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Fourth Circuit Holds that Money Laundering Applies to the Profits of Crime, Not the Expenses

Posted On: September 10, 2012 by Marc Neff

In United States v. Cloud, 680 F.3d 396; 2012 U.S. App. LEXIS 10946, The United States Court of Appeals for the Fourth Circuit reversed Defendant William Roosevelt Cloud’s money laundering convictions, applying State v. Santos, 553 U.S. 507 (2008). Cloud’s convictions all stemmed from a complex mortgage-fraud scheme in which Cloud would dupe buyers with good credit into purchasing property as an ostensible joint-real estate investment with Cloud; unbeknownst to the buyers, however, the properties had already been “flipped” by Cloud who was making a profit on each deal and who had in his pocket a group of lawyers, loan officers, and mortgage brokers – all of whom were perpetuating the conspiracy.

Cloud was indicted for mortgage fraud and money laundering. The mortgage fraud charges stemmed from Cloud encouraging his buyers to make false statements on their mortgage applications. The money laundering charges arose from Cloud paying a number of people to help him to find home buyers and facilitate their real estate closings. Cloud was convicted by a jury and sentenced to 324 months’ imprisonment.

On appeal, Cloud argued that the government failed to prove the money laundering charges because it did not show that the transactions involved the profits of unlawful activity as required by Santos.

The appellate court agreed, stating:

“Cloud’s money laundering convictions are based on payments to recruiters, buyers, and other coconspirators for the role each person played in the mortgage fraud scheme. Cloud’s mortgage fraud depended on the help of others, and their help, in turn, depended on payments from Cloud. Such payments are no different than ‘the felon who uses the stolen money to pay for the rented getaway car’ or ‘the initial recipient of the wealth’ in ‘any wealth-acquiring crime with multiple participants . . . [who] gives his confederates their shares.’ Santos, 553 U.S. at 516 (plurality opinion). Because Cloud’s money laundering convictions on Counts 28-33 were based on paying the ‘essential expenses’ of his underlying fraud, we find a merger problem.”

Applying the precedent of Santos, the Court reversed defendant’s money laundering convictions.

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Posted in: Federal White Collar Crime