                                                                           F I L E D
                                                                    United States Court of Appeals
                                                                            Tenth Circuit
                                      PUBLISH
                                                                            MAR 25 1997
                      UNITED STATES COURT OF APPEALS
                                                                         PATRICK FISHER
                                                                                   Clerk
                                  TENTH CIRCUIT



 UNITED STATES OF AMERICA,

       Plaintiff-Appellee,
 vs.                                                       No. 96-6305

 ROBERT M. COCHRAN,

       Defendant-Appellant.


            APPEAL FROM THE UNITED STATES DISTRICT COURT
              FOR THE WESTERN DISTRICT OF OKLAHOMA.)
                         (D.C. No. CR 95-128-T)


B.J. Rothbaum, Jr. (Drew Neville and Russell Cook with him on the brief), Linn &
Neville, P.C., Oklahoma City, Oklahoma for Defendant-Appellant.

Susan Dickerson Cox, Assistant U.S. Attorney (Mary C. Spearing, Acting U.S. Attorney,
Mary M. Smith and Michael C. James, Assistant U.S. Attorneys, with her on the brief),
Oklahoma City, Oklahoma, for Plaintiff-Appellee.

Richard H. Walker, General Counsel, Eric Summergard, Principal Assistant General
Counsel, Adam C. Pritchard, Attorney, and Paul Gonson, Solicitor, Securities and
Exchange Commission, Washington, D.C. for Amicus Curiae, The Securities and
Exchange Commission.


Before BALDOCK, KELLY and LUCERO, Circuit Judges.


KELLY, Circuit Judge.
       Defendant-appellant Robert M. Cochran appeals from his conviction on five

counts of wire fraud, 18 U.S.C. §§ 2, 1343, 1346, one count of interstate transportation of

stolen property, 18 U.S.C. §§ 2, 2314, and two counts of money laundering, 18 U.S.C. §§

1956, 1957. The jury acquitted on seven counts of wire fraud and six counts of money

laundering and also acquitted Mr. Cochran’s codefendant. Mr. Cochran was sentenced

to 87 months imprisonment, ordered to provide restitution of up to $489,241.09, to pay a

fine of $50,000 and $400 in special assessments and, following release, to serve three

years on probation. We stayed his reporting date and expedited his appeal.1 Our

jurisdiction arises under 28 U.S.C. § 1291. We reverse.



                                       Background

       This is a case about greed, and not only that of Defendant. That said, greed and

criminal liability are not necessarily synonymous. Mr. Cochran was the head of the

Oklahoma City Municipal Bond Underwriting Department of Stifel, Nicolaus &

Company, Inc. (Stifel). Stifel participated in underwriting several municipal bond issues

and received compensation from both the issuers and various third-party financial

institutions. The pertinent transactions for our purposes include: (1) a 1992 Oklahoma

City Airport Trust transaction (OCAT transaction) where the government charged that



       1
            In light of our disposition, we deny Mr. Cochran’s motion for release
pending appeal as moot.

                                           -2-
Mr. Cochran and his acquitted codefendant Michael B. Garrett received the benefit a

$489,241.09 secret payment, and (2) a 1992 Sisters of St. Mary Healthcare System

transaction (SSM transaction) where the government charged that Mr. Cochran received

the benefit of a $100,000 secret payment.



                                  A. OCAT Transaction

       The OCAT transaction involved an issuance of almost $77 million in taxable

20-year revenue bonds by the Oklahoma City Airport Trust Authority to finance a

“transfer center” to be leased by the federal Bureau of Prisons. Stifel was named the co-

managing underwriter for this “BBB-rated” bond issue and received a portion of the 3.2

percent underwriting fee ($2.5 million). The bonds were somewhat unique and carried a

lower credit rating.

       Because interest received by the bondholders was taxable, OCAT could earn an

unrestricted amount of interest on the bond proceeds. In addition to acting as underwriter

for the offering, Stifel also brokered a collateralized guaranteed investment contract

between OCAT and the Postipankki Bank, a Finnish bank with branches in the United

States. Such a contract allows the issuer to invest the bond proceeds at a fixed rate until

needed and earn a return in excess of most short-term investments.

