In the
United States Court of Appeals
For the Seventh Circuit

No. 99-2154

Harold Shasteen, James Shasteen
and Dan Shasteen,

Petitioners-Appellants,

v.

Howard W. Saver, Director of Southern
Illinois Community Correctional Center,

Respondent-Appellee.

Appeal from the United States District Court
for the Southern District of Illinois, East St. Louis Division.
No. 95 C 216--Gerald B. Cohn, Magistrate Judge.

Argued April 12, 2001--Decided June 5, 2001



  Before Flaum, Chief Judge, and Manion and
Kanne, Circuit Judges.

  Flaum, Chief Judge. On March 10, 1995,
the Shasteens filed a petition for a writ
of habeas corpus, pursuant to 28 U.S.C.
sec. 2254, asserting various claims. The
district court denied all of these, but
issued a certificate of appealability
with regard to their prosecutorial
misconduct claim. For the reasons stated
herein, we affirm.

Background

  The Shasteens owned and operated a
buyers’ club known as the Peoples $avings
Service. The premise of a buyers’ club is
that it provides members, who pay a fee
to join the club, the opportunity to
purchase merchandise at a substantially
lower price than they would pay
retailers, and the club generates profits
from the sale of new memberships or the
renewal of existing memberships. When the
Shasteens opened their buyers’ club in
the mid-1970’s, people purchasing
membership contracts often would finance
the fees through local banks. In the
early 1980’s, the banks would no longer
supply capital for new memberships and so
the Shasteens established a separate
company to fund membership contracts. To
raise the necessary capital to finance
the membership contracts, the Shasteens
began offering promissory notes for sale
at interest rates higher than the rates
for certificates of deposit.

  On April 5, 1990, the Secretary of
State’s Office served Dan Shasteen with
an order to cease and desist the sale of
unregistered securities. The State
indicted the Shasteens on various counts,
relating to securities fraud and theft by
deception. After a jury trial before the
Circuit Court of Williamson County, Dan,
James, and Harold/1 were convicted of:
(1) conspiracy to commit securities fraud
in violation of 720 ILCS 5/8-2(a) and (2)
securities fraud in violation of 815 ILCS
5/12(G). Dan was convicted of a second
count of securities fraud in violation of
815 ILCS 5/12(I). The trial court vacated
the defendants’ conspiracy convictions.
James and Harold were sentenced on the
basis of the securities fraud conviction
and Dan was sentenced concurrently on his
two securities fraud convictions. Dan,
James, and Harold were sentenced to 10
years in the Department of Corrections.

  The Shasteens, unhappy with the outcome
of their case, appealed unsuccessfully to
the state courts (Illinois Appellate
Court and the Supreme Court of Illinois).
Having exhausted their options at the
state level, the Shasteens began the
process at the federal level by filing a
petition for writ of habeas corpus in
district court on March 10, 1995. The
magistrate judge denied the Shasteens’
petition for writ of habeas corpus, and
denied the Shasteens’ motion to alter or
amend the judgment. The magistrate judge
granted the Shasteens’ motion for
certificate of appealability with regard
to their prosecutorial misconduct claim,
stating that he found that "the
Petitioners have made a substantial
showing of the denial of a federal right;
the Court finds that the issue raised
concerning whether the State
intentionally, knowingly, or recklessly
used false testimony is debatable among
reasonable jurists and that a court could
resolve the issue differently [than] this
Court did."

