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UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA
ALPHONSO MICHAEL ESPY,
Criminal No. 97-0335 (RMU)
UNITED STATES' OPPOSITION AND INCORPORATED MEMORANDUM TO DEFENDANTS MOTION TO DISMISS
COUNTS 1 THROUGH 7 AND COUNTS 9 THROUGH 12 OF
THE INDICTMENT FOR FAILURE TO STATE AN OFFENSE
OFFICE OF INDEPENDENT COUNSEL
DONALD C. SMALTZ
In Re Alphonso Michael (Mike) Espy
103 Oronoco Street, Suite 200
Alexandria, Virginia 22314
Phone: (703) 706-0010
Fax: (703) 706-0076
TABLE OF CONTENTS
TABLE OF AUTHORITIES iii
I. INTRODUCTION 1
II. ALLEGATIONS OF INDICTMENT: HONEST SERVICES
A. DEFENDANTS FIDUCIARY OBLIGATIONS 4
B. THE FIDUCIARY OBLIGATIONS BREACHED BY
1. Solicitation And Acceptance Of Things Of Vaule From Regulated Entities 5
2. Defendants Concealment Of Gratuities From The Public 6
3. Defendants False Pretenses Regarding The Purposes Of Certain Travel 7
4. Defendants False Denials To Investigators 8
5. Defendants Efforts To Disguise His Intent In Receiving Gratuities 9
6. Defendants Lies To Office Of The President Of The
United States 10
7. Defendants Use Of Government Funds For Personal
III. ARGUMENT 12
A. THE LEGAL STANDARD FOR TESTING ALLEGATIONS
OF INDICTMENT 12
B. THE INDICTMENT SUFFICIENTLY ALLEGES AN HONEST
SERVICES SCHEME TO DEFRAUD 13
1. The Allegations Of The Indictment Must Be Viewed As
A Whole 14
2. There Is No Requirement That A Quid Pro Quo Be
3. A Public Official Who Conceals Material Information Commits Honest Services Fraud -- Holzer 19
4. Rabbit Is Factually And Legally Distinguishable 24
5. Sawyer, While Instructive, Did Not Deal With Pleading Requirements 26
6. The Czubinski and McNeive Cases Are Legally And Factually Inapposite 30
7. The Indictment Properly Charges The Requisite Fraudulent Intent 33
IV. CONCLUSION 34
TABLE OF AUTHORITIES
CASES Page No.
McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875 (1987) 21
*United Sates v. Barber, 668 F.2d 778 (4th Cir. 1982) 18, 19
United States v. Bohonus, 628 F.2d 1167 (9th Cir. 1980) 33
United States v. Brown, 540 F.2d 364 (8th Cir. 1976) 32
United States v. Brumley, 116 F.3d 728 (5th Cir. 1997), petition for cert. filed, 66 U.S.L.W. 3204 (U.S. Sept. 15, 1997) (No. 97-486). 25
United States v. Bush, 522 F.2d 641 (7th Cir. 1975) 32
United States v. Conlon, 628 F.2d 150 (D.C. Cir. 1980) 12, 13
United States v. Czubinski, 106 F.3d 1069 (1st Cir. 1997) 26, 30, 31
United States v. Diggs, 613 F.2d 988 (D.C. Cir. 1979) 17
United States v. Feldman, 711 F.2d 758 (7th Cir. 1983) 15
United States v. Gorman, 807 F.2d 1299 (6th Cir. 1986) 21
United States v. Gray, 790 F.2d 1290 (6th Cir. 1986), rev'd sub nom. McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875 (1987) 32
*United States v. Holzer, 816 F.2d 304 (7th Cir. 1987), vacated in light of McNally, 484 U.S. 807, 108 S.Ct. 53 (1987) 1, 21-23, 25, 34
United States v. Keane, 522 F.2d 534 (7th Cir. 1975) 15, 17, 19
United States v. Lemire, 720 F.2d 1327 (D.C. Cir. 1983) 13, 17
United States v. Lovett, 811 F.2 979 (7th Cir. 1987) 17
United States v. Mandel, 591 F.2d 1347 (4th Cir.), aff'd, 602 F.2d 653 (1979) (en banc) 17
United States v. McNeive, 536 F.2d 1245 (8th Cir. 1976) 26, 31, 32
United States v. Mississippi Valley Generating Co., 364 U.S. 520, 81 S.Ct. 294 (1961) 21
United States v. Newman, 664 F.2d 12 (2d Cir. 1981) 17
United States v. Rabbit, 583 F.2d 1014 (8th Cir. 1978) 24
United States v. ReBrook, 58 F.3d 961 (4th Cir. 1995) 19
United States v. Sawyer, 85 F.3d 713 (1st Cir. 1996) 16, 21, 26-30
*United States v. Silvano, 812 F.2d 754 (1st Cir. 1987) 1, 16, 17
United States v. Sun-Diamond Growers of California, CR 96-0193 (RMU) (D.D.C. 1997) (Transcript of Sentence) 3
United States v. Sun-Diamond Growers, 964 F.Supp. 486 (D.D.C. 1997) 13
18 U.S.C. § 1001 2, 20
18 U.S.C. § 1346 1, passim
18 U.S.C. § 1512 2
18 U.S.C. § 201 2, 5, 24
21 U.S.C. § 622 2, 5, 24
5 U.S.C. § 7353 2, 5, 25
134 Cong. Rec. S17,360-02 (daily ed. Nov. 10, 1988) 21
George D. Brown, Should Federalism Shield Corruption? -- Mail Fraud, State Law and Post-Lopez Analysis, 82 Cornell L. Rev. 225 31
Defendant's contention that eleven of the twelve honest services fraud counts should be dismissed because the indictment "fails to charge that [defendant] Espy engaged in any conduct with specific intent to alter his official acts as a result of the alleged gratuities,"("Def.'s Mem.") at 9. reveals not only a fundamental misunderstanding about the pleading and proof requirements for a § 1346 prosecution, but also a contrived reading of selected portions of the charging allegations of the indictment.