       As co-participating broker, Stifel contacted Pacific Matrix Financial Corporation, a

California money broker, to find a financial institution to provide the contract. Pacific


                                            -3-
Matrix selected Postipankki. Stifel received a fee of $529,241.09 from Postipankki, due

to the following series of events. On bid day, Postipankki bid 7.05 percent on the debt

service reserve funds and 4.2 percent on the construction and capitalized interest funds of

the bond issue. Stifel then instructed Pacific Matrix to deduct 50 and 25 basis points,

respectively, from the gross bid of Postipankki as the broker fee. Postipankki then

reduced its original bid from 7.05 to 7.0 percent on the debt service reserve fund and the

net bid figures presented to OCAT were 6.5 percent (7.0 percent less 50 basis points) and

3.95 percent (4.2 percent less 25 basis points), to account for the broker fees charged by

Stifel and Pacific Matrix. Gross or net, Postipankki submitted the highest bid. Tr. 1270.

Stifel and Pacific Matrix had agreed to split the broker fee 85%-15%, respectively, with

Stifel also recouping $40,000 (based on a previous transaction) from the Pacific Matrix

share. Postipankki paid Stifel through an affiliated company of Mr. Cochran, American

Investment Corporation (AIC), resulting in a net broker fee for Stifel of $489,241.09.

This was later transferred to Stifel’s account by Mr. Cochran.

       OCAT was unaware of the fee (the difference between the gross and net bids) or

the fee split, although Mr. Cochran testified that his codefendant had informed him that

disclosure had been made. Mr. Luther Trent, OCAT director, testified that the Stifel fee

never came up but he presumed that Pacific Matrix would receive a fee, “just logic told

me the guy does it for something.” Tr. 1515. He also indicated that the return from the

guaranteed investment contract earned OCAT more than $1.5 million, and that the net


                                            -4-
rates received were excellent rates, over twice what OCAT was making on short term

Treasury securities. Tr. 1527.



                                  B. SSM Transaction

       The Sisters of Saint Mary Healthcare System is a Missouri not-for-profit

corporation that operates eighteen hospitals and three nursing homes. In an effort to

secure more favorable financing, the SSM transaction involved a refunding issuance of

more than $265 million of tax-exempt bonds, with Stifel as the co-senior managing

underwriter. Stifel recommended that SSM purchase a forward supply contract. A

forward supply contract is a financial instrument to invest bond refunding proceeds

during the period after securities in an escrow account are redeemed and before the date

when the funds must be distributed. It is beneficial because the maturity dates of the

investment securities in an escrow account often cannot be identical to the redemption

dates of the older bonds that are being refunded by the new bond issue. For example, $1

million of Treasury securities in an escrow account may mature on April 1, when the $1

million needed to repay principal on the older bonds is not due until April 15.

       Stifel arranged for Sakura Global Capital (SGC) to provide the forward supply

contract. SGC had bid $400,000 to be paid to SSM. Unlike the OCAT transaction, the

SSM transaction was structured to generate tax-exempt interest for the bondholders which

meant that the yield on the investment of the refunding bond proceeds, including the


                                            -5-
forward supply contract, was restricted. Bond counsel, therefore, required Stifel to

certify that, other than the $400,000 specified in the forward supply agreements, no

payments would be made “by or on behalf of SGC to or for the benefit of SSMHC” and

“by or on behalf of SGC to any person.” Although Stifel and SGC certified that no such

payments were made, the latter representation was rendered incorrect when Mr. Cochran

sought and received a $100,000 fee from SGC subsequent to the certification. At trial,

Mr. Cochran contended that he had disclosed this fee to SSM’s chief financial officer

who had no recollection. The fee was billed by AIC in a “corrected billing,” attributed to

an unrelated bond transaction involving Mercer County, New Jersey and paid by SGC.

