United States v. Lyon, 2018 U.S. App. LEXIS 29046 (4th Cir. Oct. 16, 2018)
A jury convicted brothers Dennis Joe Lyon and Daniel Frank Lyon, Jr. of counts related to a scheme in which they provided worthless surety bonds to obtain a construction contract from the United States Department of Veterans Affairs (“VA”). Dennis Lyon was convicted of conspiracy to defraud the United States, 14 counts of major fraud against the United States by obtaining money under false pretenses, and 3 counts of wire fraud. The court sentenced Dennis Lyon to 10 years imprisonment, followed by 3 years of supervised release, and ordered $4,030,577.42 in restitution. Daniel Lyon was convicted of 13 counts of major fraud against the United States by obtaining money under false pretenses. The court sentenced Daniel Lyon to 4 years imprisonment, followed by 3 years supervised release, and ordered $3,707,985.87 in restitution. The Lyons appealed, challenging the court’s admission of evidence regarding two prior surety fraud schemes and the sufficiency of the evidence to support their convictions.
The Fourth Circuit Court of Appeals affirmed the district court. The district court did not abuse its discretion in admitting at trial evidence concerning the prior fraud schemes because they were relevant in that they showed the Lyons’ modus operandi and probative in that it rebutted the Lyons’ claim that their codefendants orchestrated the fraud scheme instead of them. Even without the evidence of prior fraud schemes, the evidence presented at trial was sufficient to allow the jury to conclude that: (i) Dennis Lyon recruited his codefendants and directed them to prepare the worthless bonds, affidavits of surety, and escrow recipients; (ii) Daniel Lyon coconspirators informed him of the problems at the construction site, which allowed for the jury to infer that Daniel Frank intentionally provided incorrect contact information in connection with the contract compliance paperwork to avoid responsibility for the problems; and (iii) Daniel Lyon made fraudulent certifications that the project was proceeding according to contract specifications, particularly in light of the fraudulent bonds supporting the project bid. The district court did not err in applying a four-level sentencing enhancement to Dennis Lyon because the evidence established that Dennis Lyon ran the bond company central to the fraud scheme and that he assigned specific roles to his employees in relation to the scheme (i.e. he acted as the ring leader). The district court did not err in determining that the loss amount of over $3.7 million attributable to Daniel Lyon because the district court based its loss determination on the cost of the replacement contract less the amount that remained on the original contract, reflecting the reality that the VA had to hire a new contractor to finish the work after the Lyons’ contractor defaulted by not carrying the required liability insurance and the project’s surety bonds were found to be worthless.