United States v. Walton, 7th Cir., filed 11/3/17: Honest Services Fraud, and Enhancements for Sensitive Position and Vulnerable Victims

This appeal arises from the conviction of two men who were part of a larger scheme to sell properties owned by the Indianapolis Land Bank to selected non-profits at incredibly low rates, and then resold to private purchasers for profit. Kickbacks ensued. Walton was the manager of the Land Bank, a public agency that was authorized to acquire distressed properties.  Walton’s position gave him the authority to buy and sell the property, with little oversight.  Walton eventually met another co-defendant, Reed (who pleaded guilty and cooperated), who suggested they partner to find selected nonprofit organizations to buy the land and then immediately transfer the property back to a chosen buyer.  The nonprofits allowed the sale at a rate of either $2500 or $1000, and Walton was in the position to push these properties through those entities. Once these properties were sold, Walton would get a “kickback.” In this scheme, Walton insisted on being a “silent partner” and only accepted cash. Reed knew this arrangement was illegal; Walton merely thought it was unethical.

As this scheme was ongoing, in August 2012, the Marion County Prosecutor’s Office charged Sheila Amos with fraudulently selling properties she did not own to mostly poor Hispanic families who did not speak English. Some of these properties she purportedly “sold” actually belonged to the Land Bank. The prosecutors and detectives approached Walton about allowing these victims to remain in the properties.  Walton later told the “Amos victims” they could purchase these homes for $1000 or $2500, and used his position to push the sales of these properties through a non-profit who was part of this scheme.  At closing, however, he told them they needed to pay $4000.  In cash.

Walton argued on appeal that he didn’t realize all this was actually illegal, but as the Court helpfully points out, “a mistake of law is not a defense to honest services fraud.”  United States v. Blagojevich, 794 F.3d 729, 738-39 (7^th Cir. 2015).   Walton argued that honest services fraud requires proof of a quid pro quo and that a mere breach of a fiduciary duty is not enough to support his conviction.  He’s correct that there must be a kickback or bribe, but the Court notes that there were kickbacks and bribes here!  See Skilling v. United States, 561 U.S. 358 (2010) (honest services fraud prosecution requires proof of a kickback or bribe). The Court found that Walton intended to deprive the City of his honest services by accepting bribes and kickbacks from third-party partners who relied on Walton to facilitate transfers of valuable properties at low cost.  It is, as it turns out, a crime and not just an ethical lapse.

The Court further found that the four-level sentencing enhancement for Walton’s sensitive position was not erroneous because, even though he was not at the top of the food-chain, he still had a substantial influence over the decision-making process of the Land Bank.  Also, the Court found the two-level enhancement for the Amos Victims was appropriate since they were undocumented, had poor (if any) English fluency, had been previously victimized by Sheila Amos, were extremely low-income, and were facing the threat of homelessness.  The Court also considered their lack of bargaining power or real estate sophistication.