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United States v. Leak

United States District Court, W.D. North Carolina, Charlotte Division

December 4, 2019

UNITED STATES OF AMERICA
v.
ERIC DEWAYNE LEAK

          ORDER

          Robert J. Conrad, Jr. United States District Judge

         On November 14, 2019, this Court rejected Defendant's plea to “a charge involving promotional money laundering, ” (Text-Only Order, Nov. 14, 2019), finding an insufficient factual basis to support the charge. This Order sets forth the grounds for that determination. Put simply, the Government has failed to allege a federal crime. The payment of proceeds from specified unlawful activity, “to wit paying kickbacks under a federal health care program in violation of 42 U.S.C. § 1320(a)-7b(b)(2)(A), ” to promote the carrying on of separate specified unlawful activity, “to wit bribery in violation of various state laws, including North Carolina General Statute § 78C-98, ” (Doc. No. 1, ¶ 14), does not violate the promotional money laundering statute.

         I. BACKGROUND

         From early 2012 through the end of 2014, Defendant Eric Dewayne Leak (“Defendant” or “Leak”) owned and operated Nature's Reflections, LLC, a mental health company that was enrolled as a Medicaid provider. (Doc. No. 1, ¶ 2.) During this period, Leak was involved in the payment of illegal kickbacks in the amount of $420, 115 to induce referrals for items or services covered by Medicaid. (Doc. No. 1, ¶ 4; Doc. No. 3, ¶ 1.) Nature's Reflections received millions of dollars in direct reimbursements from Medicaid as part of that fraud. (Doc. No. 1, ¶ 2.) Leak pleaded guilty in the United States District Court for the Middle District of North Carolina to one count of paying kickbacks under a federal health care program in violation of 42 U.S.C. § 1320(a)-7b(b)(2)(A) (the “MDNC charge”) and one count of money laundering in violation of 18 U.S.C. § 1957(a). (Doc. No. 3, ¶ 1.) He was sentenced to an 18-month prison sentence for those offenses, which he is currently serving.

         After Leak pleaded guilty to the MDNC charge, and after the United States Attorney's Office for the MDNC rejected the instant offense for prosecution, the Government initiated this case in the Western District of North Carolina. (Doc. No. 22, at 3.) The Government charged Leak with one count of conspiracy to commit promotional money laundering in violation of 18 U.S.C. § 1956(a)(1)(A)(i) (the “PML statute”) and 1956(h) (the “WDNC charge”). (Doc. No. 1, ¶ 13.)

         The WDNC charge at issue here is based on Leak's ownership and operation of Hot Shots Sports Management, LLC, which Leak formed in December 2012. (Doc. No. 1, ¶ 3.) Hot Shots' business included “transitioning” student athletes from collegiate athletics to the National Football League and National Basketball Association. (Doc. No. 3, ¶ 2.) “Transitioning” is a euphemism for paying athletes under the table in hopes they would use Leak's company as their agent. Some of the payments, stipulated to in the Factual Basis to be between $50, 000 and $75, 000, represented proceeds derived from Nature's Reflections' kickback scheme. (Doc. No. 3, ¶ 8.) The Bill of Information alleges that Leak intended to promote the carrying on of specified unlawful activity-namely, bribery of college athletes. (Doc. No. 1, ¶ 14.)

         Leak and the Government entered into a Plea Agreement pursuant to which Leak agreed to plead guilty to conspiracy to commit promotional money laundering. (Doc. No. 2.) The Plea Agreement stipulates that the parties will recommend a base offense level of 20 under USSG § 2S1.1(a)(1) [“[t]he offense level for the underlying offense from which the laundered funds were derived”].[1] Following a plea hearing on April 11, 2019, the Magistrate Judge recommended that this Court accept Leak's guilty plea and enter judgment thereon. (Doc. No. 9.)

         Prior to sentencing, this Court expressed concern that the plea lacked a factual basis, including whether using the proceeds of generating specified unlawful activity to promote the carrying on of separate, non-generating specified unlawful activity could violate the PML statute. The Court continued sentencing pending supplemental briefing on this and other issues. As stated earlier, following the submission of the parties' supplemental briefs, the Court entered an order rejecting the plea.

         II. STANDARD OF REVIEW

         Federal Rule of Criminal Procedure 11(b)(3) states that “[b]efore entering judgment on a guilty plea, the court must determine that there is a factual basis for the plea.” Fed. R. Crim. P. 11(b)(3). This rule “ensures that the court make clear exactly what a defendant admits to, and whether those admissions are factually sufficient to constitute the alleged crime.” United States v. Moussaoui, 591 F.3d 263, 299-300 (4th Cir. 2010). “The requirement to find a factual basis is designed to ‘protect a defendant who is in the position of pleading voluntarily with an understanding of the nature of the charge but without realizing that his conduct does not actually fall within the charge.'” United States v. Mastrapa, 509 F.3d 652, 660 (4th Cir. 2007) (quoting Fed. R. Crim. P. 11 advisory committee's notes (1966)). “[T]he trial court has wide discretion when determining whether a factual basis exists.” United States v. DeFusco, 949 F.2d 114, 120 (4th Cir. 1991). The district court must, however, be satisfied “that the conduct to which the defendant admits is in fact an offense under the statutory provision under which he is pleading guilty.” United States v. Carr, 271 F.3d 172, 178 n.6 (4th Cir. 2001).

         III. DISCUSSION

         The PML statute provides:

Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity . . . with the intent to promote the carrying on of specified unlawful activity” [commits a crime].

18 U.S.C. § 1956(a)(1)(A)(i). The statute sets forth over 250 offenses that constitute “specified unlawful activity.” Id. § 1956(c)(7); United States v. Santos, 553 U.S. 507, 516 (2008). This case raises the issue of whether a person violates the PML statute by conducting a transaction that involves the proceeds of generating specified unlawful activity with the intent to promote the carrying on of different, non-generating specified unlawful activity. In other words, ...


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