  It is necessary to review some of what
occurred at trial to understand the
question we must confront on appeal.
During the trial, the State presented a
variety of evidence to prove that the
Shasteens committed theft by deception
and securities fraud. Steve Kirk, a
senior auditor with the Secretary of
State’s Office, Enforcement Division,
testified that the Shasteens were
involved in a Ponzi scheme, whereby they
would take money from new investors to
pay off previous investors. John Paul
Schmerbauch, also testified as an expert
witness for the State. He examined the
Shasteens’ business tax returns and noted
that the Shasteens continued to sell
notes during the mid-1980’s, after their
business showed a loss. Although
Schmerbauch acknowledged that a business
may have a negative value, according to
the Illinois Appellate Court,
"Schmerbauch opined that it was possible,
but it would be extremely difficult, to
turn this business around." Several
former employees testified about the
nature of the Shasteens’ business,
including Marsha Bartlett, who said that
she was instructed to show investors who
asked for a financial statement a balance
sheet indicating one dollar of assets for
each one dollar of liability. Candace
McCurdy, who occupied Bartlett’s position
after she left, testified that she knew
the Shasteens’ business was not making
money, but she still showed potential
investors an even balance sheet. Eight
noteholders testified, some of whom said
that they knew that the notes were not
insured and were not concerned about the
financial condition of the buyers’ club
because they simply desired the high
rates the Shasteens were offering them.
However, other noteholders were not aware
of the company’s poor financial
condition. Several investors testified
that they were told that the business was
extremely successful or it had enough
money to cover all of the investments.
The Shasteens never informed any investor
that the business was losing hundreds of
thousands of dollars per year. The last
noteholders called by the State were
Edgar and Delphine Misselhorn who
testified that they purchased $18,000
worth of notes from Dan on April 6, 1990,
which was one day after the cease and
desist order was issued.

  The State’s theory was that the
Shasteens were operating a Ponzi scheme
to defraud investors. The Shasteens
contended that they were running a viable
business and that they were doing all
that they could to make it successful.
The Shasteens argued that there was no
evidence that they missed an interest
payment or that noteholders were ever
refused their money when they asked to
redeem their notes. They presented other
evidence as well to prove that their
company was not a sham. Thus, the
Shasteens advanced that because they
believed that they were running a
legitimate business, they lacked the mens
rea to commit fraud. According to the
Shasteens, "the State used the testimony
of Edgar and Delphine Misselhorn[,] who
stated under oath that they purchased a
note on April 6, 1990, one day after the
issuance of the Cease and Desist Order
[to highlight] the Shasteens’ purported
violation of the Order[,] as the key
evidence of the Shasteen[s’] criminal
intent, or mens rea and timed the
presentation of the Misselhorns’
testimony to achieve the maximum possible
impact on the jury." They argue that the
"prosecutor did this despite overwhelming
evidence (of which he was aware both
before and during the trial) that the
testimony was false." Our task on appeal
is to determine whether the prosecutor
knowingly used false testimony.

Discussion

Prosecutorial Misconduct

  A federal court may grant a writ of
habeas corpus when a person is held in
custody under a state court judgment in
violation of the United States
Constitution. See Lowery v. Anderson, 225
F.3d 833, 838-39 (7th Cir. 2000). The
Antiterrorism and Effective Death Penalty
Act of 1996 ("AEDPA"), does not apply to
noncapital cases when the petitioner
files a writ of habeas corpus prior to
the Act’s effective date. See Everett v.
Barnett, 162 F.3d 498, 500 (7th Cir.
1998) (citing Lindh v. Murphy, 521 U.S.
320 (1997)). The Shasteens filed their
petition on March 10, 1995, well before
the effective date of AEDPA, so our
review is plenary. See Lowery, 225 F.3d
at 839. Keeping in mind pre-AEDPA
standards, we presume that factual issues
that the state trial or appellate courts
have decided are correct, see Rodriguez
v. Peters, 63 F.3d 546, 554 (7th Cir.
1995), while questions of law or mixed
questions of law and fact considered by
state courts we examine under a de novo
standard, see Lowery, 225 F.3d at 839.
With regard to the district court’s
decision to grant or deny a writ of
habeas corpus, we review the court’s
findings of fact under a clearly
erroneous standard, see Kavanagh v.
Berge, 73 F.3d 733, 735 (7th Cir. 1996),
and questions of law de novo, see
Lieberman v. Washington, 128 F.3d 1085,
1091 (7th Cir. 1997).