Contrary to defendants assertion, honest services fraud -- for pleading or proof purposes -- is not limited to cases involving a quid pro quo. Rather, honest services fraud also includes the intentional failure of a public official to disclose material information, United States v. Silvano, 812 F.2d 754, 759 (1st Cir. 1987) as well as the acceptance of numerous gratuities coupled with diverse active efforts of concealment, United States v. Holzer, 816 F.2d 304 (7th Cir. 1987), vacated in light of McNally, 484 U.S. 807, 108 S.Ct. 53 (1987). Defendant attempts to disconnect and disregard various of the seven component elements of the scheme alleged. However, the indictment, when read as a whole (as it must be), charges defendant, a senior federal public official, with honest services fraud -- however defined. The defendants fraud in the case at bar, according to the indictment, has seven component parts: (i) engaging in a pattern of soliciting and accepting gratuities from persons and entities who were regulated by and/or had matters pending before his office; (ii) concealing his receipt of things of value by not reporting them on the required public Financial Disclosure Reports; (iii) making false pretenses for the purpose of justifying official travel to obtain the gratuities; (iv) concealing his activities concerning the receipt of gratuities by lying to federal investigators and providing them with a false and altered document; (v) mailing "reimbursements" of certain gratuities uncovered by the press to make his actions appear benign and disguise his intent in soliciting and accepting the gratuities; (vi) lying to the Office of the President about the extent of gratuities received; and (vii) misusing government assets and causing the expenditure of public funds for his personal benefit. The indictment alleges that each of these seven component parts of the scheme was in express derogation and in violation of a host of criminal statutes, including, inter alia, 18 U.S.C. §§ 201(c)(1)(B), 1001, 1512(b)(2)(A) and (B), 21 U.S.C. § 622, and civil statute 5 U.S.C. § 7353.
The indictment, for the reasons explained below, sufficiently charges an honest services scheme under 18 U.S.C. § 1346.
ALLEGATIONS OF INDICTMENT: HONEST SERVICES FRAUD
The indictment charges defendant with honest services fraud counts 1 through 12 in the following particulars: On or about December 24, 1992, the President-Elect of the United States announced defendant Alphonso Michael Espy (hereinafter "defendant") as his selection for Secretary of the United States Department of Agriculture (hereinafter "USDA"). (Indictment ¶ 2). Confirmed by the United States Senate, defendant served in this position from January 22, 1993 until December 31, 1994. (Id.) While serving as USDA Secretary, defendant wielded an extraordinary amount of discretionary power over those persons, firms, and entities who did business with or were regulated by USDA.
A. DEFENDANTS FIDUCIARY OBLIGATIONS
Upon selection as Secretary of Agriculture, defendant took on fiduciary obligations to the United States, its citizens, the President and the USDA. This obligation imposed upon defendant the duty to perform his job free from deceit, fraud, dishonesty and self-enrichment, the duty to obey criminal and civil laws and regulations, the duty to neither solicit nor accept things of value from persons or entities with business pending before or regulated by the USDA, and the duty to disclose to the government and the public material information as required. (Id. at ¶ 4).
B. THE FIDUCIARY OBLIGATIONS BREACHED BY DEFENDANT
The rights of the United States, its citizens, the officials of the Executive Office of the President, and the USDA that were contravened by this scheme included, among others, (i) their right to defendant's conscientious, loyal, faithful, disinterested services, actions, and performance of his official duties free from dishonesty, deceit, official misconduct, willful omission and fraud; (ii) their right to have defendant conduct his official duties in accordance with the relevant laws and regulations, free from his receipt of gifts and gratuities from persons and entities doing business with, regulated by, or having interests that could be substantially affected by, the USDA; (iii) their right to not have the defendant use government assets and expend public funds for his personal benefit; (iv) their right to accurate and complete personal financial information disclosed by defendant as required by law and regulation; and (v) their right to truthful and complete responses from defendant when inquiries were made by federal investigators and representatives of the Office of the President. (Id. ¶6).
1. Solicitation And Acceptance Of Things Of Value
From Regulated Entities
Within weeks of being selected as the President-Elect's choice for Secretary of Agriculture, defendant Espy began soliciting and accepting things of value from individuals and entities with business before, regulated by and seeking official action by the USDA in violation of numerous federal statutes including 5 U.S.C. § 7353, 18 U.S.C. § 201, and 21 U.S.C. § 622. (Id. at ¶ 7-9). The gratuities solicited and accepted by defendant included, inter alia, an all expenses paid weekend party in Russellville, Arkansas on May 14-16, 1993 from Tyson Foods, Inc.; round trip air transportation for his girlfriend and two tickets to Tyson Foods skybox for the January 15, 1994 NFL National Conference Championship in Dallas, Texas from Tyson Foods, Inc.; two tickets to the June 16, 1993 NBA Championship game in Chicago from Quaker Oats; two tickets to the September 11-12, 1993 U.S. Open Tennis Tournament in New York from Sun-Diamond Growers of California and Richard Douglas; five tickets to the January 30, 1994 NFL Super Bowl in Atlanta, Georgia -- one from Oglethorpe Power Corp. and its agents, and four from Fernbank, Inc.; and, in addition, numerous other items including luggage, a crystal bowl, four seats at the 1993 Presidential Inaugural Dinner, other sporting event tickets, employment for his girlfriend, limousine services, cash and contributions to his brother's failed congressional campaign. (Id. ¶ 9). Over the course of a fifteen month period, defendant solicited and accepted 18 gratuities from six entities and/or their agents totaling an approximate value in excess of $35,000. (Id.). Each of these gratuities was solicited and received by defendant in violation of the laws and regulations of the United States and in detriment to the interests of the American public.
2. Defendants Concealment Of Gratuities From The Public
Defendant hid his receipt of gratuities from public scrutiny by not identifying those he was obligated by law to disclose on a public financial report. As a high-ranking Executive Branch official, defendant was required by law and regulation to fully and accurately publicly disclose his personal financial interests through a Public Financial Disclosure Report SF-278. (Id. ¶10). This report specifically required disclosure of, among other things, all gifts aggregating $250 or more in value from any one source. (Id.) Despite this obligation to disclose, defendant omitted from his financial disclosure report for the 1993 calendar year $9,561 in gratuities, gifts and things of value and from his financial disclosure report for the 1994 calendar year $3,191 in gratuities, gifts and things of value. (Id.)
