-29, it may be argued that neither may an officer,
upon glancing at a document noticeably beyond a search warrant, peruse it
and look for incriminating evidence. As the D.C. Circuit observed in United
States v. Heldt, a pre- Hicks case:
The incriminating character limitation necessarily permits a brief perusal
of documents in plain view in order to determine whether probable cause exists
for their seizure under the warrant. If in the course of that perusal, their
otherwise incriminating character becomes obvious, they may be seized. Otherwise,
the perusal must cease at the point at which the warrant's inapplicability
to each document is clear.
668 F.2d 1238, 1267 (D.C. Cir. 1981) (per curiam) (internal citations and
parenthetical quotations omitted) (emphasis added), cert. denied, 456 U.S.
926 (1982).
This is not a case in which the officers merely perused the documents to
determine whether they fell within the scope of the search as specified by
the search warrant; their immediate observation of the contested documents
revealed that the documents fell outside the warrant. The government concedes
the agents had to use their own discretion in perusing these papers to determine
whether they were incriminating. As the Supreme Court observed in Andresen
v. Maryland, 427 U.S. 463, 482 n.11, 49 L. Ed. 2d 627, 96 S. Ct. 2737 (1976):
There are grave dangers inherent in executing a warrant authorizing a search
and seizure of a person's papers that are not necessarily present in executing
a warrant to search for physical objects whose relevance is more easily ascertainable.
In searches for papers, it is certain that some innocuous documents will
be examined, at least cursorily, in order to determine whether they are,
in fact, among those papers authorized to be seized. . . . Responsible officials,
including judicial officials, must take care to assure that they are conducted
in a manner that minimizes unwarranted intrusions upon privacy.
This court, in United States v. Issacs, 708 F.2d 1365 (9th Cir.), cert.
denied, 464 U.S. 852 (1983), upheld an officer's perusal of a ledger "in
no more thorough a manner than necessary to determine whether it contained
the items which were the object of the search warrant," id. at 1369,
stating in summary:
These cases make clear that when conditions justify an agent in examining
a ledger, notebook, journal, or similar item, he or she may briefly peruse
writing contained therein. The justification may arise from a reasonable
suspicion to believe that the discovered item is evidence . . . ; or it may
arise from the authority conferred by a warrant to search for certain items
which might reasonably be expected to be found within such a book, as here.
In either case, the plain view doctrine would permit brief perusal of the
book's contents and, consequently, its seizure if such perusal gives the
examining agent probable cause to believe that the book constitutes evidence.
We do not mean to suggest that agents entitled to examine a book or similar
item may minutely scrutinize its contents, especially when personal, nonbusiness
papers are involved. But this case does not require us to explore the limits
to brief perusal. The trial court's factual findings establish that no more
than a glance was necessary to ascertain the incriminating nature of the
notations.
Id. at 1370 (internal citations and quotations omitted).
In the present case, we are troubled by the fact that, although the warrant
limited the search to records post-dating May 1992 and pertaining to the
Unity House fraud, the agents nonetheless seized documents beyond the scope
of the warrant. It would have been readily apparent to the government agents
that the documents seized pre-dated May 1992. In examining these documents,
therefore, the agents were immediately alerted to the fact that the documents
were beyond the warrant's scope. More difficult is the question of whether
these documents were on their face incriminatory. Compare United States v.
Menon, 24 F.3d 550, 559-61 (3d Cir. 1994) (upholding plain view seizure of
documents beyond warrant where seizing agents' collective knowledge gave
them probable cause to believe trigger words such as "Jabeco," the
name of a company with which defendant allegedly engaged in criminal activity,
and "reprocessing" indicated that the documents evidenced illegal
activity), with United States v. Soussi, 29 F.3d 565, 572 (10th Cir. 1994)
(permitting cursory review of documents pre-dating warrant by ten months,
but remanding for factual finding to determine whether the incriminating
character of the documents was "immediately apparent during the cursory
review"); and United States v. Hinckley, 217 U.S. App. D.C. 262, 672
F.2d 115, 132 (D.C. Cir. 1982) (per curiam) (rejecting argument that officer's
observation, during lawful search for contraband, of piece of paper containing
trigger words "prison," "life sentence," and "cooperation
with the Justice Department," justified reading the entire document),
overruled in part on other grounds, Hudson v. Palmer, 468 U.S. 517, 82 L.
Ed. 2d 393, 104 S. Ct. 3194 (1984).
