BONITA SPRINGS — Trial verdicts are typically straightforward: Guilty or not guilty.
Yet when jurors convicted a Fort Myers real estate agent of six counts of wire fraud this week, they had three choices: Samir Cabrera wasn’t guilty, he was guilty of defrauding investors of money, or he was guilty of defrauding them of something more basic — their right to expect his honest services. They chose the latter on all six counts. In the past two decades, a statute known as the “intangible right to honest services” has become a popular tool for prosecutors to gain convictions in fraud cases in which both the victim and the impact of the crime are difficult to identify. At the same time, the statute has been criticized as an overly broad back-door for prosecutors who can’t tighten their case to convince a jury. Appeals from convictions on the statute are common.
In the case of Cabrera, who was convicted Wednesday on 11 counts of fraud and money laundering for failing to disclose two property transactions, jurors didn’t have “smoking-gun” evidence that he had intentionally schemed to get investors’ money, jury foreman David Dyson said. “We all agreed on the intent that there were no services provided (to investors),” Dyson explained Friday. “We all agreed with that. But there was no unanimous agreement on the money issue.” Federal Statute 1346 was crafted in 1988 as prosecutors worked cases where “fraud was in the air” but victims weren’t immediately apparent, explained Daniel Richman, a legal scholar at Columbia Law School. “When you take a bribe as a private agent or a government official, the sense is that someone is being ripped off,” he said. “But it’s hard to figure out who has been ripped off.”
The statute holds that government officials and private agents have obligations to provide legal, transparent services to constituents or shareholders. By taking bribes, kick-backs or the like, they violate that duty. The right is intangible, in that no one can measure what is taken when the fraud occurred. The statute is used as part of a mail or wire fraud charge, when jurors must identify the object of the fraud. The sentencing under an “honest service” finding is no different than any other mail or wire fraud verdict. Former Illinois Gov. George Ryan was convicted under the statute, as was former Enron CEO Jeffrey Skilling. Both cases were appealed, on the grounds the law was misused. Critics say “the intangible right of honest services” is too broad a concept. Its interpretation varies between circuits, Richman said, and the Supreme Court has refused to hear a case with the statute at issue. With no standard to go by, lower courts have been left to define the law’s reach.
In Cabrera’s case, prosecutors claimed investors were defrauded of their money, a total of $2.8 million, because Cabrera intentionally flipped two properties. That is, he bought the properties at market value, sold them immediately to investors at a higher price and pocketed the difference. The maneuvers are legal if disclosed. The projects failed, and investors lost everything. “The idea is, ‘How do you know those shareholders were ripped off?’” Richman said, when told about the case. Indeed, Cabrera’s defense was that an employee and a real estate agent overlooked making the disclosures. Defense attorney John Mills, in his closing statement, also pointed to a development market that soured soon after the deals were made.
“If the market had kept going up … everyone would have made millions,” he said. “Mr. Cabrera would have been the boy genius, but that didn’t happen.” Prosecutors argued that the disclosures gutted both projects, directly leading to their failure. An IRS agent told jurors both would still be viable if the money hadn’t been removed. Still, jurors didn’t feel comfortable convicting of monetary fraud, said Dyson, the jury foreman. Instead, they decided Cabrera knowingly violated his investors’ right to service by making the flips and removing money, and generally depleting project accounts through commissions and management fees.
David A. Brener, a Fort Myers criminal defense attorney, said the “honest services” option likely smoothed deliberations. “They didn’t get into a nitpicking argument on money,” he said. On the other hand, the fact the jury didn’t directly address the money in each count means the defense has an opening if prosecutors cite the money during sentencing, Brener noted.
Mills has said Cabrera will appeal his verdict on the grounds of inconclusive evidence.