3. Defendants False Pretenses Regarding The
Purposes Of Certain Travel
Defendant's efforts to conceal his receipt of gratuities were not simply limited to non-disclosure on reports, but included his making false representations and pretenses to USDA personnel regarding the purpose of his travel and the necessity of his attendance in his official capacity at certain functions. (Id. ¶11). Thus, to justify his travel to and presence at the Tyson complex in Russellville, defendant accepted an invitation to speak in his official capacity to the Arkansas Poultry Federation, while in truth defendant went to Russellville to attend the weekend party as a guest of Tyson Foods. (Id.) To justify his presence in Dallas where he attended the 1994 NFL National Conference Championship, defendant arranged to meet with a local agent of the USDA Office of Inspector General. (Id.) And after being advised that there was no official USDA events scheduled for the 1994 Super Bowl in Atlanta, defendant caused his staff to schedule and attempt to schedule various official USDA meetings in Atlanta the weekend of the game so as to justify his travel to Atlanta and his attendance at the Super Bowl. (Id.)
4. Defendants False Denials To Investigators
After the press publicly reported some of defendants criminal acts in March 1994, defendants efforts at further concealment included lying to federal investigators on multiple occasions and to officials of the Executive Office of the President. (Id. ¶12). Defendant, on April 1, 1994, in response to questioning by Special Agents of the USDA Office of Inspector General, concealed the fact that he and his girlfriend were, in May 1993, at the Tyson complex as guests of Tyson Foods for a weekend birthday party, complete with lodging, food, drink and professional musical entertainment, and lied about why he returned to Washington, D.C. on a Tyson Foods' jet. (Id.). During this interview, the agents asked defendant to provide a copy of his itinerary for the weekend of January 15-16, 1994 to Dallas, Texas. (Id.). Defendant, in response, produced an altered travel itinerary which deleted all references to defendant's girlfriend, the Chairman of Tyson Foods, limousine service provided by Tyson Foods, and the NFL National Conference Championship game which defendant and his girlfriend attended as guests of Tyson Foods. (Id.)
About eight weeks later, on June 1, 1994, defendant falsely stated to FBI Agents that he attended the 1993 NBA Championship playoffs in Chicago with a ticket provided by Richard Douglas when defendant had solicited and obtained the two tickets from the Chairman of Quaker Oats Co., an entity regulated by USDA. (Id.) Defendant further lied to the Agents when he stated that he could not recall any time when he accepted favors, benefits or other gifts from any organizations or companies other than Tyson Foods, when in fact he had received things of value from Sun-Diamond Growers and Richard Douglas totaling approximately $20,400; Smith Barney totaling $2,200; Quaker Oats Co. totaling $90; Fernbank Mississippi totaling $850; and from EOP. (Id.).
5. Defendants Efforts To Disguise His Intent In
As the acceptance of particular gifts and gratuities became known to the public and the authorities, defendant attempted to conceal the true extent of his scheme and the true nature of his activity by attempting to make his intent appear benign. (Id. ¶ 13). In an effort to disguise his intent to accept illegal gratuities and conceal his prior concealment efforts, defendant issued and mailed "reimbursement" checks to individuals who had provided him with gifts and gratuities. (Id). Thus, on March 18, 1994, the day after the Wall Street Journal published an article revealing, inter alia, defendant's acceptance of tickets to the January 16, 1994 NFL National Conference Championship game from Tyson Foods, defendant issued a $68 check to the Chairman of Tyson Foods. (Id.). On June 2, 1994, the day after FBI agents questioned defendant about his travel to Russellville as a guest of Tyson Foods, defendant issued a $69 check to the Arkansas Poultry Federation for lodging at the Tyson complex on May 15, 1993. (Id.). On August 25, 1994, defendant issued a $90 check to the Chairman of Quaker Oats for the two tickets to the June 18, 1993 NBA Championship game in Chicago after press reports on August 7, 1994 stated that Quaker Oats provided the tickets used by defendant and Douglas. (Id.). Shortly after the appointment of the Independent Counsel on September 9, 1994 to investigate, inter alia, whether defendant accepted gratuities and gifts including tickets to sporting events, defendant on September 14, 1994 made payment of $700 to a Trustee of Fernbank for four tickets to the January 30, 1994 Super Bowl.
6. Defendants Lies To Office Of The President Of
The United States
On September 30, 1994, in response to questions by the Chief of Staff of the President of the United States concerning whether Espy had told the Office of the President about all gratuities he received, defendant stated in substance theres nothing else out there," (Id. ¶ 12) when in fact he knew he had received and not disclosed to the Chief of Staff gratuities and things of value from Sun-Diamond and Richard Douglas totaling approximately $20,400; tickets to a Presidential Inaugural Dinner totaling approximately $6,000 from Tyson Foods, Inc.; and lodging, meals, and entertainment at Tyson Management Center totaling approximately $1,726; an airplane ticket for his girlfriend so she could meet him at the Dallas Cowboys / Green Bay Packers playoff game totaling approximately $1,000 from Jack Williams, a lobbyist for Tyson Foods, Inc.; and a Superbowl ticket valued at $2,200 from Smith Barney. (Id.)
7. Defendants Use Of Government Funds For Personal Benefit
Additionally, as part of the honest services fraud, defendant, as Secretary of Agriculture, diverted and misused government assets for his personal use rather than in the best interests of the public. On or about January 22, 1993, defendant requested that the USDA assume the lease payments on a Jeep Cherokee he had leased before becoming Secretary of Agriculture. (Id. ¶14). Entitled to a USDA-leased limousine and a USDA driver for official uses as Secretary, defendant falsely represented to USDA officials that he would use the Jeep Cherokee in the Washington, D.C. area as his official automobile, eliminating the necessity for the USDA to supply him with a limousine and driver. (Id.). Relying on these representations, the USDA agreed and assumed the lease payments for the period of February 1993 - September 1993. (Id.). However, contrary to these representations, (1) defendant kept the vehicle in his home state of Mississippi through in or about November 1993 where he used it for his personal use, and (2) on or about April 5, 1993 and continuing through on or about December 31, 1994, defendant requested and used a USDA limousine and driver in Washington, D.C. (Id.). By check dated September 15, 1994, seven days after appointment of Independent Counsel, defendant made payment of $6,204 to the USDA for his personal use of this Jeep Cherokee leased by the USDA. (Id.).
