American Greed: The Eleventh Circuit Analyzes Whether Booze, Babes, and Business Can Tightrope the Line Between Fraud and Deceit.

• Author: Lee, Raymond

1. INTRODUCTION

   South Beach, Miami, is renowned for its beautiful beaches, bikini-clad women, and incredible wealth. (1) Such an environment is ripe for opportunistic businessmen who are anxious to make an easy buck. Enter Albert Takhalov, Isaac Feldman, and Stanislav Pavlenko (the "Defendants"), three Russian immigrants who built a business model aimed precisely at taking advantage of the unique opportunities that South Beach has to offer. (2) By combining seductive women with tourism and alcohol, their profits quickly began to soar. (3) There was only one problem. The crux of their plan involved misleading their patrons. While schemes to profit from unsuspecting customers are hardly a modern concept, at what point does merely deceiving a customer become "taking advantage" of him? And at what point can a legitimate business model morph into a fraudulent criminal enterprise? The gray area in the middle is where the law tends to get murky.

   Fraud itself is not defined anywhere in the federal criminal code. (4) As courts across the country--both state and federal--have helpfully observed,

   "The law does not define fraud; it needs no definition. It is as old as falsehood and as versatile as human ingenuity." (5) But this lack of definition means that the distinction between being defrauded and merely being deceived still presents itself in cases today. In the summer of 2016, the U.S. Court of Appeals for the Eleventh Circuit addressed the shortcomings of fraud in United States v. Takhalov. (6)

   Takhalov is a case about booze, babes, and business practices that could easily be called deceptive. (7) Wealthy Miami tourists were effectively tricked into spending exorbitant sums of money on drinks and caviar in an effort to entertain attractive women whom they believed to be friendly fellow tourists, but were, in reality, employees of bars. (8) The case raises the question of whether all deceit is fraud or whether there is a level at which insidious entrepreneurs can mislead customers without violating federal statutes that prohibit fraudulent practices. (9)

   This Note analyzes the facts and holdings of Takhalov and then delves into the history of statutes that prohibit employees from drinking and/or mingling with patrons, as well as the history of wire fraud. Next, it discusses the importance of not abusing the wire fraud statute so as to maintain a fine line between fraud and deceit. Lastly, this Note contends that the prosecution overstepped its bounds by bringing charges pursuant to the wrong criminal statute and that the correct statute, under which the prosecution should have brought charges, needs to carry tougher penalties.

2. FACTS AND HOLDING

   The Defendants collectively owned and operated a group of bars and nightclubs in South Beach, the most prominent of which was known as Caviar Bar. (10) Early in 2010, the Defendants constructed a plan to capitalize on Miami tourism. (11) They hired a number of young, attractive women, many of whom were foreign, known as "B-girls" (12) to help attract business. (13) The B-girls would work in pairs, scouring local hotels in search of available men. (14) In particular, they would look for "telltale signs of wealth, such as expensive watches or shoes." (15) Once they found their marks, they would approach the men and pose as wholesome tourists in search of company. (16) The women would then proceed to get the men as drunk as possible with the ultimate goal of enticing them to go to Caviar Bar (or one of the Defendants' other clubs) in mind. (17) The men, spurred along by hard drinking and casual conversation and totally unaware of the arrangement between the women and the bar, were often happy to oblige. (18)

   At the Defendants' club, the plan would come full circle. At the encouragement of the B-girls, targets invariably bought bottles of expensive champagne, rounds of excessively priced drinks, and heaps of fine Beluga caviar. (19) As the night continued, the number of drinks the men consumed would accumulate, which would cause their recollection of the evening to blur as their bar tabs began to soar. (20) In total, an estimated ninety men were enticed out of more than $1,300,000 at the encouragement of the B-girls. (21) The most prominent victim, a former on-air meteorologist from Philadelphia, was influenced out of $43,000 over a two-night period. (22)

   The government viewed the Defendants' business enterprise as criminal, claiming the whole operation was nothing more than an unlawful scheme built on a series of lies. (23) In its view, the lies began the moment the girls first introduced themselves to the men (24) and ended with unsuspecting tourists blackout drunk, several thousand dollars poorer, or, in many cases, both. (25) Thus, in an effort to bring the scheme to a halt, a grand jury indicted the Defendants on a combined total of ninety-eight separate charges, including eighty-five counts of wire fraud, (26) four counts of conspiracy to commit wire fraud, (27) four counts of conspiracy to commit money laundering, (28) four counts of visa fraud, (29) and one count of bribery. (30)