  We now turn to the Shasteens’
prosecutorial misconduct claim. "The
Supreme Court has clearly established
that a prosecutor’s knowing use of
perjured testimony violates the Due
Process Clause." Schaff v. Snyder, 190
F.3d 513, 530 (7th Cir. 1999). When the
defendant argues that the government
allegedly used perjured testimony, to
warrant setting the verdict aside and
ordering a new trial, the defendant must
establish that: (1) the prosecution’s
case included perjured testimony; (2) the
prosecution knew or should have known of
the perjury; and (3) there is a
reasonable likelihood that the false
testimony could have affected the
judgment of the jury. See United States
v. Saadeh, 61 F.3d 510, 523 (7th Cir.
1995); United States v. Verser, 916 F.2d
1268, 1271 (7th Cir. 1990). "Mere
inconsistencies in testimony by
government witnesses do not establish the
government’s knowing use of false
testimony." Verser, 916 F.2d at 1271
(internal citations and quotation marks
omitted). "[T]he alleged perjured
testimony must bear a direct relationship
to the defendant’s guilt or innocence."
United States v. Adcox, 19 F.3d 290, 295
(7th Cir. 1994). We must determine, when
the defendant alleges that the
prosecution used perjured testimony,
whether the defendant had an adequate
opportunity to expose the alleged perjury
on cross-examination. See Saadeh, 61 F.3d
at 523. A defendant need not prove beyond
a reasonable doubt that the
witness’stestimony was "knowingly false
(and hence perjury)." United States v.
Boyd, 55 F.3d 239, 243 (7th Cir. 1995).
In fact, "[t]he wrong of knowing use by
prosecutors of perjured testimony is
different, and misnamed--it is knowing
use of false testimony. It is enough that
the jury was likely to understand the
witness to have said something that was,
as the prosecution knew, false." Id. As
a consequence, we do not employ the term
of perjury in a technical, legal sense in
these types of cases, but rather as a
term of art that describes the knowing
use of false testimony.

  The Shasteens maintain that Charles
Garnati, the State’s Attorney of
Williamson County who prosecuted their
case, knowingly used the perjured
testimony of Edgar and Delphine
Misselhorn to bring about their
convictions. The Illinois trial court
held an evidentiary hearing on this
matter after the jury convicted the
defendants. Both the trial court and the
Illinois Appellate Court denied the
Shasteens’ request for a reversal in
their case. As previously noted, during
the Shasteens’ trial, the Misselhorns
testified last and said that they
purchased $18,000 worth of notes from Dan
Shasteen on April 6, 1990, which was one
day after the Secretary of State’s Office
issued the cease and desist order.
According to the Shasteens, the
Misselhorns’ testimony revealed that they
violated the cease and desist order and
thus showed that they had the requisite
mens rea or criminal intent to defraud
the purchasers of the notes.

  The Shasteens and the State agree that
the first time the issue of whether the
Misselhorns postdated the note arose was
during the testimony of Candace McCurdy,
who was an employee in charge of the
ledger prior to the State’s seizure of
it. As it turns out, the State had in its
possession the ledger in which the
defendants recorded the notes that they
sold. The ledger revealed that the
original promissory note issued to
Delphine Misselhorn was number 6420 and
was dated April 6, 1990. The defendants,
however, retained a copy of the note and
it contained a notation that stated that
the note was postdated. The notes
preceding and following note 6420 were
issued on March 23, 1990 and the last
note sold was number 6422 and was dated
April 3, 1990. The Shasteens argue that
Garnati knowingly used perjured testimony
because he had in his possession the
ledgers that revealed the note that the
Misselhorns purchased was postdated and
he had an obligation to look at those
records. After McCurdy’s testimony, when
Garnati began to wonder if the note was
postdated, he contacted the Misselhorns
to verify the note was not postdated.
Mrs. Misselhorn said that she had
verified the date by examining her
husband’s checkbook, but Garnati never
asked her to inspect either the checkbook
or a copy of the check itself. In a
deposition taken over five years after
she had been removed from the case,
Assistant Attorney General Barbara
Stackler claimed that she and Garnati
interviewed the Misselhorns for two
hours. Stackler recalls having told
Garnati, "Chuck, you can’t use these
people. I said they’re going to perjure
themselves. They’re trying to avoid the
truth and even though their testimony,
their perjured testimony, will benefit
the prosecution, you can’t use them. I
said I won’t allow it." The Shasteens
assert that Garnati had the opportunity
to learn that the Misselhorns’ testimony
was false and Stackler warned him that
this was the case, therefore he knew or
should have known that the Misselhorns’
testimony was false. They argue that once
this became clear, Garnati should have
moved to withdraw or have stricken the
Misselhorns’ testimony.

