USA v. Stewart et al

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Criminal Case No. 21-cr-034-WJM
UNITED STATES OF AMERICA,
Plaintiff,
v.
1. MICHAEL SHAWN STEWART, and
2. BRYANT EDWIN SEWALL,
Defendants.
ORDER DENYING IN PART AND DENYING IN PART AS MOOT
DEFENDANTS’ JOINT MOTION IN LIMINE
The Government charges Defendants Michael Shawn Stewart (“Stewart”) and
Bryant Edwin Sewall (“Sewall”) (jointly, “Defendants”) with fourteen counts of wire fraud,
in violation of 18 U.S.C. § 1343, and one count of conspiracy to commit wire fraud, in
violation of 18 U.S.C. § 371. (ECF No. 1.) Currently before the Court is Defendants’
Joint Motions [sic] in Limine (“Motion”). (ECF No. 192.) The Government filed a
response. (ECF No. 224.)
For the reasons explained below, the Motion is denied in part and denied in part
as moot.
I. LEGAL STANDARD
A. Rules 401, 402 & 403
“The admission or exclusion of evidence lies within the sound discretion of the
trial court . . . .” Robinson v. Mo. Pac. R.R. Co., 16 F.3d 1083, 1086 (10th Cir. 1994);
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see also United States v. Golden, 671 F.2d 369, 371 (10th Cir. 1982) (“Trial judges
have discretion to decide whether an adequate foundation has been laid for the
admission of evidence.”).
Under Federal Rule of Evidence 401, “[e]vidence is relevant if: (a) it has any
tendency to make a fact more or less probable than it would without the evidence; and
(b) the fact is of consequence in determining the action.” Relevant evidence is
generally admissible and should only be excluded “if its probative value is substantially
outweighed by a danger of . . . unfair prejudice, confusing the issues, misleading the
jury, undue delay, wasting time, or needlessly presenting cumulative evidence.” Fed. R.
Evid. 403. “Irrelevant evidence is not admissible.” Fed. R. Evid. 402.
B. Rule 404(b)
Rule 404(b) provides:
(1) Prohibited Uses. Evidence of any other crime, wrong, or
act is not admissible to prove a person’s character in order
to show that on a particular occasion the person acted in
accordance with the character.
(2) Permitted Uses. This evidence may be admissible for
another purpose, such as proving motive, opportunity, intent,
preparation, plan, knowledge, identity, absence of mistake,
or lack of accident.
(3) Notice in a Criminal Case. In a criminal case, the
prosecutor must:
(A) provide reasonable notice of any such evidence
that the prosecutor intends to offer at trial, so that the
defendant has a fair opportunity to meet it;
(B) articulate in the notice the permitted purpose for
which the prosecutor intends to offer the evidence
and the reasoning that supports the purpose; and
(C) do so in writing before trial--or in any form during
trial if the court, for good cause, excuses lack of
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pretrial notice.
A court considers a four-factor test when determining the admissibility of
evidence under Rule 404(b). The test requires that:
(1) the evidence must be offered for a proper purpose; (2)
the evidence must be relevant; (3) the trial court must make
a Rule 403 determination of whether the probative value of
the similar acts is substantially outweighed by its potential for
unfair prejudice; and (4) pursuant to Fed R. Evid. 105, the
trial court shall, upon request, instruct the jury that evidence
of similar acts is to be considered only for the proper
purpose for which it was admitted.
United States v. Zamora, 222 F.3d 756, 762 (10th Cir. 2000) (quotation omitted); see
Huddleston v. United States, 485 U.S. 681, 691–92 (1988) (discussing four sources that
serve as “the protection against . . . unfair prejudice” when admitting evidence under
Rule 404(b)).
II. ANALYSIS
Defendants challenge six categories of evidence relating to: (1) impact on
victims; (2) Defendants’ lifestyles and spending; (3) Defendants’ prior bankruptcy filings;
(4) Stewart’s prior employment by Trump University; (5) Defendants’ racist, xenophobic,
or misogynistic statements; and (6) National Futures Association (“NFA”) regulations.
A. Uncontested and Previously Resolved Issues
Some of Defendants’ challenges require little discussion to resolve. The parties
agree that Stewart’s previous employment at Trump University is irrelevant to this case,
and the Government represents in its response brief that it will not introduce or
specifically elicit evidence relating to “Trump University or the fraud associated
therewith.” (ECF No. 224 at 8.) The Court will hold the Government to its word, and
therefore, the portion of the Motion challenging such evidence is denied as moot. The
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parties likewise agree that any racist or xenophobic statements Defendants made or
sentiments they may hold is irrelevant, and the Government represents in its response
brief that it will not introduce or elicit evidence related to this subject. The Court will also
hold the Government to its word on this point and denies the related portion of the
Motion as moot.1
As for NFA regulations, the Court’s recent Amended Order Ruling on
Defendants’ Joint 702 Motion considered many arguments, including those based upon
Rules 401, 402, and 403. (Compare ECF No. 248 at 4–6 (discussing how concepts
related to NFA rules are relevant despite the NFA rules themselves being irrelevant),
with ECF No. 192 at 11–13 (arguing that NFA rules are irrelevant).) This portion of the
Motion is fully controlled by the Court’s prior Order, which permits the Government’s
witnesses, Jennifer Sunu and Mark Oldani, to testify (1) generally about specific
subjects; (2) that some conduct Defendants are alleged to have engaged in might
enable deceit; and (3) that that conduct is prohibited in some parts of the world. (ECF
No. 248 at 6.) That Order also prohibits them from testifying (i) that certain conduct is
prohibited under NFA rules for U.S.-based traders; (ii) as a corollary to (i), why such
conduct is prohibited in the U.S.; and (iii) in a way that suggests Defendants were
subject to NFA rules or should have followed NFA rules during the relevant period. (Id.)
