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United States v. Loftis

United States District Court, D. Montana, Butte Division

June 27, 2018



          Dana L. Christensen, Chief District Judge

         Defendant Joseph Brent Loftis (“Defendant” or “Loftis”) has renewed his Rule 29 Motion for a Judgment of Acquittal on Counts IV-VII (Doc. 210) and filed a Rule 33 Motion for a New Trial (Doc. 212). Defendant's motions follow the March 28, 2018 jury verdict convicting him of five counts of wire fraud in violation of 18 U.S.C. § 1343, and two counts of money laundering, in violation of 18 U.S.C. § 1957, as charged in the Third Superseding Information (Doc. 98). (Doc. 201 at 1-3.) For the following reasons, Defendant's Motions will be denied.


         I. Defendant's Rule 29 Motion for Judgment of Acquittal

         In Defendant's Rule 29 Motion, he contends that a judgment of acquittal is required on Counts IV through VII of the Third Superseding Information because the Government failed to present sufficient evidence to sustain a conviction on these counts. (Doc. 211 at 1-2.) Counts IV and V charged Defendant with wire fraud and Counts VI and VII charged Defendant with laundering the money gained by the fraud perpetrated in Counts IV and V. (Doc. 98 at 5.) Defendant's Motion was initially made at the close of the Government's case-in-chief, on March 26, 2018, at which point the Court reserved ruling on the Motion pursuant to Federal Rule of Criminal Procedure 29(b). Defendant then renewed his Motion at the close of evidence on March 27, 2018, and the Court again reserved ruling on the Motion. On March 28, 2018, the case was submitted to the jury and Defendant was convicted of all counts.

         There is sufficient evidence to support a conviction “if the evidence, viewed in the light most favorable to the prosecution, would allow any rational trier of fact to find the essential elements of the crime beyond a reasonable doubt.” United States v. Crawford, 239 F.3d 1086, 1092 (9th Cir. 2001). This standard “gives full play to the responsibility of the trier of fact fairly to resolve conflicts in testimony, to weigh the evidence, and to draw reasonable inferences from basic facts to ultimate facts.” Jackson v. Virginia, 443 U.S. 307, 319 (1979). Because the Court reserved ruling on Defendant's Motion, “it must decide the motion on the basis of the evidence at the time the ruling was reserved”-namely, at the close of the Government's case-in-chief. Fed. R. Crim. P. 29(b).

         A. Wire fraud, Counts IV and V

         To attain a conviction for wire fraud, the United States needed to prove beyond a reasonable doubt (1) a scheme to defraud, (2) use of the wires to further the fraudulent scheme, and (3) the specific intent to defraud. 18 U.S.C. § 1343; United States v. French, 748 F.3d 922, 935 (9th Cir. 2014). Additionally, the materiality of the falsehoods employed in the scheme to defraud must be proven beyond a reasonable doubt. Neder v. United States, 527 U.S. 1, 25 (1999). A false statement is “material if it has a natural tendency to influence, or is capable of influencing, the decision of the decisionmaking body to which it was addressed.” Id. at 16 (internal quotation marks and citations omitted).

         Defendant contends that the Government failed to produce evidence showing what statements or omissions by Defendant were received by the investors who funded the wire transfers made by escrow agent Gottbetter & Partners on August 9, 2011, and September 14, 2011. Because the Government did not establish what information was communicated by Loftis to the investors, Defendant argues that there has been no proof of the materiality of any statements received. (Doc. 211 at 8.) Much of Defendant's argument revolves around his contention that the Government needed to identify an individual investor to whom material representations were given. To resolve this argument, the Court looks to the evidence presented by the Government to determine whether, when reviewed in the light most favorable to the United States, any rational trier of fact could have found materiality beyond a reasonable doubt.

         i. Facts elicited at trial

         The facts elicited at trial during the Government's case-in-chief established the following. Beginning in 2009 through 2014, Defendant, doing business initially as Big Bear, then as Prism Corporation, and finally as Great Northern Energy, devised a scheme to defraud by misrepresenting his ownership of oil producing properties in Montana, Texas, and Oklahoma. Defendant would enter into purchase agreements with the individuals who owned interests in oil and gas producing properties in these states to purchase their interests but would eventually default on the agreement. Although Defendant knew that he did not own the interests he claimed to own in these properties, Defendant intentionally represented to investors that he did own the interests and would solicit funds from these individuals purportedly to help finance the costs of developing producing wells on the properties. In order to induce these individuals to invest money with him, Defendant would falsely claim that existing wells on the properties were producing large quantities of oil when the wells were actually producing very little in the way of marketable oil and gas. Defendant would also falsely claim that he had obtained degrees in petroleum engineering and geology and that his company employed the auditing services of an esteemed accounting firm to oversee the use of the investors' money. In at least two instances, investors learned that a “Joseph Brent Loftis” had been convicted of bank fraud and, when they asked him about this information, Defendant falsely claimed that he was not the same Joseph Brent Loftis who had been convicted. While investors were told that their money would be used for expenses incurred by production, once Defendant had been wired the funds, he used them largely for personal expenses. When the investors eventually inquired after their investments and sought returns, Defendant would claim low production or blame the lack of returns on unforeseen issues with drilling or disputes over ownership. When Defendant did promise to repay his victims, he would enter into rescission agreements but fail to deliver payments pursuant to the terms of these agreements and would eventually cease communication altogether.