The fee was later transferred from AIC to Stifel’s account by Mr. Cochran.

       Counts 3 and 5 of the indictment charged Mr. Cochran and his codefendant with

wire fraud in connection with the OCAT transaction, specifically a telephone call from

Stifel to Pacific Matrix directing the Postipankki bid reduction (count 3) and a fax

transmission from Pacific Matrix to Oklahoma bond counsel reflecting the reduced bid

amount (count 5). Counts 9-11 charged Mr. Cochran with wire fraud (deprivation of

honest services) in connection with the SSM transaction, specifically the telephone call

where Stifel and SGC employees agreed that the Stifel fee would be billed to the Mercer

County, New Jersey bond issue (count 9), the fax transmission accomplishing same

(count 10), and the wire transfer of the $100,000 fee from New York to Oklahoma (count

11). Count 2 and 12 charged money laundering of the proceeds of the above two wire


                                            -6-
fraud schemes (and another upon which conviction was not had) by transferring the

proceeds from the AIC account to Stifel. Count 6 charged interstate transportation of

money taken by fraud, specifically the $529,241.09 fee check from Postipankki to AIC.




                                         Discussion

       On appeal, Mr. Cochran contends that it was error (1) to construe 18 U.S.C.

§ 1343 to criminalize nondisclosure of fees received by an investment firm in the absence

of proof of a duty to disclose such information, (2) to construe 18 U.S.C. § 1343 to

criminalize such nondisclosure in the absence of proof that the alleged nondisclosure

caused, or was intended to cause, a loss of money or property to which the alleged

“victim” had some claim of right, and (3) to construe 18 U.S.C. § 1343, as amended by 18

U.S.C. § 1346, to criminalize nondisclosure of receipt of a fee by an underwriter in the

absence of proof that knowledge of the receipt of the fee would have had some tangible

effect on the alleged “victim.” He also contends that (4) retroactive imposition of a duty

to disclose information upon a private individual in a private business transaction as a

predicate for criminal liability is a deprivation of due process of law, (5) insufficient

evidence supports the wire fraud convictions, (6) it was prejudicial to submit alternative

theories of wire fraud to the jury in the disjunctive when such theories are charged in the

indictment in the conjunctive, (7) his conviction as an aider and abettor on the OCAT


                                             -7-
wire fraud counts is precluded by the acquittal of his codefendant on the same counts, and

(8) reversal of the wire fraud convictions requires reversal on the other counts of

conviction. We address only those arguments necessary to resolve the appeal.

       Mr. Cochran contends that his convictions on the wire fraud counts cannot stand

due to a failure of proof. In essence, his challenge is to the sufficiency of the evidence.

See United States v. Catalfo, 64 F.3d 1070, 1076 (7th Cir. 1995), cert. denied, 116 S. Ct.

1683 (1996). We review the evidence and the inferences in the light most favorable to

the government to determine whether a rational jury could have found a defendant guilty

beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. 307, 319 (1979); United States

v. Hooks, 780 F.2d 1526, 1529-31 (10th Cir.), cert. denied, 475 U.S. 1128 (1986).

       The elements of wire fraud under 18 U.S.C. § 1341 are: “(1) a scheme or artifice

to defraud or obtain money by false pretenses, representations or promises; and (2) use of

interstate wire communications to facilitate that scheme.” United States v. Drake, 932

F.2d 861, 863 (10th Cir. 1991). A scheme to defraud focuses on the intended end result

and affirmative misrepresentations are not essential; by contrast a scheme to obtain

money by false pretenses, representations or promises focuses instead on the means by

which the money is obtained and particular false pretenses, representations or promises

must be proved. United States v. Cronic, 900 F.2d 1511, 1513-14 (10th Cir. 1990).