A. THE LEGAL STANDARD FOR TESTING ALLEGATIONS
An indictment is sufficient if it clearly informs the defendant of the precise offense for which he is accused so that he may prepare his defense. United States v. Conlon, 628 F.2d 150, 155 (D.C. Cir. 1980) (citing Russell v. United States, 369 U.S. 749, 763-64, 82 S.Ct. 1038, 1046-47 (1962) and United States v. Debrow, 346 U.S. 374, 377-78, 74 S.Ct. 113, 115-16 (1953)). The general rule is that the indictment must state the essential elements of the offense and be supplemented with enough detail to apprise the accused of the particular offense with which he is charged. Id.
The elements of a violation of the mail or wire fraud statute are (1) a scheme to defraud, and (2) use of a wire or the mails to further that scheme. United States v. Lemire, 720 F.2d 1327, 1334-35 (D.C. Cir. 1983) (citing cases). The government need neither prove nor allege that the scheme was ultimately successful or that the intended victim actually suffered an injury. United States v. Sun-Diamond Growers of California, 964 F.Supp. 486, 492 (D.D.C. 1997) (citing United States v. Pollack, 534 F.2d 964, 971 (D.C. Cir. 1976)).
B. THE INDICTMENT SUFFICIENTLY ALLEGES AN HONEST SERVICES SCHEME TO DEFRAUD
The indictment fails to allege an honest services scheme to defraud recognizable under 18 U.S.C. § 1346, according to defendant, because the indictment fails to allege that Mr. Espy engaged in any official act . . . in exchange for the . . . gratuities or otherwise failed to render honest services as Secretary of Agriculture or that he had any specific intent to do so. (Def.'s Mem. at 1) (emphasis added). Although these three assertions are written in the disjunctive, the arguments ultimate conclusion is that, since the indictment does not allege a quid pro quo for the gratuities, it fails to allege honest services fraud. (Defs Mem. at 9).
Defendant's argument reveals a fundamental misunderstanding of the scheme alleged in the indictment and of the factual and legal requirements of a scheme to defraud the citizens of their right to honest governmental services, and is without merit.
1. The Allegations Of The Indictment Must Be Viewed
As A Whole
As an initial matter, defendant, for the purposes of his motions, segments the scheme charged (and doesnt even acknowledge -- let alone mention -- five of the 7 component elements of the scheme). Defendant addresses only "the mere violation of a gratuity statute" (Id. at 5), and the cover up . . . through reimbursement in Counts 9-12, (Id. at 6), asserting that these acts, standing alone, are not actionable under the mail fraud statute. He does not, however, even attempt to argue that his other actions involved in the scheme -- his pattern of soliciting and receiving gratuities, his failure to disclose these gratuities on his public financial disclosure form in direct contravention of law, his other acts of concealment including lying to investigators and representatives of the President, or his misuse of government funds -- do not constitute an honest services scheme. Yet these items that defendant omits to address are essential components of the scheme alleged.
Defendants crabbed and myopic reading violates the well-settled rule that a scheme is not to be reviewed by its component parts but rather as a whole. United States v. Feldman, 711 F.2d 758, 764 (7th Cir. 1983) ("Not all aspects of a scheme need be illegal if considered separately; rather, it is sufficient that the scheme as a whole involves fraudulent conduct."); United States v. Keane, 522 F.2d 534, 544 (7th Cir. 1975) (same). Thus, whether or not an act of nondisclosure by itself or acceptance of a single gratuity by itself can amount to honest services fraud is irrelevant. The question before this Court is whether the scheme charged in this indictment, when viewed in its entirety, alleges a scheme to defraud under § 1346.
The indictment alleges that defendant engaged in a pattern of: (i) illegally soliciting and accepting gratuities from persons and entities who were regulated by and had matters pending before his office; (ii) concealing his receipt of the gratuities and not reporting them on the required public financial disclosure reports; (iii) making false pretenses for the purpose of his travel to accept certain gratuities; (iv) concealing his activities concerning the receipt of gratuities by lying to investigators regarding his actions; (v) mailing reimbursements of certain gratuities to disguise his intent and make his acceptance appear benign; (vi) lying to the Office of the President about the extent of gratuities he received; and (vii) misusing government property for personal benefit -- all in violation of the laws and regulations of the United States and in detriment to the interests of the public. Viewing the scheme as the whole of its seven component parts, an analysis of the case law cited by defendant, in fact, supports the legal sufficiency and the validity of the scheme, as charged in the indictment.
2. There Is No Requirement That A Quid Pro Quo Be Alleged
Defendant's argument that a quid pro quo or selling of office must be alleged in the indictment is simply wrong and has no case support whatsoever. A "scheme to defraud" as used in the mail fraud statute is a plan to deprive another of money, property, or the right to honest services through the use of deceit. United States v. Sawyer, 85 F.3d 713, 732 (1st Cir. 1996). Public officials act as "trustee[s] for the citizens and the State . . . and thus owe the normal fiduciary duties of a trustee, e.g., honesty and loyalty to them." Silvano, 812 at 759 (quoting United States v. Mandel, 591 F.2d 1347, 1363 (4th Cir.), aff'd in relevant part, 602 F.2d 653 (1979) (en banc)). Out of this fiduciary relationship flows an affirmative duty on the part of government officials to disclose material information of which they have knowledge. Id. While, as defendant points out, not every breach of fiduciary duty or every instance of dishonest or disloyal conduct by a government official violates the mail fraud statute, an official's breach of a fiduciary duty is actionable under that statute when it encompasses an intentional breach of a duty to disclose material information. Id; cf. United States v. Lemire, 702 F.2d 1327, 1337 & n.13 (D.C. Cir. 1983) (holding in the private sector, failure to disclose material information not actionable under mail fraud statute without proof that such failure poses an identifiable harm, apart from the breach itself, to employer but noting without deciding that in public sector, mere failure to disclose may be enough). While many cases finding an honest services fraud often involve government officials accepting bribes or voting on matters in which they have a personal interest, these cases neither establish a bright line test for, nor create an exhaustive list of actions that constitute the fraudulent deprivation of honest government services -- nor could they. Cf. United States v. Diggs, 613 F.2d 988, 997, n.48 (D.C. Cir. 1979) ("The law does not define fraud; it needs no definition; it is as old as falsehood and as versable [sic] as human ingenuity.") (quoting Weiss v. United States, 122 F.2d 675 (5th Cir. 1941)).
