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Univ. of South Carolina School of Law

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Monday, December 1, 2008

Easy Money: Eleventh Circuit Applies Rule 704(a), Not 704(b), In Ponzi Scheme Appeal

In affirming the conviction of James W. Long in United States v. Long, 2008 WL 4997057 (11th Cir. 2008), the Eleventh Circuit likely came to the correct conclusion but probably engaged in more legwork than was needed.  Long was convicted of  substantive wire fraud and conspiracy to commit wire and mail fraud, stemming from his operation of a payday loan company, Cash Today, USA, Inc.  And part of the testimony used to convict him was the expert testimony of Soneet R. Kapina, a forensic accountant who reviewed Cash Today's records.

Kapina testified, inter alia, that Cash Today bore the hallmarks of a "ponzi scheme" and was an artifice or scheme to defraud.  Long did not object to this testimony at trial, but on appeal, he claimed, among other things, that Kapina improperly testified as to his mental state.

The Eleventh Circuit rejected this argument, citing to Federal Rule of Evidence 704(a), which states that:

     "[e]xcept as provided in subdivision (b), testimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact."

The court then correctly noted that while Rule 704(a) permits expert opinion testimony concerning an ultimate issue of fact, it precludes such testimony regarding ultimate legal conclusions.  And, according to the court, "Kapina's statement that Cash Today bore the hallmarks of a 'Ponzi scheme' described Cash Today's financial practices but offered no conclusion as to whether Long participated in these practices with the intent to defraud investors. Because this statement was a factual, and not a legal, conclusion, it was admissible under Rule 704."

Conversely, it concluded that "Kapina's statement that Cash Today was an artifice or scheme to defraud [wa]s more problematic, however, because it c[ame] much closer to embodying an impermissible legal conclusion."  Then, despite this seeming ambivalence, the court strangely jumped to the conclusion that "this statement was plainly inadmissible."

The problem for Long, however, was that his failure to object at trial meant that he had to prove plain error, and the court found that Long could not

     "show that his substantial rights were affected. Given the overwhelming evidence of guilt adduced at trial, there is no reasonable probability that the result of the trial would have been different had the district court excluded this single remark. Accordingly, Long has failed to satisfy the third prong of the plain error test."

As I said above, I think that the court came to the correct conclusion, but I don't think that the court needed to attempt to characterize Kapina's statement as an impermissible legal conclusion to get there.  And the reason is Federal Rule of Evidence 704(b), which states that:

     "[n]o expert witness testifying with respect to the mental state or condition of a defendant in a criminal case may state an opinion or inference as to whether the defendant did or did not have the mental state or condition constituting an element of the crime charged or of a defense thereto. Such ultimate issues are matters for the trier of fact alone."

Obviously, Long's argument was that Kapina's testimony that Cash Today was an artifice or scheme to defraud was improper testimony concerning his mental state, and the Eleventh Circuit seemingly implicitly agreed before shoehorning the testimony into the "impermissible legal conclusion" category.  I thus don't know why it cited to Federal Rule of Evidence 704(a) instead of Federal Rule of Evidence 704(b).   

-CM

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