       “[A] scheme to defraud is conduct intended or reasonably calculated to deceive

persons of ordinary prudence or comprehension.” United States v. Hanson, 41 F.3d 580,


                                             -8-
583 (10th Cir. 1994). The objective reference to “persons of ordinary prudence or

comprehension” assists in determining whether the accused’s conduct was “calculated to

deceive.” Drake, 932 F.2d at 864. Fraudulent intent is required. United States v. Themy,

624 F.2d 963, 965 (10th Cir. 1980). That said, a scheme to defraud by false

representations may be accomplished by patently false statements or statements made

with a reckless indifference as to their truth or falsity, and deceitful concealment of

material facts may constitute actual fraud. Williams v. United States, 368 F.2d 972, 975

(10th Cir. 1966), cert. denied, 386 U.S. 997 (1967); Gusow v. United States, 347 F.2d

755, 756 (10th Cir.), cert. denied, 382 U.S. 906 (1965). “[E]ven though a defendant may

firmly believe in his plan, his belief will not justify baseless or reckless representations.”

Themy, 624 F.2d at 965.



                                   A. OCAT Transaction

       Mr. Cochran argues that he had no duty to disclose (to OCAT) the Stifel

commission on the guaranteed investment contract placed with Postipankki bank. In

deciding this issue, we resolve the conflicts in underlying evidence in favor of the

government--thus, for purposes of our analysis, Mr. Cochran was involved in the OCAT

reinvestment transaction and the Stifel fee was not disclosed to OCAT. See United States

v. Brown, 79 F.3d 1550, 1555-56 (11th Cir. 1996). Mr. Cochran bases his argument on

the Supreme Court’s holding in Chiarella v. United States, 445 U.S. 222, 235 (1980), that


                                             -9-
“[w]hen an allegation of fraud is based upon nondisclosure, there can be no fraud absent a

duty to speak.” See also United States v. Irwin, 654 F.2d 671, 679 (10th Cir. 1981), cert.

denied, 455 U.S. 1016 (1982) (“there can be no criminal conviction for failure to disclose

when no duty to disclose is demonstrated”). He points out that the government

completely failed to prove the existence of a known duty on his part to disclose the fee.

At oral argument, the government could not inform us of any statute, regulation, common

law or contractual provision that required disclosure of the fee. Our subsequent reading

of the testimony confirms a lack of public or private regulation concerning reinvestment

broker fees during the pertinent time period. Tr. 1024-29 (Pacific Matrix reinvestment

broker).

       While a fiduciary relationship is not an essential element of a wire fraud

prosecution, United States v. Allen, 554 F.2d 398, 410 (10th Cir.), cert. denied, 434 U.S.

836 (1977), it can trigger a duty of disclosure as can some other relationship of trust and

confidence between the parties. Chiarella, 445 U.S. at 228. In a fiduciary-like

relationship, “a reasonable person is always permitted to rely on the recommendations of

a particular person; and, certain people must always disclose facts where nondisclosure

could result in harm.” Brown, 79 F.3d at 1557. Even apart from a fiduciary duty, in the

context of certain transactions, “a misleading omission[] is actionable as fraud . . . if it is

intended to induce a false belief and resulting action to the advantage of the misleader and




                                             - 10 -
the disadvantage of the misled.” Emery v. American General Finance, Inc., 71 F.3d 1343,

1348 (7th Cir. 1995).

       The evidence in this case does not support such a duty, nor does it support the

government’s alternate theory that Stifel’s nondisclosure coupled with its allegedly

affirmative misstatements of fact (the net bids) induced false beliefs regarding the amount

of the Postipankki bid to OCAT. In reality, we analyze the government’s alternate theory

virtually the same way as its nondisclosure theory because the alternate theory

presupposes a duty to disclose with any statements unaccompanied by such disclosure

deemed fraudulent. See Reynolds v. East Dyer Development Co., 882 F.2d 1249, 1252-

53 (7th Cir. 1989).

