Disbarrment is the appropriate discipline for attorney convicted of money laundering who also had extensive record of prior discipline.
Heard, considered, and decided by the court en banc.
Attorney, Registration No. 80408
Louis B. Oberhauser, Jr., an attorney licensed to practice in Minnesota, was convicted in United States District Court of two counts of felony money laundering. Following the Eighth Circuit's review on appeal and the district court's subsequent imposition of sentence, the Director of the Office of Lawyers Professional Responsibility petitioned for disbarrment. A referee found that Oberhauser's conduct violated Minnesota Rules of Professional Conduct 8.4(b) and (c) and recommended disbarrment. Oberhauser does not dispute that his conduct violated the rules, but argues that the disciplinary sanction for his misconduct should be less than the recommended disbarrment or the alternative possibility of indefinite suspension. Following a thorough review of the record, we conclude that the appropriate sanction for Oberhauser's misconduct is disbarrment.
In January 1996, Louis B. Oberhauser, Jr., an attorney duly licensed to practice law in the state of Minnesota, became acquainted with Richard Gravatt and Joe King. Following a meeting, Oberhauser agreed to Gravatt and King's request that Oberhauser's law office be the disbursing agent for their investment business. Oberhauser also agreed to represent Gravatt and King in several real estate transactions. Oberhauser eventually helped Gravatt and King incorporate an entity named "K-7," through which the two men conducted their investment business. In addition, at the request of Gravatt and King, Oberhauser opened an additional trust account*fn1 at a larger bank than the one where his firm's existing trust account was held. He did this in order to accommodate K-7's international money market activities. Oberhauser used this additional trust account exclusively for K-7 transactions.
Gravatt and King subsequently asked Oberhauser to run an investment trading program. The program was described by the United States Court of Appeals for the Eighth Circuit as follows:
[the] trading program was a "roll program" in which the company would supposedly trade $100 million in treasuries making a small percentage on every trade, which through a multiplication factor would yield a large income. Gravatt said the Treasury bills could not be leased until the company had $5.5 million in investment money. According to cash investment sheets provided to investors, the $5.5 million total investment would be used to lease $100,000,000 in Treasury bills, and trades on those bills would yield $2,000,000 per trade and $900,000 per trade to investors, with a weekly amount to investors of $3,600,000. Rental fees of $13,750,000 and a set up fee of $3,000,000 would be paid. For a participant investing $50,000 towards the $5.5 million, the total treasury amount would be $909,091, the yield per trade would be $18,182, the yield per trade to [the] investor would be $8[,]182, the weekly amount to the investor would be $28,459, and the net amount to the investor would be $1,166,818. At trial, the Government's expert witness testified the program's claims amounted to a preposterous 2000% return. To make the program attractive to employees and investors, profits from the trading program were to go to the charity ChildHelp.
United States v. Oberhauser, 284 F.3d 827, 830 (8th Cir.), reh'g and reh'g en banc denied, cert. denied, 537 U.S. 1071 (2002). The record does not clearly indicate what specific knowledge Oberhauser had about this program. Oberhauser stated that he told Gravatt and King he would not run the program, but he was willing to act as an escrow agent to receive and distribute the program's funds. Oberhauser drafted an escrow agreement, a letter of authorization to act on behalf of investors, and an agreement of procedures. He began receiving funds from investors into his K-7 trust account, but had no other contact with investors.
According to the Eighth Circuit's review of the evidence submitted at Oberhauser's federal trial, his involvement with K-7 during 1996 took various forms in addition to acting as an escrow agent. In April 1996, Gravatt promised Oberhauser 1% of any deal if Oberhauser helped arrange a standby letter of credit in the amounts of $9, $18, or $27 million. Oberhauser, 284 F.3d at 830. In August 1996, Gravatt and King discussed with Oberhauser the preparation of an employment "termination contract" for a woman hired by K-7 to be Gravatt's girlfriend. Id. at 830-31. That same month, Oberhauser prepared a letter related to K-7's attempt to buy a $10 million office building. Id. at 831. In the fall of 1996, a K-7 employee overheard Gravatt and King discuss that Oberhauser "was going to 'make $20 million on this deal,' and later asking Oberhauser what he was going to do with all those millions." Id. The record shows that Oberhauser redrafted contracts related to a $2.5 million investment by an individual named Gordon Groves. Id. It further shows Oberhauser transferred funds from the K-7 trust account for leasing Treasury bills and transferred the funds directly to K-7. Id. After the Treasury bill lease was settled and Groves released $2.5 million to the K-7 trust account, Oberhauser transferred $2.4 million as a broker's commission to K-7, as well as another $100,000 to K-7. Id.
On August 27, 1996, King contacted Oberhauser and told him that he had made an agreement with a charity named ChildHelp to fund the construction of a gymnasium in Beaumont, California. ChildHelp is a national charity with its main focus in the area of child abuse prevention and treatment.*fn2 King wanted to put $160,000 in escrow until the gymnasium was completed and, as a result, $160,000 from K-7's corporate account, which operated under the name Group Resources, was deposited in the K-7 trust account. On November 25, at the request of ChildHelp, Oberhauser transferred the $160,000 to ChildHelp's bank account in California.
Ultimately, investors in K-7's program lost over $11 million. Oberhauser, 284 F.3d at 829. The federal government indicted Gravatt, King, and four others on 89 counts of criminal conduct, including conspiracy, wire fraud, money laundering, and conducting a continuing financial crime enterprise. Id. On January 6, 2000, Oberhauser was added as a criminal defendant in a superseding indictment. He was charged with 66 counts, including conspiracy, wire fraud, mail fraud, and money laundering. Oberhauser and Gravatt were the only defendants in this matter to plead not guilty and they were tried jointly in federal district court. Id. at 829. At trial, an Internal Revenue Service (IRS) agent testified that the transfer of the $160,000 to ChildHelp was money laundering because it made the money appear to be the proceeds of a successful deal. Id. at 831. Gravatt was found guilty by a jury, convicted on 68 counts, and sentenced to 262 months in federal ...