         As to the wire fraud convictions that Defendant challenges in his Rule 29 Motion-the charges stemming from the wires originating with Gottbetter & Partners- the United States presented the following evidence. Beginning late in 2010 through early 2011, Defendant began negotiations with John Schofield and John Buthod, representatives of BuRay Energy, to purchase gas wells on BuRay's Talihina Prospect, located outside of LeFlore, Oklahoma. By February 11, 2011, Defendant had signed a purchase and sale agreement for the wells and leases comprising the Talihina Prospect which was initially set to close March 30, 2011, with Defendant making a $5 million cash payment up front and a future promise to pay an additional $25 million payable out of production. While the parties did not close the deal on March 30, 2011, a partial closing occurred on May 20, 2011, wherein BuRay delivered the Lease Assignment of the Talihina Prospect to Defendant. Then, on July 5, 2011, an escrow agreement was signed with Defendant agreeing to pay $4.61 million into escrow by 4:00 p.m. on July 13, 2011. The agreement provided that BuRay would deliver the documents necessary for Defendant to have the right to take over operations on the Talihina Prospect, the Assignment of Operating Rights and Bill of Sale, as soon as the funds were received-which would effectively make the Lease Assignment made on May 20, 2011, viable.

         After Defendant failed to pay the funds on July 13, 2011, Defendant alerted BuRay that he would pay $1.45 million on July 25, 2011. However, Defendant again failed to make any payment. When BuRay informed Defendant that he was in default of their agreement and threatened to sue to enforce the agreement on August 5, 2011, there were several unsuccessful attempts to enter into a forbearance agreement because Defendant continued to give BuRay assurances that he was able and willing to proceed with the deal. After BuRay repeatedly sought proof of funds and a signed forbearance agreement, Defendant sent a fax to BuRay on August 17, 2011, showing funds exceeding $1.2 million in Prism's Wells Fargo bank account, account number ending in 2037. The fax also contained a handwritten note signed by Defendant saying that he would “deposit $500, 000 today and $1 million on Monday, August 23, 2011-these are [capital expenditure] funds from Prism equity agreements.” Nonetheless, BuRay never received any payment from Defendant for the Talihina Prospect and never delivered the documents necessary for Defendant to begin operations on the property.

         On a Friday in July of 2011, after Defendant had received the Lease Assignments for the Talihina Prospect on May 20, 2011, and while he continued to postpone depositing funds to close that deal with BuRay, he was introduced to Tydus Richards (“Richards”), who owned Lotus Asset Management, a company which secured money from third-party investors to fund oil and gas projects. Defendant told Richards that he was in closing with BuRay to purchase the Talihina Prospect and that he needed $2 million by Monday to close the deal. Defendant falsely claimed that he was earning $300, 000 a month, after expenses, from the numerous high-producing wells he claimed to already own in Montana. Defendant provided Richards with a PowerPoint “sales pitch” presentation. The sales pitch provided a disclaimer that all statements “other than statements of historical fact, ” were “forward looking.” The sales pitch purported to show Prism's “debt free” financial position with “[o]ver $2 [billion] in quality reserves, assets, joint venture agreements & acreage positions” and proposed a strategy to frack the Hale and McCoy wells on the Talihina Prospect. Importantly, the sales pitch listed numerous Montana wells, which Prism did not in fact own, as being high-producing wells owned by Prism. Understanding that the $2 million dollar investment would be used to purchase and frack the Hale and McCoy wells, and that Prism owned high-producing wells in Montana, Richards introduced the sales pitch to a man named John Derby (“Derby”), who in turn introduced it to Adam Gottbetter (“Gottbetter”), of Gottbetter & Partners, and Mark Tompkins (“Tompkins”) who found investors willing to fund the project by Monday provided Prism was willing to make a public offering. Richards communicated this to Defendant and got Defendant in contact with Gottbetter & Partners. Defendant agreed to make the requisite public offering.

         Gottbetter & Partners then contacted Noah Levinson (“Levinson”), who owned the failed business Max Cash Media, which had taken the initial steps to become a public company. Gottbetter & Partners indicated that Defendant was seeking to take Prism public and that a reverse merger, wherein Prism would purchase and essentially subsume the already public company, Max Cash Media, allowing Prism to eventually make its own public offering while skipping the initial steps associated with going public, would be a beneficial arrangement for both Levinson and Defendant. Gottbetter & Partners also indicated that a bridge loan of $2 million was necessary to complete the reverse merger. Levinson agreed to the reverse merger arrangement and also agreed to make the $2 million bridge loan through Max Cash Media but funded by the investors found by Gottbetter & Partners, who would serve as the escrow agent for the bridge loan, with Prism's ostensible Montana wells and leases serving as collateral. Defendant signed the Bridge Loan Agreement and a Security Agreement on August 5, 2011-the same day BuRay threatened to enforce the agreement for the Talihina Prospect. The Security Agreement provided a security interest in all of Prism's assets in Montana and Oklahoma and warranted that Defendant had good and marketable title to all collateral. On that same day, Defendant's attorney, Chad Bassett (“Bassett”), emailed Gottbetter & Partners pressuring them to wire the funds by 1:00 p.m.