   The government argued that the jury could have convicted the Defendants of fraud based simply on the lies the women told the men to lure them into the bar in the first place, regardless of what happened after the men got there. (31) Had the men known the women were actually club employees rather than friendly strangers, they would not have entered the club. (32) In the government's view, any business conducted in the bar took place under false pretenses and amounted to fraud. (33)

   The Defendants' story differed. During the trial, the Defendants freely admitted that they had tricked men into entering their clubs, but they did not believe that what they were doing was illegal. (34) Instead, the Defendants contended that they believed the scheme was "a perfectly legitimate business model." (35) They argued that if all the government could prove was that the men were tricked into entering the bar, then the men were merely deceived but not defrauded. (36) Although the women might have concealed their relationship with the club, once inside the club, the men ordered bottles of alcohol, drank them with their female companions, and were charged a price that they agreed to pay. (37) Thus, in the Defendants' view, none of the men were truly "victims." (38) Instead, they simply "got what they paid for--nothing more, nothing less." (39)

   With that strategy in mind, and fearful that the jury might convict them of wire fraud based solely on their deceptive arrangement with the B-girls, the Defendants asked the trial court to instruct the jurors "that they must acquit if they found that the defendants had tricked the victims into entering a transaction but nevertheless gave the victims exactly what they asked for and charged them exactly what they agreed to pay." (40) The trial court, believing that to be a misstatement of the law, did not allow the instruction. (41)

   Ultimately, a jury from the U.S. District Court for the Southern District of Florida convicted the Defendants on only twenty of the ninety-eight combined counts. (42) However, those twenty counts were enough to result in the Defendants being sentenced to a sum total of more than thirty years imprisonment and being ordered to pay over $90,000 in restitution. (43)

   On appeal, the U.S. Court of Appeals for the Eleventh Circuit reversed and remanded all but a single visa fraud conviction, holding that the trial court abused its judicial discretion in refusing to give an instruction that could have possibly led the jury to reach a different verdict. (44)

3. LEGAL BACKGROUND

   1. B-Girl Statutes

      Hiring girls to encourage men to spend money is a concept that has been around for ages. In America, the earliest evidence of this opportunistic behavior can be traced back at least as far as the 1850s. (45) During that period, women followed men out West, as both were anxious to capitalize on the gold rush. (46) Although ploys such as the "B-girl racket" were forced into a temporary hiatus during prohibition, they bounced back quickly, and taverns regularly employed saloon waitresses "whose constant pleas of 'just one more little drink' cost many a customer his shirt." (47) These schemes flourished by the middle of the twentieth century "when hundreds of bars and night clubs [across the country] maintained salaried staffs of B-girls, who kept customers company at the bar and matched them drink-for-drink--in colored water, tea or soda pop, but at whiskey prices." (48)

      Legislators began to take note of the sheer amount of money being taken in by this "less than wholesome" industry, and, in an effort to eliminate these types of enticements, states began passing laws to prohibit them. (49) The reasons ascribed to these kinds of regulations were many. Among them were to avoid a deliberate commercial exploitation of the customer; (50) to curtail personal contact between female employees and nightclub patrons; (51) to avoid the danger to the public that bars might be converted from their proper use as places of sociable and relaxed drinking into places for solicitation of customers; (52) to prevent the evils resulting from encouraging customers to spend more money and drink more alcohol than they otherwise would; (53) and to eliminate the occupation of B-girls entirely--"a practice said to have done more to bring criticism upon the liquor industry than anything else." (54)

      While most states do not have a statute designed to prohibit arrangements in which bars hire women for the sole purpose of boosting business, Florida is one of the few states that does. (55) Enacted in 1961, Florida Statutes section 562.131 makes it unlawful for any employee (56) or agent of an establishment that possesses a liquor license to "beg or solicit any patron or customer" of that establishment to buy them a drink. (57) Further, it is unlawful for any establishment possessing a...