       The government makes much of the underwriting relationship between Stifel and

OCAT, arguing that it created a fiduciary duty or relationship of trust and confidence

between the parties requiring disclosure of the spread between the gross rate and net rate

and the fee paid by Postipankki to Stifel. While it is true that Stifel was co-managing

underwriter of the bonds (with Leo Oppenheim & Co.), the notion that this engagement

somehow extended gratuitously to reinvestment of $54 million in bond proceeds is not

only unsupported, but also is contrary to the record. Stifel underwrote the bonds, and

eventually placed them despite their credit risk. Tr. 3473-75. The bond closing occurred

on November 12, 1992. Negotiations for the guaranteed investment contract transactions

occurred thereafter, during the reinvestment period. Id. 1541-42.


                                           - 11 -
       Mr. Trent of OCAT was aware not only that investment of the proceeds was

different than the actual underwriting process, but also that the bond issue had closed and

the underwriting period had ended. Id. 1541-42, 1570. During the reinvestment phase,

OCAT did not seek competitive bidding on the guaranteed investment contract. Although

Mr. Trent testified that he thought Stifel and Oppenheim ought to advise OCAT on the

selection of an investment contract because they had structured the bond issue and had an

interest in making sure that bond issue did not fall short on construction, he also testified

that he did not expect Stifel to take an active role, but rather to advise the bond trustee.

Tr. 1512-13, 1542-43.

       Despite the government’s dogged insistence of Mr. Trent’s actual reliance on

Stifel, Mr. Trent’s testimony is unanimous that he looked to the bond trustee, not Stifel, to

make the reinvestment decision and to evaluate and approve the guaranteed investment

contract. Id. at 1511, 1515, 1527, 1531, 1571-77. The bond trustee was no doubt in a

fiduciary relationship vis-a-vis OCAT.

       Mr. Trent’s testimony that he expected Stifel to work for free on the reinvestment

phase and that had Stifel wanted a fee, it should have asked, id. 1542-43, does not create a

duty of disclosure on the part of Stifel as a coparticipating broker in the reinvestment

phase. Mr. Trent admitted that neither Mr. Cochran nor his codefendant had a fiduciary

relationship with OCAT during the reinvestment phase. Id. 1574-75. This is not

surprising given that Mr. Trent had been involved in seventeen or eighteen bond issues,


                                             - 12 -
had “constant contact” with underwriting firms in Oklahoma City, and often sought their

advice. Id. 1517-18. He conceded that in previous OCAT transactions in which he has

participated, OCAT paid the trustee bank a fee for reinvestment of bond proceeds. Id.

1552. No one contends that Pacific Matrix, as coparticipating broker in the reinvestment

phase, was not entitled to a fee or was required to disclose its fee to OCAT.2 During the

time period in question, Pacific Matrix routinely split fees with investment bankers,

including Stifel and “[j]ust about everybody we dealt with.” Id. at 1034. Nothing on this

record suggests any principled distinction between Stifel and Pacific Matrix.

       Although the representative from Postipankki testified that he was upset with the

size of the fee, he discussed the circumstances with his boss and determined that

Postipankki had no grounds to protest the fee. Id. at 1733. He asked Pacific Matrix if the


       2
              Mr. Trent testified on direct:

              Q.     Were you even aware that there was, in fact, a broker fee?

              A.     I would tell you that I would presume there
                     would have been one. I would have no idea or
                     nothing to compare it as to figuring out what an
                     amount would be or anything else. You know, I
                     mean, just logic told me that the guy does it for
                     something. You know, he’s not -- he can’t do it
                     just because he likes to broker monies, but we
                     didn’t get involved in that, because it was my
                     presumption that would be part of the bank
                     [bond trustee] transaction.

Tr. 1515.


                                               - 13 -
issuer (OCAT) had been informed of the fee and was told that disclosure was unnecessary

because it was a taxable deal. Id. at 1716. He verified this with bank counsel and felt no

duty to disclose the fee to the issuer. Id. at 1717.

