Thursday, December 27, 2012
Court Upholds Entrepreneur’s Conviction for Money Laundering
By KENNETH OFGANG, Staff Writer
A Seattle entrepreneur who used phony invoices to steal more than $1 million from the Internet startup he co-founded was properly convicted of money laundering, but not of mail fraud, the Ninth U.S. Circuit Court of Appeals ruled yesterday.
The three-judge panel said Mark E. Phillips did not violate the mail fraud statute by having an expensive watch mailed to him, after his company paid for the watch based on an invoice falsely suggesting that the charge was for consulting services. But Phillips did violate the money laundering statute, Senior U.S. District Judge Jed S. Rakoff wrote for the panel.
Rakoff, of the Southern District of New York, sat by designation on the panel, which also included Senior Judge Mary M. Schroeder and Judge Ronald M. Gould.
Senior U.S. District Judge John Coughenour of the Western District of Washington sentenced Phillips last year to four years in prison, about half of what prosecutors had asked for. An online account of the sentencing said Coughenour called Phillips’ conduct “deficient, dishonest, imperfect and wrong,” but noted that the stolen money had been returned.
Phillips was “no Bernie Madoff,” the judge was quoted as saying.
Phillips and Anthony Bay co-founded MOD, a maker of digital media kiosk technology that attracted investments from well-known technology companies as well as from individuals. Bay, who became CEO when Phillips resigned in 2009, testified for the prosecution and blamed Phillips for the state of the company, which shut down in the summer of last year, just before the sentencing.
Bay said that Phillips had asked him twice to approve a $1.5 million payment to him in anticipation of a licensing agreement between MOD and another company in which Phillips had an interest, AnythingBox. MOD’s corporate counsel and two board members testified that they had repeatedly told Phillips he needed board approval for the deal because of the conflict of interest.
MOD’s vice president for finance, Ken Gordon, said Phillips told him that a majority of the board, including Bay, had approved the payment to Phillips in order to facilitate the AnythingBox agreement. Gordon said he relied on that representation in wiring the money to Phillips’ personal account, and Phillips used nearly $1 million of it as a down payment on a condominium.
Prosecutors said Phillips also used a company called Wallace Black LLC, owned by his girlfriend, as a conduit to purchase a $30,000 Bruguet watch. The watch was sent to Phillips, who arranged to have MOD pay Wallace Black, which then paid the jeweler.
There was also evidence that Wallace Black was used as a vehicle to invest in other companies. Gordon said he paid Wallace Black only because Phillips represented that the money was owed for consulting services.
Phillips testified that his girlfriend did, in fact, provide services to MOD, that she purchased two Bruguet watches as gifts, and that he had planned to reimburse her for the moneys used for the outside investment. Jurors convicted Phillips on multiple counts of wire fraud and money laundering, and on a mail fraud count based on the purchase of a watch.
Rakoff, in his opinion for the court, said the mail fraud conviction was plainly erroneous.
“The fact that Phillips purchased a watch with...fraudulently obtained MOD funds, instead of using the funds for his personal benefit in some other fashion, did not in any way affect the scheme ‘to defraud MOD and to obtain money from MOD,’ as charged in Count 5,” the judge wrote. “The fact that payment eventually was made to a watch dealer and that watch dealer mailed a watch in return was not a part of the scheme to defraud MOD and to obtain money from MOD—it was simply the byproduct of that scheme.”
But Rakoff went on to say that Phillips committed money laundering by fraudulently using the company’s money to make an outside investment and to make the down payment. That activity, the judge said, was independent of, and thus did not merge with, the wire fraud that was employed to obtain the money.
The case is United States v. Phillips, 11-30195.
Copyright 2012, Metropolitan News Company