         Gottbetter & Partners responded to Bassett's email by indicating that they had the funds in escrow and were ready to wire him $1 million but were waiting to receive certain documentation from Defendant. On August 9, 2011, Defendant signed a Bridge Loan Promissory Note, which was subject to the August 5, 2011 Bridge Loan Agreement, obligating him to repay $1 million no later than November 9, 2011. Importantly, the Bridge Loan Promissory Note was also secured by the August 5, 2011 Security Agreement which was believed to provide a security interest in Defendant's alleged ownership of Montana wells and leases. On August 9, 2011, after receipt of the signed Bridge Loan Promissory Note, Gottbetter & Partners wired $997, 475.00 to Prism's Wells Fargo account number 2037. Thereafter, Defendant signed three more promissory notes, one for $500, 000 on August 18, 2011, one for $250, 000 on August 31, 2011, and another for $250, 000 on September 9, 2011. Upon receipt of each of these promissory notes, Gottbetter & Partners wired the stated funds to Prism's Wells Fargo bank account, with the last wire occurring on September 14, 2011, for $208, 024.10 (reflecting Prism's net deposit after the deduction of fees). It is worth noting that on August 17, 2011, Defendant faxed BuRay “proof of funds” of over $1.2 million and a promise to make a $500, 000 deposit that same day and a $1 million deposit on August 23, 2011, both of which never happened.

         After the funds had been transferred, Gottbetter & Partners attempted to complete the process for the reverse merger that was essential to Defendant's commitment to make a public offering, as promised by Defendant at the outset. However, Defendant failed to have the requisite audit of Prism completed and similarly failed to provide the documentation necessary to prove Prism's value and assets as required to complete the due diligence process. Despite repeated requests from Gottbetter & Partners for “the most important . . . documentation substantiating ownership of each asset included in the transaction, ” and discussion “of the fact that money had been forwarded that was . . . secured by these assets, ” Defendant failed to substantiate his purported well and lease ownerships which, by October 25, 2011, were represented by Defendant to include the Talihina Prospect. Eventually, Defendant defaulted and made promises to repay the $2 million bridge loan but never followed through.

         It is worth noting that the Government also elicited facts regarding the following events. At one point, Richards found out that there had been a Joseph Brent Loftis in Oklahoma who “had done jail time for some oil and gas deal.” Richards confronted Defendant with this information and Defendant denied that it was him, claiming that “‘Loftis' is a common name in Oklahoma.” At another point, Richards, Derby, Tompkins, Defendant, and others met in Texas to celebrate Defendant's report that frackking on the Talihina Prospect had exceeded expectations. Since Derby and Tompkins had arranged the funding, they had come in to “see the . . . progress of the asset.” Lastly, when it was discovered that Defendant had not even retained auditing services to complete the reverse merger, Richards talked with Bassett about the prospect of Prism paying back the bridge loan with “the cash flow.” Bassett, Defendant's attorney, apparently surprised, responded “Really? There's cash flow? . . . “That's not cash flow. That's . . . bringing in new investors' money.” Counts IV and V charged Defendant with executing his scheme to defraud by causing the wire transmission of $997, 475.00 from Gottbetter & Partners on August 9, 2011, and $208, 024.10 from Gottbetter & Partners on September 14, 2011, respectively. (Doc. 98 at 4.)

         ii. Legal analysis

         Initially, Defendant asserts that the Government failed to produce evidence of an identifiable investor. Nonetheless, Defendant “does not contest the Government's argument that ‘the Ninth Circuit has acknowledged that the government does not need to prove a victim's identity beyond a reasonable doubt.'” (Doc. 226 at 4-5 (quoting Doc. 224 at 12).) Instead Defendant argues that the Government needed to specifically identify the investors providing the funds to Gottbetter & Partners to sustain a conviction for Counts IV and V. Because the Government did not prove the identities of the individual investors, Defendant asserts that the Government failed to prove that a material false statement or omission was received by them. The Court begins by addressing the argument as to what form of victim identification suffices under Ninth Circuit law which, in turn, requires analysis of the seeming disparity between two Ninth Circuit cases: United States v. Crawford, 239 F.3d 1086 (9th Cir. 2001), and United States v. Milwitt, 475 F.3d 1150 (9th Cir. 2007).

         In Crawford, Crawford was convicted of wire fraud after using interstate faxes to sell a valuable painting which she had taken from her office at UCLA. Crawford appealed her conviction on the grounds that the Government had ...

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