       The record makes it clear that even among the government’s industry witnesses no

consensus existed concerning proper reinvestment fee disclosure. Compare id. at 202

(disclosure not required where interest on issue is tax-exempt (although verbal disclosure

given); required where interest is taxable) with id. at 1716 (disclosure required where

interest on issue tax exempt; not required where interest is taxable). In July 1993, after

the events in question the Internal Revenue Service proposed rules concerning the fees on

tax-exempt issues, including a five basis point fee limitation as a safe harbor. Id. at 1026-

27, 3185-86. Regardless, the government’s standardless theory on the OCAT transaction

(which resulted in the highest reinvestment rate OCAT had ever received) “would put

federal judges in the business of creating what in effect would be common law crimes,

i.e., crimes not defined by statute.” United States v. Holzer, 816 F.2d 304, 309 (7th Cir),

cert. granted and judgment vacated on other grounds, 484 U.S. 807 (1987). See also

Matter of EDC, Inc., 930 F.2d 1275, 1281 (7th Cir. 1991) (rejecting lack of moral

uprightness as a standard for wire fraud and mail fraud). The wire fraud counts

pertaining to the OCAT transaction must be reversed.




                                             - 14 -
                                     B. SSM Transaction

       Under 18 U.S.C. § 1346, a “scheme or artifice to defraud” includes “a scheme or

artifice to deprive another of the intangible right of honest services.” The government

charged Mr. Cochran with wire fraud alleging he attempted to deprive SSM and its

bondholders of the right to Stifel’s honest services. We are thus confronted with an

application of § 1346 to a commercial transaction outside the public sector.

       At the time of the transaction, a representative of SGC believed that the escrow

side of the transaction required disclosure of fees, but the forward supply side did not;

moreover, the evidence was, at best, equivocal on whether SGC had a duty independent

of contract to disclose to SSM the $100,000 payment to Stifel. Tr. 2080, 2337. However,

in resolving Mr. Cochran’s challenge to the sufficiency of the evidence, we again take the

facts in the light most favorable to the government. See Brown, 79 F.3d at 1555-56.

Thus, Mr. Cochran (1) obtained the forward supply contract on behalf of SSM pursuant to

a letter agreement, Aplt. App. 4126-28, (2) violated the representation contained in a

certification to bond counsel that the provider of the contract (SGC) paid no other fee

than to SSM, (3) did not disclose the $100,000 fee to SSM, and (4) invoiced the

additional fee to another account.

       Mr. Cochran argues that the SSM transaction could not constitute wire fraud

absent proof of some potential loss or injury to the alleged victims. He asserts that “it is

undisputed that the receipt of the $100,000 fee by Stifel from Sakura did not, and could


                                            - 15 -
not, have any adverse economic effect upon SSM and it is undisputed that interest

payable on the bonds issued by SSM was and is exempt from federal income taxation.”

Aplt. Reply Br. 18. Mr. Cochran bases his argument on United States v. Jain, 93 F.3d

436, 442 (8th Cir. 1996), which held that in the absence of actual harm to the victim,

evidence independent of the alleged scheme is required to show fraudulent intent. See

also United States v. D’Amato, 39 F.3d 1249, 1257 (2d Cir. 1994).

       Assuming without deciding that § 1346 has application where a private actor or

quasi-private actor is deprived of honest services in the context of a commercial

transaction, it would give us great pause if a right to honest services is violated by every

breach of contract or every misstatement made in the course of dealing. Cf. United States

v. Sawyer, 85 F.3d 713, 728 (1st Cir. 1996) (“To allow every transgression of state

governmental obligations to amount to mail fraud would effectively turn every such

violation into a federal felony; this cannot be countenanced.”); United States v. Dowling,

739 F.2d 1445, 1449 (9th Cir. 1984) (rejecting contention that unlawful conduct alone

constitutes fraud for purposes of the mail fraud statute), rev’d on other grounds, 473 U.S.