In United Sates v. Barber, 668 F.2d 778 (4th Cir. 1982), the defendant was the Commissioner of a state Alcoholic Beverage Control Commission, which held a monopoly on alcoholic beverage sales in that state. Id. at 780-81. Through his position, defendant (1) manipulated a "withdrawal system" and a "breakage system" to obtain free liquor for himself and others at the knowing expense of the liquor companies (not the state) by submitting to them false documentation and (2) solicited and accepted cash payments from certain of these liquor companies. Id. at 781, 783. The evidence presented at trial revealed that the defendant did not provide official favors to the liquor companies in exchange for these items. Id. at 783. Affirming the defendant's mail fraud conviction based, in part, on an honest government services theory, the court noted that "[t]he public, with a strong interest in upstanding conduct in the affairs of state enterprise, and frustrated of opportunities to monitor those affairs because of the falsity employed, was also deceived by the utilization of forms disguising the true nature of the breakage and the withdrawals." Id. at 785. Thus, the defendant defrauded the state and its citizens of their right to honest and faithful government. Id.
As the cases cited above demonstrate, there is no legal requirement that an indictment include the allegation that an official sold his office, and it certainly is not a requirement to properly state a § 1346 offense.
3. A Public Official Who Conceals Material
Information Commits Honest Services Fraud -- Holzer
Federal Executive officials who receive things of value during their time in office have a statutory obligation to truthfully disclose them pursuant to the requirements of the Executive Branch Personnel Public Financial Disclosure Report (Disclosure Report), which provides on its face:
Title I of the Ethics in Government Act of 1978 . . . requires the reporting of this information [on form SF 278]. This information [is] reviewed by
Government officials to determine compliance with applicable Federal laws and regulations . . .
The rationale for the officials obligation to report things of value received is, in part, to report possible conflicts of interest violations and allow the supervising agency to take appropriate action. According to the Disclosure Report:
A basic premise of the statutory financial disclosure requirements is that those having responsibility for review of reports . . . must be given sufficient information by reporting individuals concerning the nature of their outside interests and activities so that an informed judgment can be made with respect to compliance with applicable conflict of interest laws and standards of conduct regulations. . . . This report . . . provides a mechanism for determining actual or potential conflicts between [the officials] public responsibilities and [their] private interests and activities and allows [the] agency to fashion appropriate protections against such conflicts when they first appear.
After having taken things of value from a regulated entity, when an official refuses to supply the information required and/or lies to federal investigative agencies about the nature and extent of what he receives, he not only conceals the fact of the receipt and value of his felonious goodies in plain violation of 18 U.S.C. § 1001 -- he also conceals the fact of a conflict and precludes his agency from fashioning appropriate remedies. The resulting conflicts of interest are destructive to public confidence in government. As the Supreme Court observed concerning a sister conflict of interest statute:
The [conflict of interest] statute is directed at an end which endangers the very fabric of a democratic society, for a democracy is effective only if the people have faith in those who govern, and that faith is bound to be shattered where high officials and their appointees engage in activities which arouse suspicion of malfeasance and corruption.
United States v. Mississippi Valley Generating Co., 364 U.S. 520, 562, 81 S.Ct. 294, 315 (1961). And, the same suspicions of malfeasance and corruption are equally applicable to the gratuities statute, since [t]he purpose of Section 201[(c)] is to reach all situations in which a government agents judgment concerning his official duties may be clouded by the receipt of an item of value given to him by reason of his position. United States v. Gorman, 807 F.2d 1299, 1304 (6th Cir. 1986) (emphasis added).
A factually-analogous case to the one at bar is United States v. Holzer, 816 F.2d 304 (7th Cir. 1987), vacated in light of McNally, 484 U.S. 807, 108 S.Ct. 53
(1987). In Holzer, a county judge repeatedly solicited and accepted money from attorneys who had matters pending before him. Id. at 305-07. The advances although disguised as "loans," were not repaid by the defendant. Id. An Illinois state rule required each circuit judge to file an annual ethics statement listing creditors to whom the filing judge owed over $1,000 and disclosing any potential conflicts of interest. Id. at 307. Until defendant became aware that he was under investigation for his acts, he disclosed none of the attorneys from whom he had "borrowed" money. Id. Furthermore, in response to questionnaires submitted by a citizens' group when Holzer was running for election on two occasions, defendant stated that he had accepted "no gifts at all" and "absolutely no contributions, gifts, or favors of any kind at any time." Id. Judge Posner writing for the Circuit affirmed the defendant's conviction for mail fraud explaining:
Fraud in its elementary common law sense of deceit -- and this is one of the meanings that fraud bears in the statute see United States v. Dial, 757 F.2d 163, 168 (7th Cir. 1985) -- includes the deliberate concealment of material information in a setting of fiduciary obligation. A public official is a fiduciary toward the public, including, in the case of a judge, the litigants who appear before him, and if he deliberately conceals material information from them he is guilty of fraud. When a judge is busily soliciting loans from counsel
to one party, and not telling the opposing counsel (let alone the public), he is concealing material information in violation of his fiduciary obligations.
Second, the systematic and long-continued receipt of bribes by a public official, coupled with active efforts to conceal the bribe-taking from the public and the authorities (as in Holzers [financial disclosure] filings and his response to voter questionnaires) is fraud (again in its elementary sense of deceit, and quite possibly in other senses as well), even if it is the public rather than counsel that is being kept in the dark. It is irrelevant that, so far as appears, Holzer never ruled differently in a case because of a lawyer's willingness or unwillingness to make him a loan, so that his conduct caused no demonstrable loss either to a litigant or to the public at large. See, e.g., United States v. Keane, 522 F.2d 534, 541, 546 (7th Cir. 1975); United States v. Lovett, 811 F.2d 979, 985 (7th Cir. 1987); United States v. Manton, 107 F.2d 834, 846 (2d Cir. 1939). How can anyone prove how a judge would have ruled if he had not been bribed?
Id. at 307, 308. Judge Posner emphasized that whether the defendant altered his position on an official ruling was "irrelevant," but that the fraud perpetrated by the defendant was accepting money in contravention of state law and concealing that action. Id. at 308.
