Alleging FRE 404(b) Other Acts Evidence In Fraud Indictment

In fraud indictment focused on one primary victim, divided panel concludes trial court erred in granting motion to strike surplusage and exclude evidence of other act fraud allegations, in United States v. Siegal, 536 F.3d 306 (4th Cir. Aug. 12, 2008) (No. 07-4551)

At what point may an indictment contain other acts evidence which may be surplusage? That was the question recently posed in an appeal involving a fraud scheme in the Fourth Circuit.

According to the indictment allegations, defendant Siegel defrauded numerous individuals over a twenty year period by using their names, including former husbands and her daughters, to obtain credit, loans, and money without their authorization. The core fraud counts involved Watkins, who was a widower nearly thirty years older than her. The indictment charged twenty-counts, including seven counts of converting Watkins’s Social Security checks, six counts of bank fraud, one count of identity theft, two counts of mail fraud, two counts of wire fraud, one count for murdering Watkins to prevent him from reporting her fraud, and one count for impeding an official investigation by transporting Watkins’s body across state lines.

One week before trial, the court heard the defense motion to strike surplusage from the indictment which she argued contained inadmissible character evidence under FRE 404(a), and exclude the other act evidence at trial. The trial court concluded that “the case that should have been indicted is the murder case involving Mr. Watkins and the related defrauding of Mr. Watkins and the banks, insurance company and the Social Security Administration thefts, [and] that’s the case we’re going to try.” While some of the other acts evidence may be “relevant in a very expansive way,” the defrauding of the family members was “inflammatory, unduly prejudicial, is certain to give rise to a waste of time, [and] it is cumulative and its probative value is significantly outweighed by its . . . unfair prejudicial effect.” Siegal, 536 F.3d at 313-14. The government filed an interlocutory appeal.

A divided Fourth Circuit panel reversed the trial court ruling. The majority concluded that some of the challenged allegations were intrinsic to the counts involving Watson. The fraud allegations involving her husband Eric Siegel provided context for the Watson charges by explaining why she left Watkins after using much of his money for another wealthy man. Other allegations were not intrinsic to the charged counts. However, the panel majority found it unnecessary to “definitively determine whether each piece of the Other Crime Evidence may be viewed as intrinsic to the crimes for which Siegel has been indicted,” since the other evidence was admissible under FRE 404(b). The other fraud evidence was probative to show the defendant’s motive in murdering Watkins to prevent him or others from going to law enforcement. Siegal, 536 F.3d at 318 (citing United States v. Willoughby, 860 F.2d 15, 24 (2d Cir. 1988) (in obstruction of justice case, admitting robbery evidence under FRE 404(b) as “highly probative of their motive, and the intensity of that motive, to seek to prevent certain witnesses from testifying at their trial for robbery”). Other fraud evidence was relevant to show the defendant’s modus operandi in how she “obtain[ed] the personal information of another person, use[d] that information to obtain credit in that person’s name, and take whatever steps were necessary to prevent that person from learning about the new accounts until it was too late.” Siegal, 536 F.3d at 318 (citing United States v. Tanner, 61 F.3d 231, 237 (4th Cir. 1995) (in prosecution for selling controlled substances from his drugstore without a prescription, other act “testimony was relevant to show the defendant's modus operandi. She explained how Tanner took refill orders without a prescription, provided double or triple amounts to his customers prior to going on vacation, and did most of this business on an informal cash basis without bills or other records”); see also United States v. Queen, 132 F.3d 991, 997 (4th Cir. 1997) (noting “the more similar the prior act is (in terms of physical similarity or mental state) to the act being proved, the more relevant it becomes” under FRE 404(b)).

Senior District Judge Kiser dissented in part, concluding that under an abuse of discretion of standard the trial court did not err. In his view, “That the government chose to denominate these other crimes as part of a scheme does not free them from scrutiny by the trial judge as to whether they qualify as part of the scheme. Nor does it free the evidence from the constraints of Rules 404(b) and 403.” Siegal, 536 F.3d at 323.

There are many ways in which a fraud scheme can be defined. Given the similar manner in which the individuals were defrauded, it may have been possible to include all the fraud acts under one fraud scheme. Nonetheless, this case highlights the distinction between intrinsic and extrinsic fraud allegations and how FRE 404(b) may be considered to salvage some of the allegations.

Federal Rules of Evidence