207 (1985). We agree with the Eighth Circuit, however, that § 1346 must be read against

a backdrop of the mail and wire fraud statutes, thereby requiring fraudulent intent and a

showing of materiality.3 Jain, 93 F.3d at 442; see also Sawyer, 85 F.3d at 725, 729. We


       3
              See United States v. Gray, 96 F.3d 769, 774-75 (5th Cir. 1996) (citing
United States v. Ballard, 663 F.2d 534, 540-42 (5th Cir. 1981), modified on reh’g, 680
F.2d 352 (5th Cir. 1982)). Although materiality is not an independent element of a wire

                                            - 16 -
acknowledge that where actual harm exists as a natural and probable result of a scheme,

fraudulent intent may be inferred. D’Amato, 39 F.3d at 1257. But we agree that in the

absence of actual or potential harm, evidence independent of the alleged scheme must be

adduced to show fraudulent intent towards the alleged victims. Jain, 93 F.3d at 442;

D”Amato, 39 F.3d at 1257.

       Because the SSM refunding issue was yield restricted, the $100,000 payment from

Sakura to Stifel could not have been paid to or on behalf of SSM without jeopardizing the

tax-exempt status of the bonds. Indeed, an SSM administrator was upset to find out that



fraud prosecution, “there is a materiality aspect to the determination whether the acts of
an accused give rise to a scheme to defraud,” that “is appropriately submitted to the jury
as one component of the larger factual question as to the existence of fraud and a scheme
to defraud.” United States v. Daily, 921 F.2d 994, 1006 (10th Cir. 1990), cert. denied,
502 U.S. 952 (1991). See also Aplt. App. 153-54 (jury instruction on wire fraud). A
misrepresentation is material if it has a natural tendency to influence or is capable of
influencing the decision maker. See United States v. Gaudin, 115 S.Ct. 2310, 2313
(1995); Kungys v. United States, 485 U.S. 759, 770 (1988); Daily, 921 F.2d at 1003 n.9;
United States v. Haddock, 956 F.2d 1534, 1550 (10th Cir.), cert. denied, 506 U.S. 828
(1992), abrogated, United States v. Wells, 117 S. Ct. 921 (1997); United States v. Halbert,
712 F.2d 388, 390 (9th Cir. 1983), cert. denied, 465 U.S. 1005 (1984).

       United States v. Wells, holding that materiality of the falsehood is not an element
of the crime of making a false statement to a federally insured bank under 18 U.S.C.
§ 1014, is not to the contrary. In Wells, the Court concluded that the term “false
statement” contained in the statute carried no common law meaning requiring materiality.
Id., 117, S.Ct. at   ; 1997 WL 78052, *6. However, fraud has always required that
misrepresentations or omissions be material to be actionable. See BMW of North
America, Inc. v. Gore, 116 S. Ct. 1589, 1600-01 (1996); United States v. Carpenter, 95
F.3d 773, 778 (9th Cir. 1996) (Ferguson, J., dissenting) (“In all fraud cases (civil and
criminal) only one kind of misrepresentation matters--a material representation. . . .
Quite simply, not all lies support liability.”), cert. denied, 1997 WL 47820.


                                          - 17 -
SSM could not share in a $1 million profit on the reinvestment phase of the transaction

because of the yield restriction. Tr. 2523-27. Thus, the government does not argue that

SSM was deprived of the additional fee. Rather, “the sole theory presented to the jury on

the SSM transaction was the right to honest services breached by defendant’s conduct in

failing to disclose the secret Stifel fee through the false broker certification and through

the ‘corrected’ billing to the Mercer County transaction.” Aplee. Br. at 23 n.14.

       Stifel completed a broker’s certificate that represented that no payments would be

made by SGC to or for the benefit of SSM, and that no payments would be made by or on

behalf of SGC to any other person.4 Concerning the latter representation, Stiffel failed to

disclose a subsequent $100,000 fee from SGC to Stifel. The government urges that the

representation and the failure to disclose carried with it the potential for harm because the

fee could have jeopardized the tax exempt status of the bonds by increasing the yield.