Therefore, this portion of the Motion is also denied as moot.
B. Victim Impact
Defendants seek to exclude various “Investor Questionnaire[s]” that detail the
1 The relevance and admissibility of evidence related to Defendants’ misogynistic
statements “emasculating” their former business partner, Michael Young, are disputed. The
Court addresses that evidence separately. See infra, Part II.E.
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impact Defendants’ alleged fraud had on their investors’ personal and financial lives.
(ECF No. 192 at 1–2.) They argue this information is irrelevant because “[a]ctual
pecuniary loss is not an essential element of either” wire fraud or conspiracy to commit
wire fraud, the only crimes charged in the indictment. (Id. at 3.) Therefore, evidence
showing how investors have been affected does not tend to make any material fact
more or less probable. (See id. at 3–4; Fed. R. Evid. 401.) And even if this evidence is
relevant, they contend that whatever “marginal and/or minimal incremental probative
need of such evidence for that purpose is substantially outweighed by the danger of
unfair prejudice.” (ECF No. 192 at 4 (citing United States v. Copple, 24 F.3d 535, 546
(3d Cir. 1994)).)
The Government responds that the evidence Defendants seek to exclude is
relevant in two ways. First, it tends to show that Defendants’ allegedly false statements
were material (i.e., they caused their investors to make decisions they otherwise would
not make). (ECF No. 224 at 3.) And second, proof that others were “actually victimized
by the fraud is good evidence of the schemer’s specific intent . . . .” (Id. (quoting United
States v. Regent Office Supply Co., 421 F.2d 1174, 1180 (2d Cir. 1970)); id. at 4
(collecting cases).)
The Court questions why the Government felt it necessary to exalt Regent Office
Supply as “a hoary staple of law school case books,” (id. at 4), when it could have
simply cited published Tenth Circuit law directly supporting its position. Unless an issue
requires expansive research or is unresolved by Tenth Circuit law, the Court is more
concerned with binding circuit precedent. For instance, in United States v. Holloway,
826 F.3d 1237, 1246 (10th Cir. 2016), the court whose decisions are in fact binding in
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this proceeding explained,
As we have repeatedly recognized, “fraudulent intent is
difficult to prove with direct evidence,” and thus “it may be
inferred from circumstantial evidence considered in its
totality.” One means of establishing intent to defraud is by
proof of economic harm to victims of the fraud.
826 F.3d at 1246 (citations omitted); accord United States v. Welch, 327 F.3d 1081,
1104–05 (10th Cir. 2003) (collecting cases), abrogation on other grounds recognized by
United States v. McBride, 94 F.4th 1036, 1043 n.9 (10th Cir. 2024). Like Defendants,
the defendant in Holloway relied on Copple and Rule 403 to argue the unfair prejudice
of admitting victim impact statements substantially outweighed the probative value.
Holloway, 826 F.3d at 1245. Though Holloway approved of Copple generally, it noted
that the Third Circuit’s ruling was limited only to instances where the admitted victim
impact evidence goes “beyond anything that [i]s reasonable to prove . . . specific intent
to defraud.” Id. at 1244. Therefore, while the Court will provisionally admit a
reasonable amount of victim impact evidence, it will not allow excessive cumulative
evidence in this vein. This portion of the Motion is denied.
C. Defendants’ Lavish Lifestyles
Defendants argue testimony and exhibits describing the flow of funds between
Defendants’ businesses, their brokerage, and various bank accounts should be
excluded. Specifically, they argue that summary evidence’s references to “jewelry,”
“boat[s],” and “real estate” is irrelevant and will inflame the jury’s sensibilities. (ECF No.
192 at 5.) They argue that “[w]hether someone engages in displays of ostentatious
wealth does not make it any more likely that their wealth was gained via illegal means . .
. .” (Id. at 6 (citing United States v. Jackson-Randolph, 282 F.3d 369, 377–78 (6th Cir.
2002)).) Because the motivation for almost all financial crimes—pecuniary gain—is
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both the same and obvious, they argue admitting evidence of their opulence will stoke
“class prejudice.” (Id. at 7 (citing cases).) In their view, the risk of this improper,
emotional bias influencing the jury’s deliberations substantially outweighs whatever
slight probative value this category of evidence might have. (Id.)