4. Rabbit Is Factually And Legally Distinguishable
In United States v. Rabbit, 583 F.2d 1014 (8th Cir. 1978), upon which defendant relies, an elected member of the Missouri State House of Representatives secretly accepted a ten percent commission on architectural contracts awarded to a firm he recommended to persons authorized to award government contracts. Id., 583 F.2d at 1025. The Eight Circuit reversed the defendant's mail fraud conviction because (1) there was no evidence of a tangible loss to the public, (2) the court was not satisfied that his conduct deprived the citizens of their right to honesty and fairness in the conduct of his official duties because Rabbit did not control the awarding of state contracts to architects, and (3) the government failed to identify any law or regulation placing an affirmative duty on Rabbit to disclose his interest in the contracts and thus, he did not deprive the citizens of any right to disclosure. Id. at 1026.
Unlike the defendant in Rabbit, defendant Espy was a high-ranking government official possessing great discretionary power, engaged in a pattern of soliciting and accepting money from persons and entities with matters pending before his office, in direct contravention of both criminal (18 U.S.C. § 201, 21 U.S.C. § 622) and civil (5 U.S.C. § 7353) statutes. He, unlike Rabbit, had a duty not only not to accept things of value but also to disclose the things he took. Instead defendant Espy then took active efforts to conceal this activity from the public and from the authorities by filing false financial disclosure reports mandated by statute and by lying to investigators when questioned about such activity. The indictment here, unlike the Rabbit indictment, specifically identifies applicable laws, regulations, and standards of conduct which clearly required defendant to honestly and accurately provide information concerning his financial interests and activities to the United States, its citizens, the Executive Office of the President, the USDA and their agents. (See Indictment at ¶ 4, 6, 10, 26-46). In the context of this case, Rabbit lends no support to defendants assertions.
5. Sawyer, While Instructive, Did Not Deal With Pleading Requirements
Under the heading Violation of a Gratuity Statute Does Not Constitute Honest Services Fraud defendant cites and relies upon United States v. Sawyer, 85 F.3d 713 (1st Cir. 1996), United States v. Czubinski, 106 F.3d 1069 (1st Cir. 1997) and United States v. McNeive, 536 F.2d 1245 (8th Cir. 1976). However, none of these cases supports the defendant's position that bribery or selling of office is necessary for, much less needs to be alleged in, an honest services fraud indictment.
Sawyer held that violation of a gift statute, which prohibited appearances of, but not actual corruption, could not form the basis for a mail fraud prosecution. Id., 85 F.3d at 728-29. It is an instructive case for a variety of reasons, but none of those reasons relates to the allegations of an indictment; they relate to the courts charge to the jury.
Sawyer involved the prosecution of an insurance company lobbyist under § 1346 for providing travel, golf fees, theater tickets and dinners to state legislators. Id., 85 F.3d at 720-21. The Governments theory was that these things of value caused the legislators to violate two different Massachusetts statutes: one -- a gift statute which civilly (but not criminally) proscribed a lobbyist from giving gifts to a legislator aggregating more than $100 per year, and, two -- a gratuity statute which criminally proscribed anyone from giving to a legislator, or a legislator accepting, anything of substantial value . . . for or because of an official act . . . performed or to be performed by that person. Id. at 725-26. Through the violation of the gift and gratuity statutes, the Government contended Sawyer stole the legislators honest services, and the indictment as structured required the Government to prove that Sawyer violated at least one of the statutes at issue -- either the gift or the gratuity statute. Id. at 725.
The Circuit, after extended review, concluded the instructions were flawed because the trial courts instructions allowed the jury to find, ipso facto, from a violation of the gift statute that Sawyer had the intent to defraud required by § 1346. Id. at 730-31.
The Circuit reasoned that the gift statute was a prophylactic civil prohibition that addressed the appearance of, but not actual corruption, and that a violation of that civil gift statute did not necessarily entail any improper motive to influence the official duties of the recipient. Id. at 727-28. Therefore, not every violation of the gift statute would necessarily amount to a deviation from the officials performance of honest services to the public. Id. at 728. Thus, if the Sawyer honest services conviction was to rest on his violation of the gift statute, the Circuit required an additional instruction to the effect that, to find Sawyer had the intent to commit honest services fraud, the jury had to find that Sawyer intended to influence or otherwise improperly affect the official performance of duties by the giving of these gifts, and not merely that he intended to violate the state gift statute. Id. at 728.
Accordingly, allowing the jury to find that Sawyer intended to defraud the public of its right to honest services based on proof of gift statute violations alone constituted reversible error. Id. at 729, emphasis added.
Addressing the gratuities statute, the Circuit found that:
A gratuity statute violation -- unlike a gift statute violation -- may itself be sufficient to implicate the duty of honest services in a given case. As with the gift statute, however, not every violation of the gratuity statute automatically encompasses an intent to induce the public official to alter or deviate from the performance of honest and impartial services .
Id. at 729.
The Circuit observed that the requisite § 1346 intent might be proven by proof that a person with a continuing and long-term interest before an official engaged in a pattern of repeated, intentional gratuity offenses in order to coax ongoing favorable official action in derogation of the publics right to impartial official services, and stated:
Here, for example, while Sawyer may not have provided the legislators with direct kickbacks or commissions arising out of the specific official action, he may have intended the legislators generally to treat preferentially Hancocks interests, knowing that the free meals, entertainment, and golf would continue so long as favorable official acts were, at some point, taken.
Id. at 730.
The Circuit held the district court also improperly instructed the jury on the gratuity offense. Id. The Circuit found that the Massachusetts gratuity statute (a mirror image of 18 U.S.C. § 201(c)) did not require proof that the gratuity was for a specifically-identified legislative act. Id. The trial courts charge, however, misconstrued the gratuities statute and imposed a more stringent standard than was required. Id. That charge was that the Government must prove that Sawyer gave something of substantial value to a legislator with the intent to influence an official act of that legislator. Id. While this instruction erroneously added an intent-to-influence element to the gratuity offense, it also had the effect of sufficiently charging the jury as to the requisite mens rea for honest services fraud if the honest services fraud was based only on the giving of gratuities. Id. However, because the Circuit couldnt tell whether or not the jury found that the honest services fraud was based upon the civil violations of the gift statute or on the criminal gratuity statute; and, since the charge relating to the former was legally insufficient, the Court reversed Sawyers convictions and ordered a new trial. Id. at 730-31. In its extended analysis, the Sawyer court never addressed the issue of the sufficiency of the indictment, and nothing in Sawyer can support defendants claim that the indictment at bar is insufficient.