Although Illinois bond counsel testified generally that he relied upon the certifications by

              4
                     The certification provided:

              8.     To the best of my knowledge, no payments will be
              made by or on behalf of SGC to or for the benefit of SSMHC,
              other than as specified in the forward supply agreements
              being provided by SGC.

              9.     Except as provided in paragraph 8, to the best of the
              Broker’s knowledge, no payments will be made by or on
              behalf of SGC to any person.

Aplt. App. 4131. To the extent the government has argued that representation number 8
was violated, the testimony is completely to the contrary.


                                            - 18 -
Stifel and SGC, id. at 2462, 2468, he also testified that additional payments by SGC could

violate the arbitrage restrictions only if they were to or for the benefit of SSM.5 Id. at

2466. According to some testimony, whether a fee generated on reinvestment proceeds

was part of the yield was a question on which lawyers disagreed. Tr. 1028. Even

assuming it was, there simply was no testimony indicating that a fee paid by SGC directly

to Stifel for services rendered to SGC might somehow be considered as paid “to or for the

benefit of SSM” for IRS aggregation of yield purposes, let alone testimony explaining


       5
               Q:    Why is it important to know about the fees?

               A:    Well, it’s important to know about the fees
                     because our view of the arbitrage regulations is
                     that if there are fees that are paid for the benefit
                     of SSM, even though they’re not paid as
                     consideration to SSM, but there are fees that are
                     paid by Sakura Global Capital, they could be
                     treated as being paid to SSM, in which case it
                     would increase the amount that we treat as them
                     [SSM] receiving from this forward supply
                     agreement.

                     For example, I mean, if Sakura Global Capital said, “We’re going to
                     pay $10,000 for your salaries or your overhead and we’re going to
                     give you $400,000 as consideration for this right to reinvest under
                     the forward supply agreement, we would say they [SSM] really
                     received $410,000, even though the forward supply agreement says
                     that they only got $400,000.

               Q:    So the fees might be attributed to the issuer?

               A:    Be attributed to the issuer because they benefit the issuer.

Tr. 2460-61.

                                            - 19 -
how this could be so. In fact, bond counsel on redirect expressly declined to express an

opinion on whether any payments were made which would contradict his certification of

tax status of the issue. Tr. 2478.

       We are mindful that a scheme need not be completed to constitute wire fraud,

United States v. Stewart, 872 F.2d 957, 960 (10th Cir. 1989), so the government was not

required to prove that the tax exempt status of the interest was actually revoked. That

said, our responsibity to construe the evidence and its inferences in the light most

favorable to the government does not allow us to supply missing evidence on complicated

tax questions. We cannot rely on the government’s broad statement in its brief that all

investment agreement fees were attributable to the issuers as a benefit, Aplee. Br. at 27,

when it is not supported by the testimony and ignores the careful distinction made by

bond counsel that the payments must be “to or for the benefit” of the issuer. No evidence

indicates that the representation that no payments will be made by SGC “to or for the

benefit of SSM” was breached. Though Stifel misrepresented that SGC would not pay an

additional fee to Stifel for the forward supply contract, this information resulted in no

actual or potential harm to SSM. Nor did Stifel’s instructions to SGC to bill its fee to the

Mercer County account. No evidence independent of the alleged scheme suggests in any

way that Mr. Cochran sought to harm SSM or its bondholders. See Sawyer, 85 F.3d at

725 (Although a public official may engage in reprehensible conduct related to his office,

“the conviction of that official for honest-services fraud cannot stand where the conduct


                                            - 20 -
does not actually deprive the public of its right to her honest services, and it is not shown

to intend that result.”). Moreover, we know not from this record how SSM would have

changed its conduct had the disclosure been made. See Gray, 96 F.3d at 774-75. Thus,

the wire fraud counts concerning the SSM transaction cannot stand.

       Having determined that the wire fraud counts attributable to the OCAT and SSM

transactions cannot stand for want of proof of criminal fraud, the remaining counts of

conviction must be reversed. See Brown, 79 F.3d at 1562.

       REVERSED.




                                            - 21 -