  The Shasteens further argue that there
is a reasonable likelihood that the false
testimony could have affected the
judgment of the jury. Garnati placed a
great deal of emphasis upon the
Misselhorns’ testimony, as seen by the
fact that during his opening statement,
he told the jury that the Misselhorns’
testimony would prove that the defendants
were not "just good honest people who
made some bad business judgment[s]." The
Shasteens contend that via the
Misselhorns’ testimony, the prosecutor
intended to show that they were
individuals who acted in defiance of the
Secretary of State’s cease and desist
order and sold the note to the
Misselhorns without informing them that
they should no longer sell notes.
Further, the Misselhorns testified last
and the Shasteens claim that the
transcript/2 of the trial reveals that
Garnati relied upon the Shasteens’
testimony during his closing rebuttal
argument. The Shasteens assert that the
State used the Misselhorns’ testimony to
prove that the Shasteens possessed the
criminal intent to intentionally defraud
purchasers by selling notes when they
knew that the company would never
generate a profit. The Shasteens received
the maximum sentence possible and have
fully served their terms of imprisonment.
Therefore, they do not seek a new trial,
which is the kind of relief ordinarily
requested when there has been a knowing
use of false evidence. Instead, the
Shasteens seek expungement of their
criminal records and the attorney’s fees
that they incurred while prosecuting the
habeas case and the direct appeals in
state court.

  The Shasteens’ arguments are not
convincing. The State conceded during
oral argument that there is really
nodispute that the Misselhorns were
incorrect when they testified that they
wrote the check for the note on April 6,
1990. The Misselhorns at trial testified
that they purchased the note on April 6,
1990, sometime after noon. However, as
the Illinois Appellate Court concluded,
"Ultimately, it became clear that the
note could not have been purchased on
April 6 because Mrs. Misselhorn’s
employment records indicate she was
working on that date. Also, her
[husband’s] checkbook showed that the
check dated April 6, 1990, was written
prior to that date." Nevertheless, the
State maintains that Garnati did not
knowingly use perjured testimony. During
the evidentiary hearing several facts
came to light. Garnati testified that
after McCurdy’s testimony, he became
aware that note number 6420 may have been
postdated. Although Garnati admitted that
he had possession of the ledger in which
the defendants recorded the notes that
they sold, he testified he did not review
the ledger after McCurdy’s testimony.
Instead, Garnati called the Misselhorns
and inquired as to whether the note was
postdated. Mrs. Misselhorn assured
Garnati that she purchased the note on
April 6 because she checked her records.
She did, however, inform Garnati that she
may have told the defense attorney that
she postdated the check, but upon further
review, she believed that the note was
purchased on April 6. Garnati told the
Misselhorns that it was important for
them to the tell the truth to the best of
their recollection.

  Stackler’s account of what transpired
between herself and Garnati is somewhat
problematic; however, it must be
considered within the proper context.
Stackler signed a post-trial affidavit
dated May 19, 1992, in which she stated,
"During my interview with the
Misselhorns, it became apparent to me
that they were confus[ed] and unable to
remember clearly or consistently the
events of two years ago. As a result, I
had some concern about calling the
Misselhorns as witnesses [at] trial. I
expressed that concern to Charles
Garnati." At the evidentiary hearing,
Garnati said he did not recall having a
conversation with Stackler about her
concerns regarding the Misselhorns’
testimony. Five years later, in a
deposition, Stackler contends that she
told Garnati that she believed the
Misselhorns were "going to perjure
themselves." The magistrate judge,
however, said that "in a memorandum
[which Stackler wrote a little more than
a week after her removal from the case]
regarding her removal from the Shasteen
case, nowhere does she mention any
concerns about the Misselhorns’
testimony." In her memorandum, she made
no mention of her concerns regarding the
testimony of the Misselhorns or her
belief that they would perjure
themselves. In an affidavit after trial,
she spoke of her concerns regarding the
Misselhorns’ testimony, but did not
specifically question whether they
purchased the note on April 6. Over five
years later, in a deposition, is when
Stackler stated that she informed Garnati
that she believed the Misselhorns were
going to commit perjury. Stackler’s story
is inconsistent and therefore cannot be
relied upon to show that Garnati
knowingly used perjured testimony,
especially since he stated he did not
remember talking with Stackler about the
concerns she had with regard to the
Misselhorns’ testimony. Therefore, the
district court’s finding was not clearly
erroneous.