6. The Czubinski and McNeive Cases Are
Legally and Factually Inapposite
Neither Czubinski nor McNeive provides any support for defendants assertions, as the facts of those cases are drastically inapposite, each involving ministerial governmental employees who violated office policy (Czubinski) or accepted a $5.00 gratuity for issuing non-discretionary plumbing permits (McNeive). Moreover, unlike the case at bar, neither case involved any duties of disclosure and neither involved acts of concealment by the defendant.
The defendant in Czubinski, an employee of the Internal Revenue Service, was provided access to taxpayer files on an IRS computer so that he could fulfill his duties -- answering questions from taxpayers regarding their returns. Id., 106 F.3d at 1071. Disregarding IRS rules which prohibited employees from accessing these files outside the course of their normal duties, the defendant used his access to obtain confidential taxpayer information for personal reasons. Id. The First Circuit reversed Czubinski's honest services fraud conviction finding (1) the defendant's actions did not call into question a discretionary decision-making position, (2) the defendant's actions amounted solely to a governmental workplace violation which defendant had no reason to believe would be punished by anything more than termination of his employment, and (3) there was no evidence that the defendant failed to carry out his official tasks adequately, or intended to do so. Id. at 1077. Moreover, no evidence suggested that the defendant affirmatively concealed his actions or was acting in a fiduciary capacity of any sort.
McNeive involved a city plumbing inspector with no discretionary power who accepted unsolicited tips of $5.00 each for rubber stamping plumbing permits that issued as a matter of course. Id., 536 F.2d at 1246-52. The defendant made no efforts to affirmatively conceal these tips but rather voluntarily disclosed them to the FBI during an unrelated interview. Id. at 1247, 1252. Viewing the scheme as a whole, the court concluded that on these facts the government had failed to prove intent to defraud and reversed McNeive's conviction. Id. at 1247, 1251.
Defendant Espy, unlike defendants Czubinski and McNeive, was a high-ranking senior public official with great discretionary power. Defendant Espys continued solicitation and receipt of gratuities called into question the disinterested judgment of his office, as did his non-disclosure on the Public Financial Disclosure Report, SF-278, and his affirmative misrepresentations concealing those matters from federal officials. Where, as here, a public official acts improperly and engages in affirmative acts to conceal his conduct from the public and the authorities (rather than simply failing to disclose his acts) courts have unanimously found that defendant's actions to amount to a scheme to defraud.
7. The Indictment Properly Charges The Requisite
Finally, defendants contention that the indictment should be dismissed because the scheme to defraud does not allege the requisite specific intent, (Defs Mem. At 7-8) warrants only scant mention. The indictment at bar explicitly alleges fraudulent intent as it charges that defendant . . . did devise, and intend to devise, a scheme and artifice  to defraud . . . to obtain property. Indictment at ¶ 5 (emphasis added). The only case cited by defendant for the proposition that specific intent must be alleged in a mail fraud indictment is United States v. Bohonus, 628 F.2d 1167 (9th Cir. 1980). But, Bohonus held that charging that a defendant devised and intended to devise a scheme and artifice to defraud sufficiently charges specific intent. Id. at 1172-74 & nn.5,12. This conclusion follows, explained the Circuit, because [t]he specific intent requirement is an aspect of the scheme to defraud requirement; i.e., there is no fraudulent scheme without fraudulent intent. Id. at 1172. The indictment at bar has the same language, i.e., devised and intended to devise a scheme and artifice to defraud that the court found sufficient in Bohonus and defendants argument here -- like defendant Bohonus -- is meritless.
Despite defendant's assertions to the contrary, not one of the cases cited in defendants motion to dismiss holds that honest services fraud requires that the indictment allege that a defendant engaged in any conduct with specific intent to alter his official acts as a result of the alleged gratuities. (Def.s Mem. at 9). Even if there were such a case, it would not serve to invalidate this indictment against this defendant because defendants acceptance of gratuities is just one of seven component parts of the scheme alleged. The various disclosure obligations that were attendant to defendants solicitation and acceptance of these numerous gratuities, coupled with active efforts to conceal these gratuities from the public and the authorities is fraud . . . . It is irrelevant that, so far, it appears that [defendant] never ruled differently in a case because of a lawyers willingness or unwillingness to make him a loan, so that his conduct caused no demonstrable loss either to litigant or to the public at large. Holzer, 816 F.2d at 307-08.
Viewed in its entirety this complex scheme was intended to, and did, deprive the United States, its citizens, the Officials of the Executive Office of the President and the USDA of their right to defendant's honest services. As such, and as the indictment alleges each of the elements required for a conviction (1) a scheme to defraud and (2) the use of the mails and/or wire to further the scheme, defendant's motion to dismiss Counts 1-7 and 9-12 of the Indictment should be denied.
Date: November 20, 1997 Respectfully submitted,
OFFICE OF INDEPENDENT COUNSEL
In Re Alphonso Michael (Mike) Espy
Donald C. Smaltz, Independent Counsel
Theodore S. Greenberg
William F. Fahey
Roscoe C. Howard
Joseph P. Guichet
103 Oronoco Street, Suite 200
Alexandria, Virginia 22314
Phone: (703) 706-0010
Fax: (703) 706-0076
United States v. Alphonso Michael Espy Criminal No. 97-0335 (RMU)
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing United States' Opposition and Incorporated Memorandum to Defendant's Motion to Dismiss Counts 1 Through 7 and Counts 9 Through 12 of the Indictment for Failure to State an Offense was sent this 20th day of November, 1997, via messenger to the following:
Reid Weingarten, Esq.
Steptoe & Johnson, LLP
1330 Connecticut Ave., N.W.
Washington, D.C. 20036
and via United States mail, postage prepaid, to the following:
Theodore V. Wells, Jr., Esq.
Lowenstein, Sandler, Kohl, Fisher & Boylan
65 Livingston Ave.
Roseland, NJ 07068-1791
Charles J. Ogletree, Jr., Esq.
320 Hauser Hall
1575 Massachusetts Ave.
Cambridge, MA 02138
Joseph P. Guichet
Def.'s Mem. to Dismiss Counts 1-7 and 9-12 for Failure to State Offense
This Court may take judicial notice that defendant administered a budget of $65.5-billion, or 4.3 percent, of the total federal budget, and was 9th in line for succession to the Presidency of the United States. See United States v. Sun-Diamond Growers of California, CR 96-0193 (RMU) (D.D.C. 1997) (Transcript of Sentence at 40.).