We assume arguendo that the searches for and seizures of these eighteen
documents were not justified by the plain view doctrine, and therefore that
they were illegally seized. This evidence was only material, however, to
the testimony of Norman Frank and Brian Ajifu, as it pertained to Mew's prior
fraudulent schemes. As we have held that this evidence was properly received
under Fed. R. Evid. 404(b), we also note that the trial involving all of
the defendants lasted for over one month. The other documentary and testimonial
evidence pertaining to the Unity House fraud, including that implicating
Mew, was overwhelming. The evidence pertaining to Mew's prior involvement
with IBI, ADR, Norman Frank, and Brian Ajifu was de minimis in comparison
to the evidence directly relevant to the particular offenses for which the
defendants were tried.
We therefore find, even assuming that Mew's Fourth Amendment rights were
violated, that the evidence admitted as a result of the illegal search was
harmless beyond a reasonable doubt. See Chapman v. California, 386 U.S. 18,
24, 17 L. Ed. 2d 705, 87 S. Ct. 824 (1967).*fn12
Conclusion
The judgment of conviction of each of the defendants and the sentencing
of the district court are AFFIRMED.
Order, DENIAL OF PETITION FOR REHEARING, REJECTION OF SUGGESTION FOR REHEARING
EN BANC, AND AMENDED OPINION
The opinion filed July 10, 1996, is amended as follows:
Slip opinion at page 8332, delete paragraph [20]: "We therefore find,
even assuming . . . ."; and substitute the following:
We therefore find, even assuming that Mew's Fourth Amendment rights were
violated, that the evidence admitted as a result of the illegal search was
harmless beyond a reasonable doubt. See Chapman v. California, 386 U.S. 18,
24, 17 L. Ed. 2d 705, 87 S. Ct. 824 (1967).*fn13
With this amendment, the panel has voted to deny the petition for rehearing.
Judge Leavy has voted to reject the suggestion for rehearing en banc, and
Judges Lay and Wright have so recommended.
The full court has been advised of the en banc suggestion and no Judge of
the court has requested a vote on it.
The petition for rehearing is DENIED and the suggestion for rehearing en
banc is REJECTED.
Disposition
Judgment of conviction of each of the defendants and the sentencing of the
district court are AFFIRMED. The petition for rehearing is DENIED and the
suggestion for rehearing en banc is REJECTED.
Judges Footnotes
*fn* Honorable Donald P. Lay, Senior Circuit Judge for the Eighth Circuit,
sitting by designation.
Opinion Footnotes
*fn1 The government maintains that the very notion of a "prime bank
note" transaction is fictitious.
*fn2 Gonzales too was convicted, but he is not a party to this appeal.
*fn3 Andrews was sentenced to a 30-month term of imprisonment, to be followed
by a three-year term of supervised release. As a condition of his supervised
release, the court ordered him to make restitution to Unity House in the
amount of $10 million. Pursuant to the plea agreement, the court dismissed
the remaining charges against Andrews.
*fn4 Mew received a sentence of 236-months imprisonment, Kim received a
sentence of 189-months imprisonment, and Rude received a sentence of 135-months
imprisonment, each to be followed by a three-year term of supervised release.
Like Andrews, the other defendants were ordered to pay restitution of $10
million to Unity House.
*fn5 Each of the parties relies on Fed. R. App. P. 28(i) and adopts by reference
the claims in one another's briefs. To avoid confusion, we discuss the claims
as if they are applicable to all three defendants, except where otherwise
noted.
*fn6 The government asserts that the defendants failed to object to the
instructions at the time of the trial, as required by Fed. R. Crim. P. 30.
Rude concedes that he did not object, and we can find no objection by Mew.
Kim, however, asserts that a number of objections were timely made and that
all defendants joined in the objections. Notwithstanding the dispute over
whether the defendants properly objected (and our reading of the transcript
verifies that the defendants failed properly to object to most of the instructions
contested on appeal), we nonetheless have reviewed these instructions and
find no prejudicial error.
*fn7 The government maintains that the defendants made no objection, but
the defendants note that they objected twice during opening statement, once
during trial, and once during closing argument. They also note that objections
or motions raised by one defendant were automatically joined by the others.
*fn8 The dictionary defines "scam" as "a fraudulent or deceptive
act or operation." Webster's Ninth New Collegiate Dictionary 1047 (1984).
It defines "charlatan" as "one making usu. showy pretenses
to knowledge or ability: FRAUD, FAKER." Id. at 228. These are just
the kinds of fraudulent acts the government indicted and proved.
