Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Posts Tagged ‘US v. Carpenter’
Dec 20
2013

First Circuit Reverses District Court Order Granting New Trial

Appellate courts do not often reverse a trial judge’s decision to grant a new trial, so we took notice when the First Circuit did so in United States v. Carpenter.  Given the case history, the First Circuit decision should help to answer an important question:  How much leeway do prosecutors have when summarizing evidence in closing arguments?

In 2005, a jury convicted Daniel Carpenter on nineteen counts of wire and mail fraud.  The charges pertained to Carpenter’s operation of Benistar, a company that handled “like kind” exchanges for owners of investment property.  Under federal law, investors may defer capital gains on the sale of investment property if they exchange it for another property of like kind.  In order to qualify, the seller or “exchangor” must complete the exchange within 180 days of the initial sale and must not take possession of sale proceeds in the interim.  To meet the requirements, exchangors usually rely on a qualified intermediary to hold the exchange funds until they are reinvested.  Benistar’s business as a qualified intermediary gave rise to the charges against Carpenter.

The government alleged that Carpenter obtained investors’ exchange funds by fraud.  At trial, the prosecution argued that Carpenter persuaded investors to contract with Benistar by misrepresenting that their funds would be managed conservatively for a modest return of 3 to 6%.  According to prosecutors, Carpenter made the representations knowing full well that the money would be used for high-risk trades.  The jury apparently agreed, returning a guilty verdict on all counts.

Carpenter requested a new trial, which the trial judge granted due to the government’s repeated use of a gambling metaphor in closing arguments.  The court noted that the evidence against Carpenter was sufficient for a conviction, but not overwhelming.  The government may have tipped the scales by arguing that Carpenter had gambled with investors’ money hoping to make millions for himself.  It was possible the jury convicted based on moral disapproval of gambling rather than evidence of fraud.

In a divided opinion, the First Circuit affirmed, largely deferring to the trial court’s assessment.

At the end of the re-trial, the government omitted the gambling metaphor, focusing instead on Benistar’s marketing materials, contracts with investors, and Carpenter’s profit motive.  Again, the jury returned a guilty verdict on all counts having deliberated for roughly two hours.

At Carpenter’s request, the trial judge ordered a third trial, but not for reasons advanced by the defense.  This time, the judge was troubled by the jury’s two-hour deliberation.  He observed that it would be nearly impossible for jurors to walk through the evidence for nineteen different counts in two hours.  They must have taken a shortcut.  Thus, the judge ordered a new trial on grounds that the prosecutor had invited jurors to employ certain presumptions based on mischaracterizations of evidence.  For one, the government implied that Benistar’s marketing materials made express misrepresentations about the safety and security of investor funds.  In reality, the marketing materials supported only an inference to that effect.  The government also invited jurors to presume that qualified intermediaries are prohibited from using exchange funds for high-risk trades, when that is not the case.  Moreover, by emphasizing Carpenter’s profit motive, the government may have encouraged jurors to convict for “greed” rather than fraud.

On appeal, the First Circuit disagreed and reinstated the guilty verdict.  A unanimous panel held that the prosecution’s statements were permissible summations of the government’s theory of the case, not mischaracterizations of record evidence.  The government had argued that Carpenter took in millions based on false pretenses that Benistar would keep the exchange funds safe and secure.  That argument was not improper, as the trial court found, because the prosecution followed it with a discussion of specific evidence supporting that conclusion.  Similarly, the government argued that “like kind” transactions are typically conservative—not so the jury would convict based on some imaginary statutory violation or breach of contract, but to establish that Carpenter knew Benistar’s risky investment strategy differed from investors’ expectations.  And the government’s references to Carpenter’s profit motives were equally permissible.  Those comments went to prove Carpenter’s specific intent for the fraud, which was to make more money.

A comparison of the two appellate decisions suggests that the district court erred because it failed to see the forest for the trees.  By treating each of the government’s questionable statements in isolation, the court found support for a new trial.  But the statements had to be considered in context.  In context, the prosecution’s comments were not mischaracterizations of evidence but main points of the government’s theory, which the prosecution supported from the record.

Given Carpenter’s pro-defense trial judge, it’s unclear why the defense opted for a third jury trial.  In hindsight, Carpenter may have fared better by ditching the jury request in favor of a bench trial.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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