United States v. Lustig

• Decision Date: 13 October 1947
• Docket Number: Docket 20473.,No. 170,170
• Parties: UNITED STATES v. LUSTIG et al.
• Court: U.S. Court of Appeals — Second Circuit

163 F.2d 85 (1947)

UNITED STATES v. LUSTIG et al.

No. 170, Docket 20473.

Circuit Court of Appeals, Second Circuit.

July 21, 1947.

Writ of Certiorari Denied October 13, 1947.

Wegman, Spark & Burke, of New York City (Nathan L. Miller, J. Bertram Wegman, Richard J. Burke, and I. Maurice Wormser, all of New York City, of counsel), for appellants.

John F. X. McGohey, U. S. Atty., of New York City (Bruno Schachner and Frederick H. Block, Asst. U. S. Attys., both of New York City, of counsel), for appellee.

Before AUGUSTUS N. HAND, CHASE, and FRANK, Circuit Judges.

Writ of Certiorari Denied October 13, 1947. See 68 S.Ct. 88.

AUGUSTUS N. HAND, Circuit Judge.

The defendants Henry Lustig, E. Allan Lustig and Joseph Sobel were indicted upon 23 counts, the first 22 counts for violations of 26 U.S.C.A. Int.Rev.Code, § 145(b), and the 23rd count for violation of 18 U.S.C.A. § 88, by conspiring to violate § 145(b), supra. The first 22 counts charge wilful attempts to evade and defeat income, declared value excess profits, and defense taxes for fiscal and calendar years ending during the years 1940 to 1944, inclusive, of seven corporations owned by the appellant Henry Lustig, by the filing of false returns understating gross and net income. The total net income was understated by $3,455,755.41 and the resultant tax liability by $2,872,766.62.

The conspiracy count charges that the above defendants and two others, namely Martin Platt and Wallace Platt, who pleaded guilty, agreed to commit the offenses detailed in the preceding 22 counts; further, that they would overstate purchases by $2,000,000 and understate sales by $1,800,000. Among the overt acts it is charged that more than $2,000,000 was withdrawn by Henry Lustig in cash; that he maintained a safe deposit box to hide currency, and that a large part of the hat check gratuities was diverted by him.

Henry Lustig, the main defendant, owned all of the stock of Henry Lustig Co., Inc., which in turn owned all of the stock of Restaurants & Patisseries Longchamps, Inc., and the latter in turn owned all of the stock of 253 Broadway Corporation, 624 Madison Avenue Corporation, Broadway and Forty-first Street Corporation, Lexington Longchamps, Inc., and Fifth Empire, Inc. In addition to being the owner he was the president and treasurer of all these corporations.

Henry Lustig Co., Inc., the top holding company, was engaged in the wholesale produce business, catering both to independent customers and to its subsidiaries. Restaurants & Patisseries Longchamps, Inc., the intermediate holding company, owned and operated a number of restaurants in the City of New York and each of its subsidiaries owned and operated a restaurant in the City of New York. All the corporations maintained one office at 408-10 West 15th Street, New York, N.Y.

E. Allan Lustig, the nephew of Henry Lustig, was the secretary and general manager of all of the corporations. Joseph Sobel was a certified public accountant who acted as chief accountant for the corporations. He had practically no other clients and devoted his full time to the supervision of the accounts of the Lustig corporations. Martin Platt and Wallace Platt are brothers. Martin was the office manager and cashier at the main office, and he and Wallace also acted as bookkeepers for the Lustig corporations.

The three defendants were convicted by a jury on all counts and thereafter sentenced by the court. Each one of them has appealed from the judgment of conviction. It is not questioned that there was a wilful attempt on the part of the defendants to evade the payment of taxes and a conspiracy to accomplish such a result. But the conviction is attacked because of an alleged "voluntary disclosure" said to have been made under a promise of immunity. Upon this appeal the following questions are raised:

(1) Were appellants deprived of constitutional rights by the introduction of certain evidence, allegedly obtained as a result of a confession induced by promise of immunity?

(2) Did they acquire immunity by reason of the policy of the Treasury Department not to recommend prosecution of tax frauds in case the taxpayer discloses his fraud before the start of an investigation?

(3) Was relevant evidence excluded?

There can be no doubt that the information as to the understating of the income of the seven corporations, as to the overstating of purchases, the understating of sales, as to the cash withdrawals by Henry Lustig, and as to the diversion by him of hat-check gratuities could have been obtained by an examination of the books and records of the seven corporations and the records of the Federal Reserve Bank, even if the defendants had not submitted "voluntary" statements. They rely on the claim that these statements were furnished after a promise of immunity and before investigation was initiated by the government. But the trial judge found that during the period from February 28, 1945 to March 28, 1945, the defendants and corporate-taxpayers withdrew $1,800,000 in cash from the vault of Henry Lustig Co., Inc., and deposited it in some twelve bank accounts and also purchased tax anticipation warrants aggregating $800,000; that, during the period of withdrawals and deposits, employes of the banks had called the attention of the defendants and the corporate-taxpayers to the possibility that these transactions might be reported to the government; that on March 16, 1945 the transactions were reported by the Federal Reserve Bank to the Foreign Funds Control Division of the Treasury Department, and on March 24, 1945 were referred by that division to the Special Agent in Charge of the Treasury Intelligence Unit for the New York Area; that as a result of the foregoing the Special Agent accompanied by the Commissioner of Internal Revenue on March 26, 1945, called upon the officials of the Federal Reserve Bank in connection with the affairs of the defendants and the corporate-taxpayers, and Special Agents of the Intelligence Unit were designated to commence an investigation in conjunction with the Agents of the Office of Internal Revenue.

The defendants argue that their original disclosure was made when they deposited in various banks the funds they had withdrawn from the safe deposit box and were informed that such deposits might be reported to the government. It is fantastic to suppose that the making of these deposits amounted to a "voluntary disclosure" of tax deficits on the part of the defendants made to the government in response to a promise of immunity. Indeed they only slightly press this contention and mainly rely upon an alleged disclosure which they say was made to Collector Pedrick on March 26, 1945. They claim that on that date E. Allan Lustig had an appointment with Pedrick and said to him: "We * * * made some wrong returns in previous years and * * * had accumulated a large sum of money in the company vault. * * * I came to him for his advice and told him we wanted to get square with the Government, * * * I told him the returns that were filed in February and March that year were also incorrect. * * * He said he was glad that I came in to see him about this matter because coming in to see him and telling him * * * made this thing a disclosure and he said it took the criminal aspect out of the case and made it a civil case, there might be civil penalties but there are no criminal penalties when you come in in a case of this sort." The making of such disclosure to Pedrick and the statement attributed to him in connection therewith were denied by the latter and found by the trial judge to be untrue. This finding was made not only on the testimony of Pedrick but on other corroborative evidence. The trial judge also found that the deposits of currency during the month of March 1945 were prompted by the belief that currency in bills of large denominations might in effect become contraband, and not by any desire or intention on the part of the defendants voluntarily to disclose frauds on...