  When one contemplates the circumstances
of this case, it is difficult to find
misconduct in connection with Garnati’s
actions. As the State noted at oral
argument, the Shasteen case was a large
prosecution that spanned a nine-year-
period, involved many noteholders, almost
5 million dollars, and the State’s
attorney was inexperienced in this type
of prosecution. The case simply involved
a long trial and a large number of
exhibits. The Illinois State Appellate
Court remarked, "It is easy to second-
guess the prosecutor now that all the
facts are disclosed. At the time,
however, the prosecutor was shown a copy
of the note dated April 6 and was told by
a confident Mrs. Misselhorn that she and
her husband in fact purchased the note on
April 6." The Shasteens also had adequate
opportunity to expose the alleged perjury
on cross-examination. According to the
Illinois Appellate Court, "once the
inconsistencies were pointed out, the
State produced the records necessary to
discredit the Misselhorns’ testimony."
The Illinois Appellate Court noted, "The
jury was apprised of the fact the notes
were purchased prior to April 6. As the
trial court pointed out, defense counsel
did an outstanding job of drawing out the
inconsistencies between the Misselhorns’
testimony and the evidence shown by bank
records, the notation on defendants’ copy
of the note, and the other witnesses’
testimony that the note was indeed
postdated. At the hearing, defense
counsel asserted: ’we brought out
evidence that proved what they said could
not be true.’" The Shasteens acknowledge
that during the trial, they were able to
argue that money was deposited in the
Misselhorns’ checking account on April 5
and the check the Misselhorns’ wrote for
the note cleared on April 6; thus, this
evidence suggests that the check written
for the note was issued before April 6.
While we recognize that it would have
been preferable if Garnati had checked
the ledger and not relied solely on the
Misselhorns’ representations concerning
the date of the note, we cannot say that
his behavior resulted in a knowing use of
perjured testimony. This is especially
the case since the Shasteens were able
during the trial to show that the
Misselhorns did not purchase the note on
April 6. Therefore, the Shasteens had
ample opportunity to expose the alleged
perjury, thus minimizing its impact. See
Saadeh, 61 F.3d at 523-24. Therefore, we
affirm the district court’s decision to
deny the Shasteens a writ of habeas
corpus.

Conclusion

  For the reasons stated herein, we AFFIRM
the decision of the district court.

FOOTNOTES

/1 The magistrate judge determined that "[s]ince the
filing of this Petition, Harold Shasteen has
passed away and is no longer being considered for
habeas corpus relief due to his death." In an
order, we agreed with the magistrate judge that
Harold Shasteen’s claim was moot, referencing
McClendon v. Trigg, 79 F.3d 557 (7th Cir. 1996).
The Shasteens would like us to reconsider our
position on this matter, despite the fact that
this issue was not certified for appeal. We
decline to revisit our decision on this issue and
therefore find that Harold Shasteen is no longer
a part of this action.

/2 Although not certified as an issue for appeal,
the Shasteens ask for review of the magistrate
judge’s decision to deny them the right to sup-
plement the record. The Shasteens contend that
the transcript of their trial was omitted from
the record because the Illinois courts lost said
document. However, after the magistrate judge
denied their writ of habeas corpus, the Shasteens
found their own copy of the trial transcript and
petitioned the magistrate judge to supplement the
record with it. The Shasteens wanted the magis-
trate judge to correct the error stemming from
the loss of the record; however, the magistrate
judge denied the Shasteens’ request, even though
he was aware that the record apparently could not
be located prior to his decision. Relying upon
Federal Rules of Appellate Procedure 10(e)(2)(C)
and 10(e)(3), the Shasteens urge that we should
supplement the record of our own accord. The
difficulty with the Shasteens’ position is that
"[t]he purpose of Rule 10(e) is to ensure that
the court on appeal has a complete record of the
proceedings leading to the ruling appealed from,
not to facilitate collateral attacks on the
verdict. Rule 10(e) does not give this court
authority to admit on appeal any document which
was not made a part of the record in the district
court." United States v. Hillsberg, 812 F.2d 328,
336 (7th Cir. 1987) (internal citations and
quotation marks omitted). At this point, the
trial transcript would not further aid us because
there was extensive discussion of what occurred
at trial by the Illinois Appellate Court, the
magistrate judge did not rely upon it, and the
Shasteens do not specifically explain why the
trial transcript would further assist us in
resolving the current issue on appeal. For all of
these reasons, we deny the Shasteens’ request to
supplement the record.