The Government concedes that evidence of wealth or lifestyle alone is not
“particularly probative” of the charged offenses. (ECF No. 224 at 5–6.) But it argues
that evidence regarding the use of wealth can be probative of intent to defraud when the
wealth is specifically connected to the charged criminal activity. (Id.) In the
Government’s view, this is exactly such a case because summaries tracing funds tend
to rule out other, noncriminal explanations for investors’ lost assets, such as business
expenses or incompetence. (See id. at 6–7.) Moreover, it argues the summaries in fact
downplay Defendants’ lifestyle spending by choosing “the most anodyne words
available—‘boat- instead of ‘yacht’ and ‘jewelry’ instead of ‘diamonds’ . . . .” (Id.)
The Court is persuaded by the Government’s arguments. As it points out, Rule
403 is unconcerned with evidence that is prejudicial, even extremely prejudicial. (Id. at
7.) What the Rule concerns is unfair prejudice, and, even then, the rule permits
evidence that is potentially unfairly prejudicial in most circumstances. See Fed. R. Evid.
403 (giving district courts discretion to exclude relevant evidence if its probative value is
substantially outweighed by a danger of unfair prejudice, such as suggesting to the jury
an emotional rather than legal reason for reaching a particular verdict). Evidence
suggesting Defendants stole investors’ money and then spent it on frivolous luxuries is
certainly prejudicial—it is hard to imagine such a thing happened by accident. But that
does not mean it is unfairly prejudicial. Further, to the extent this evidence might stoke
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“class resentment,” the Court will hold the Government to its word that it will not
incorporate pictures into its summaries and retain their “restrained color palette” and
cool-headed language. (ECF No. 224 at 6.)
This portion of the Motion is therefore denied in part and denied as moot in part.
D. Defendants’ Prior Bankruptcy Filings
Defendants argue evidence of their prior bankruptcies is irrelevant; likely to
confuse the jury or waste time with a mini-trial on complex bankruptcy law; or lead the
jury to make determinations about their character in violation of Rule 404(b). (ECF No.
192 at 7–1.) These arguments are utterly without merit.
The Court agrees with the Government’s arguments in response. There is
evidence showing Defendants falsely stated to investors that neither of them had ever
applied for bankruptcy. (ECF No. 224 at 7.) Evidence of their prior bankruptcies tends
to show these statements were false and made with the intent of inducing others to
invest or stay invested with Mediatrix. (Id.) The obvious probative value of this
evidence will not open the door to the intricacies of bankruptcy law; the mere fact of the
filing is what is relevant for the jury to determine whether Defendants made intentionally
false and misleading statements. (Id.) Further, this evidence is not other-act evidence;
as the Government pithily puts it, “it is this act evidence,” serving only to show that the
statements made during the alleged conspiracy were knowingly false or misleading. (Id.
at 7–8.)
E. Derogatory Statements About Michael Young
Defendants argue instances of them referring to Young as “princess” or “describe
him and his actions using other emasculating terms” are irrelevant and likely to “offend
jurors and engender animosity” toward them. (ECF No. 192 at 10–11.)
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The Government quibbles with whether referring to Young as “princess” was
“emasculating” or merely deriding him as “act[ing] entitled and demanding.” (ECF No.
224 8–9.) To that, the Court asks, “Why not both?” Putting this aside, the Government
argues that: (1) Defendants’ obvious disdain for Young rebuts any attempt they may
make to pin their deeds on him; (2) the Court has already concluded two of the relevant
statements are not hearsay under Rule 801(d)(2)(E); and (3) a child would not be
“inflame[ed]” by these comments, let alone adults. (Id. at 9.)
In the Court’s view, the specific fact of Defendants’ use of the word “princess” is
of marginal probative value. It is hard to follow the Government’s theory that simply
because Defendants disliked Young, he could not have been the mastermind behind
the scheme. When the Court issued its Order on Defendant[s’] Motion for James
Hearing, it found statements 42 and 45 in furtherance of the conspiracy because they
suggest Defendants were concealing something from Young and wanted to prevent him
from asking questions, not because they made at-least sub-textually sexist remarks in
the process. (See ECF No. 161 at 8 (“[S]tatements that conceal or prolong the
concealment of the conspiracy from non-conspirator Michael Young . . . are also in
furtherance of the conspiracy.”).) On the other side of the Rule 403 scale, the Court
agrees with the Government that the risk of unfair prejudice is low. Therefore,
exercising its discretion, the Court concludes the risk of unfair prejudice does not
substantially outweigh the statements’ probative value, and this portion of the Motion is
denied.
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III. CONCLUSION
For the reasons set forth above, the Court ORDERS that Defendants’ Joint
Motions [sic] in Limine are DENIED IN PART and DENIED IN PART AS MOOT as set
forth above.
Dated this 26th day of April, 2024.
BY THE COURT:
______________________
William J. Martínez
Senior United States District Judge
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