Defendant does not contest the sufficiency of Count 8 -- his misuse of government assets and expenditure of public funds for personal use. Yet he noticeably omits this count from his discussion of the honest services fraud. Although this count forms the basis for the obtainment of money and property through fraudulent pretenses object of his scheme, it is additionally a part of his honest services object and must be so considered.
See also United States v. Lovett, 811 F.2 979 (7th Cir. 1987) (affirming conviction of mayor who failed to disclose 5% interest in cable company seeking city contract); Mandel, 591 F.2d at 1359-60 (emphasizing non-disclosure and concealment of material information in affirming convictions of Governor of Maryland and his associates who failed to disclose their interests in various racetracks during dealings with Maryland Racing Commission and state legislators); Keane, 522 F.2d 534 (affirming conviction of Chicago alderman for failure to disclose interest in properties when voting on matters affecting properties); cf. United States v. Newman, 664 F.2d 12, 19-20 (2d Cir. 1981) ("[a]n employee's breach of his fiduciary obligations is actionable under the [mail fraud] statute when it encompasses the violation of a duty to disclose material information to his employer.") (internal quotations omitted).
Most of the liquor companies were separately convicted on gratuity charges for these activities. Id. at 785 & n.5.
The only evidence introduced at trial as to why the liquor companies covered the defendant's withdrawals of liquor was testimony from one company that it did so because the practice "was being done with the other distillers and for that reason I did not want to pull out." Id. at 783.
For other cases involving honest services fraud prosecutions unrelated to an official selling his office or voting on matters in which he has a personal interest, see United States v. ReBrook, 58 F.3d 961 (4th Cir. 1995) (affirming conviction of attorney for state Lottery Commission for using inside information, obtained by virtue of his position, to purchase interest in company Commission determined would get contract); Keane, 522 F.2d at 545 (city alderman's use of inside information obtained by virtue of his official position for his own personal gain actionable under the mail fraud statute).
Although the Supreme Court vacated and remanded this opinion in light of its holding in McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875 (1987) that the mail and wire fraud statutes did not encompass an honest government services scheme to defraud, with Congress' passage the following year of 18 U.S.C. § 1346, pre-McNally jurisprudence regarding honest government services schemes is once again authoritative. See, e.g., Sawyer, 85 F.3d at 723-24 (" . . . § 1346 was intended to overturn McNally and reinstate the reasoning of pre-McNally case law . . ."); see also 134 Cong. Rec. S17,360-02 (daily ed. Nov. 10, 1988) (statement of Sen. Biden) (declaring that the "intent [of § 1346] is to reinstate all of the pre-McNally case law pertaining to the mail and wire fraud statutes without change.") (cited in United States v. Frost, 1997 WL 563304, *15 (6th Cir. 1997)).
The dissent in McNally, writing to support the honest services fraud theory, approved of the Holzer decision and quoted the entirety of this passage in arguing that the majority's opinion employed too narrow a view of the term "defraud." McNally, 483 U.S. at 371-72, 107 S.Ct. at 2888 (Stevens, J., O'Connor, J., dissenting). Given Congress' passage of § 1346 and explicit adoption of the honest services fraud theory, this dissenting opinion and the Holzer opinion that it supported should be afforded great weight.
The Holzer court while "very much doubt[ing] the soundness of [Rabbit's] reasoning," also distinguished that case on its facts noting "Holzer received money from persons appearing before him in his official capacity rather than from persons having business before other judges or before the executive or legislative branches of state government." Holzer, 816 F.2d at 309.
These efforts to actively conceal his improper actions particularly underscore defendant's intent to defraud and this activity alone could suffice to allege an honest services scheme to defraud. By filing false financial disclosure reports and lying to the public and investigators, defendant performed his official duties in a manner intentionally detrimental to the public to further his own personal interests. See United States v. Brumley, 116 F.3d 728, 734 (5th Cir. 1997) (holding that honest services fraud exists when an official performs some particular service or services while conscious of the fact that those actions are something less than in the best interests of the public or are not those that would be rendered by a totally faithful employee), petition for cert. filed, 66 U.S.L.W. 3204 (U.S. Sept. 15, 1997) (No. 97-486).
Honest services fraud prosecutions brought against state officials are often met with hostility based on federalism concerns and may cause courts to hold federal prosecutors to standards more strict than those required by the mail and wire fraud statutes. The McNeive opinion exemplified this position noting that "[although] tipping has no place in the administration and operation of a government agency, . . . [such practice] does [not] give [federal] prosecutors a license to interject themselves into local affairs to attempt to rectify the problem." Id. at 1252. See also George D. Brown, Should Federalism Shield Corruption? -- Mail Fraud, State Law and Post-Lopez Analysis, 82 Cornell L. Rev. 225. However, as this prosecution involves a federal official, violating federal law, this concern is not present in the instant matter.
Compare United States v. Gray, 790 F.2d 1290, 1295 (6th Cir. 1986) ("A mail fraud conviction can be supported by proof that a fiduciary who is charged with a public trust deliberately concealed facts to personally benefit from the actions of a public official or public entity.") rev'd sub nom. McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875 (1987), United States v. Brown, 540 F.2d 364, 375 (8th Cir. 1976) (while affirming conviction of city Building Commissioner for scheme wherein he would grant city demolition contract through conduit company which company would pay rent on girlfriend's apartment court emphasized defendant's affirmative acts to conceal his violation of state standards for honest and faithful services); United States v. Bush, 522 F.2d 641, 648 (7th Cir. 1975) (holding city Director of Public Relations' failure to disclose ownership of a company bidding for city projects was not alone a crime under mail fraud statute but "[i]t is only when his failure to provide honest and faithful services is combined with his material misrepresentations to the mayor and [interested persons] and his active concealment that an illegal fraud occurs which is cognizable under § 1341.") with McNeive, 536 F.2d 1245, (8th Cir. 1976) (reversing conviction of city plumbing inspector who received unsolicited $5.00 tips for performing ministerial duty where there was no evidence defendant materially misrepresented the existence or nature of the gratuity practice nor actively concealed his activity).
At issue in Bohonus was the dismissal of an honest services scheme to defraud. The Bohonus court reversed the district courts dismissal finding that the indictment sufficiently stated a mail fraud offense and that the mail fraud statute was not unconstitutionally vague. Id. at 1172-73.