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Note: Brett Lillemoe and Pablo Calderon (Forgers) were charged with wire fraud for their use of altered bills of lading (B/Ls) in third party GSM-102 transactions resulting in the defrauding of letter of credit confirmers, and GSM guarantees provided by the U.S. Department of Agriculture (Plaintiff/Guarantor). Deutsche Bank and CoBank (Confirmers) had confirmed letters of credit issued by a Russian bank, IIB (Issuer). Forgers purchased rights to B/Ls from third parties and used them in connection with transactions unrelated to this case. In one case, a B/L marked “copy – non-negotiable” was altered to say “original”. Forgers also changed dates on the B/Ls in presentations on multiple GSM guarantees.

On a verdict by jury, Lillemoe was convicted of five counts of wire fraud and one count of conspiracy, and Calderon was convicted of one count of wire fraud and one count of conspiracy. A third defendant, Sarah Zirbes, was acquitted on all counts. Forgers filed motions for acquittal and alternative motions for a new trial. The United States District Court for the District of Connecticut, Hall, J., denied the motions.

Forgers motions were filed pursuant to Rule 29 and Rule 33 of the Federal Rules of Criminal Procedure. These rules require the court to: (1) vacate a verdict because the evidence does not support it or (2) vacate the judgement and grant the defendant a new trial. Both rules lean on the jury’s findings. Fed.R. Crim. P. 29; Fed. R. Crim. P. 33.

Forgers asserted that their alteration of documents did not deprive the Confirmers of information necessary to make an economic decision, thus attempting to negate an element of the wire fraud convictions. The Judge observed that Confirmers must honor presented documents that it determines are compliant, and that their judgement is to be made on the basis of presented documents alone under Article 14 of UCP600. Employees of Confirmers testifying at trial stated that Confirmers would have declined to honor the letter of credit if the documents were not compliant with the terms of presentation. The testimony of the Confirmer’s employees moved the jury to find beyond a reasonable doubt that the Confirmers faced an economic decision when presented with the altered documents.

Forgers also contended their deception did not put either Confirmer at risk, because the GSM guarantees mitigated danger of default; since Confirmers received the exact deal they had bargained for, they were not harmed by the alteration of documents. The Judge rejected this argument, stating “the doctoring of the underlying documents increased the risk that the CCC [Commodity Credit Corporation] would deny guarantee payments based on CCC’s view that CoBank was aware of the alterations.”The Judge stated that the greater risk placed on Confirmers by Forger’s alterations was not what Confirmers had bargained for in the transaction. The Judge stated, “Whether the bank was aware of the omission could have been disputed, exposing CoBank to the risk of additional litigation, and possible loss.” The misrepresentation made by Forgers prevented Confirmers from using their capital non-fraudulently.

The Judge concluded that Forgers’ actions were material, capable of convincing the decision-making body to which it was addressed. The Judge stated that the jury determined that the B/Ls marked non-negotiable and original served different functions, and that Confirmers only accepted “original” bills of lading to honor letters of credit. There is a material difference in a copy of an original bill of lading and a copy of a bill of lading non-negotiable.

The Judge also determined that the later revisions to the GSM-102 Regulations were rightfully excluded. The revisions, pursuant to the Federal Rules of Evidence, Rule 403, were excluded because “[their] probative value [was] substantially outweighed by a danger of…unfair prejudice, confusing the issues, misleading the jury, or needlessly presenting cumulative evidence. ”Fed. R. Evid. 403 (USA). Forgers contended that the regulations would have demonstrated that their actions were standard in the GSM-102 industry. The Judge stated that the expert opinion provided by Forgers had shown that their actions were industry standard and introduction of the revisions was correctly denied as cumulative evidence. Additionally, presenting “regulations that went into effect two years after the conspiracy at issue ended – would confuse the jury as to the regulations they should be considering with regards to defendants’ conduct.”

The opinion describes the GSM-102 program as follows: “A program designed to encourage agricultural exports to developing countries” through“ making available export credit guarantees to encourage U.S. private sector financing of foreign purchases of U.S. agricultural commodities on credit terms.” The primary transaction consists of a U.S. exporter approaching a foreign importer to begin the transaction. The foreign importer would then approach a foreign bank to obtain a letter of credit naming the U.S. exporter as a beneficiary. The foreign bank would then approach a U.S. bank to obtain a guarantee on the LC, to be repaid by the foreign bank. The GSM-102 program then guarantees the payment made by the U.S. bank to the U.S. exporter. A third party GSM-102 transaction involves a non-exporting party purchasing the rights to a B/L not guaranteed by GSM-102, and the third party will apply for the guarantee on the shipment. A foreign purchaser of the B/L, but not the actual exported goods, will apply for a LC benefitting the non-exporting third party from a foreign bank. The foreign bank then applies for surety from a U.S. bank, which can be guaranteed by the GSM-102 program. The non-exporting third party will present the B/L to the U.S. bank, and then forward the honored funds to the foreign bank.

[JPJ]

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