*fn9 The defendants also argue that the government repeatedly referred to
gambling, in violation of the court's pre-trial orders. The court ruled such
statements admissible, however, provided the government could tie the fraud
proceeds to gambling. Viewed in the light most favorable to the government,
the evidence supports the allegation that the proceeds were tied to gambling.
*fn10 Defendants also claim that the United States engaged in improper
vouching by presenting two pie charts to the jury which demonstrated the
Disposition
of the fraud proceeds. This court has recognized, however, that the government
may, in a fraud case, prove that the defendants did not use the funds
obtained for their intended purpose. See United States v. Brutzman, 731
F.2d 1449,
1452 (9th Cir. 1984) ("The misuse of the funds directly established
the fraudulent nature of the scheme."). A different result is not
required simply because the government used pie charts to this end.
*fn11 As earlier explained, the parties have attempted to incorporate by
reference the arguments in each other's briefs. Neither Rude nor Kim, however,
has standing to challenge the search of Mew's residence. Conversely, Mew
lacks standing to challenge the search of any other defendant's residence.
*fn12 In Brecht v. Abrahamson, 507 U.S. 619, 637, 123 L. Ed. 2d 353, 113
S. Ct. 1710 (1993), the Supreme Court for the first time rejected the
harmless error rule of Chapman v. California, 386 U.S. 18, 24, 17 L. Ed.
2d 705, 87
S. Ct. 824 (1967), in collateral attack cases involving constitutional
trial error. The Brecht Court held that, where there is constitutional
trial error,
the petitioner must show actual prejudice under the "'substantial and
injurious effect'" rule in order to obtain a reversal. 507 U.S. at 637
(quoting Kotteakos v. United States, 328 U.S. 750, 760, 776, 90 L. Ed. 1557,
66 S. Ct. 1239 (1946)). In other words, the petitioner may no longer succeed
by showing a mere reasonable possibility of prejudice. Id. Until Brecht was
decided, however, the Court had regularly applied the Chapman rule to constitutional
trial error in collateral attack cases. See, e.g., Rose v. Clark, 478 U.S.
570, 576-77, 92 L. Ed. 2d 460, 106 S. Ct. 3101 (1986); Chambers v. Maroney,
399 U.S. 42, 52-53, 26 L. Ed. 2d 419, 90 S. Ct. 1975 (1970). The standard
applied in the latter cases now appears to be overruled by the Brecht decision.
Until the Brecht decision, the Kotteakos standard, grounded in the federal
harmless error rule under 28 U.S.C. § 2111, had been limited to trial
error of non-constitutional questions. Although there is language in the
Brecht case, see 507 U.S. at 631 n.7, which indicates that § 2111
is more amenable to the harmless error review of constitutional violations,
we know of no case which substitutes the Brecht rule of actual prejudice
for the less stringent rule of Chapman on direct appeal.
*fn13 In Brecht v. Abrahamson, 507 U.S. 619, 637, 123 L. Ed. 2d 353, 113
S. Ct. 1710 (1993), the Supreme Court for the first time rejected the
harmless error rule of Chapman v. California, 386 U.S. 18, 24, 17 L. Ed.
2d 705, 87
S. Ct. 824 (1967), in collateral attack cases involving constitutional
trial error. The Brecht Court held that, where there is constitutional
trial error,
the petitioner must show actual prejudice under the "'substantial and
injurious effect'" rule in order to obtain a reversal. 507 U.S. at 637
(quoting Kotteakos v. United States, 328 U.S. 750, 760, 776, 90 L. Ed. 1557,
66 S. Ct. 1239 (1946)). In other words, the petitioner may no longer succeed
by showing a mere reasonable possibility of prejudice. Id. Until Brecht was
decided, however, the Court had regularly applied the Chapman rule to constitutional
trial error in collateral attack cases. See, e.g., Rose v. Clark, 478 U.S.
570, 576-77, 92 L. Ed. 2d 460, 106 S. Ct. 3101 (1986); Chambers v. Maroney,
399 U.S. 42, 52-53, 26 L. Ed. 2d 419, 90 S. Ct. 1975 (1970). The standard
applied in the latter cases now appears to be overruled by the Brecht decision.
Until the Brecht decision, the Kotteakos standard, grounded in the federal
harmless error rule under 28 U.S.C. § 2111, had been limited to trial
error of non-constitutional questions. Although there is language in the
Brecht case, see 507 U.S. at 631 n.7, which indicates that § 2111
is more amenable to the harmless error review of constitutional violations,
we know of no case which substitutes the Brecht rule of actual prejudice
for the less stringent rule of Chapman on direct appeal.