Wake Forest Law Review

By Evelyn Norton

Today, in an unpublished per curiam opinion, United States v. Hartsoe, the Fourth Circuit affirmed the decision of the U.S. District Court for the District of South Carolina convicting Jerry Elmo Hartsoe of mail fraud and making false statements.

Hartsoe Argued His Statements Were Improperly Admitted into Evidence

In the District Court, the jury convicted Hartsoe of eight counts of mail fraud and one count of making false statements.

On appeal, Hartsoe argued that the Fourth Circuit should vacate the District Court’s decision.  Hartsoe alleged that the District Court improperly allowed into evidence statements Hartsoe made before law enforcement read Hartsoe his Miranda Rights.

Miranda Warnings are Not Required if the Suspect is Not in Custody

Citing Miranda v. Arizona, the Fourth Circuit stated that Miranda warnings are indisputably required when a suspect is interrogated while in custody.  For Miranda purposes, a suspect is “in custody” when the suspect’s freedom of action is curtailed to a degree associated with formal arrest.  Thus, a reasonable person in the suspect’s position would believe he was “in custody.”

Hartsoe Was Not In Custody

Here, however, the Fourth Circuit determined that Hartsoe’s presence was voluntary.  When Hartsoe first arrived to the scene, law enforcement asked Hartsoe to leave.  Hartsoe’s testimony indicated he was not intimidated, but was aggressive and demanding at the scene.  Later, law enforcement told Hartsoe that he was not under arrest and was free to leave.  As a result, the Fourth Circuit found it unlikely that a reasonable person in Hartsoe’s position would have believed himself to be in custody.  Thus, no Miranda warnings were required and Hartsoe’s statements were properly admitted into evidence.

Court of Appeals for the Fourth Circuit Affirmed

The Fourth Circuit Affirmed Hartsoe’s convictions, finding the District Court did not err in allowing Hartsoe’s statements into evidence.


By: Michael Klotz

              Today, in United States v. Graves, the 4th Circuit affirmed the conviction of John Robert Graves, a former F.B.I. employee who—along with his wife—ran a sophisticated investment scheme that he used to defraud mostly elderly investors. Mr. Graves raised three issues on appeal. First, he claimed that his conviction for making false statements was contrary to law because some of the questions posed during his interrogation, and some of his answers, were ambiguous. Second, he disputed his convictions under the Investment Advisers Act because he claimed that during the relevant period he was working as a broker-dealer and not an investment adviser. Finally, Mr. Graves disputed the finding of fact that his scheme involved “sophisticated means,” and thus argued that he should not have been subject to a sentence enhancement. The Fourth Circuit affirmed each of these convictions.

Mr. Graves made False Statements

            First, Mr. Graves argued on appeal that the government had not established that he made one or more “materially false, fictitious, or fraudulent statement[s] or representation[s]” in violation of 18 U.S.C. §1001(a). To support this argument, Mr. Graves pointed to isolated evidence from his interrogation. For instance, when a government agent asked him—“And that’s where the $150,000 went, came from to go to [victim]?.” Mr. Graves responded: “I guess.” Mr. Graves claimed that this question was ambiguous as was his answer, and thus he had not made an affirmatively false statement. The Fourth Circuit observed that this was the “slightest snippet” from a larger conversation that Mr. Graves surreptitiously recorded and then played to the jury during his trial. The recording included other unambiguously false statements by Mr. Graves, and thus the jury had a reasonable basis to conclude that he had made false statements in violation of §1001(a).

Mr. Graves was acting as an Investment Adviser

            Second, Mr. Graves argued that his conviction under the Investment Advisers Act, 15 U.S.C. § 80b-6, was improper because he was employed as a broker-dealer and not an investment adviser during the relevant time period. As a professional matter, Mr. Graves was registered as an investment adviser, and the court observed that he provided “investment advice for a fee to his victims to prompt them to invest in his and his wife’s companies.” Even if the statutory understanding of the term “investment adviser” differed from what was required to be registered in this profession, the court noted that Mr. Graves stipulated at trial that between 2006 and 2010 he “was an Investment Adviser” as that term is intended under 15 U.S.C. § 80b-6. Thus, as a matter of law Mr. Graves acted as an investment adviser under § 80b-6.

Mr. Graves used “sophisticated means” to defraud his victims

           Finally, Mr. Graves disputed that he should be subject to a sentence enhancement under U.S.S.G. § 2B1.1(b)(10), which punishes fraudulent schemes using “sophisticated means.” This sentence enhancement is intended to apply to “especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense.” Mr. Graves claimed that his conduct was not sufficiently complex to receive this punishment. The Fourth Circuit observed that the district court had “ample basis” for concluding that his conduct involved sophisticated means, given that Mr. Graves and his wife engaged in a “veritable shell game” routinely “transfer[ing] funds multiple times through multiple accounts, in one case channeling [a victim’s] money through four accounts in a matter of days.” As a result, there was sufficient evidence for a sentence enhancement in a fraud involving “sophisticated means.”