U.S.A. v. Carboni

• Decision Date: 16 September 1999
• Docket Number: Docket No. 98-1349
• Citation: 204 F.3d 39
• Parties: (2nd Cir. 2000) UNITED STATES OF AMERICA, Appellee, v. HARRY R. CARBONI, Defendant-Appellant. Argued:
• Court: U.S. Court of Appeals — Second Circuit

Page 39

204 F.3d 39 (2nd Cir. 2000)

UNITED STATES OF AMERICA, Appellee, v. HARRY R. CARBONI, Defendant-Appellant.

Docket No. 98-1349

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: September 16, 1999,

Decided: February 18, 2000,

[Copyrighted Material Omitted]

RONALD S. APTER, Assistant United States Attorney, Hartford, CT (Stephen C. Robinson, United States Attorney for the District of Connecticut, New Haven, CT, on the brief), for Appellee.

COLLEEN P. CASSIDY, The Legal Aid Society, Federal Defender Division, Appeals Bureau, New York, NY, for Defendant-Appellant.

Before: LEVAL, CABRANES, and POOLER, Circuit Judges.

POOLER, Circuit Judge

A jury convicted Harry R. Carboni of three counts of knowingly making false statements to secure advances on a line of credit in violation of 18 U.S.C. 1014. Carboni seeks reversal of both the conviction and the resulting sentence, which principally consisted of a fifteen-month term of imprisonment, three years of supervised release, and an order to pay restitution in the amount of $ 195,840. We affirm the conviction and all aspects of the sentence except the restitution order, which we vacate. We remand for resentencing on restitution.

BACKGROUND

In late 1992 or early 1993, Cableco, Inc. ("Cableco"), a Connecticut distributor of wire and cable products, retained Carboni as a consultant to assist in diversifying Cableco's business operations by, among other things, establishing a new manufacturing plant to be known as North American Cable Co. ("NACC"). By Fall 1993, Carboni acted as the chief operating officer for Cableco and NACC and managed the financial affairs of both companies.

In June 1993, Fleet Bank ("Fleet") loaned Cableco $ 400,000 for NACC's start-up costs. Fleet, Cableco, and NACC also entered into a revolving loan agreement pursuant to which Fleet, at its discretion and over the next two years, would loan Cableco a maximum of the lesser of $ 2,100,000 or the sum of (A) 80% of eligible accounts receivable and (B) 50% of qualified inventory. An account receivable was "eligible" within the meaning of the agreement only if Cableco had actually shipped the goods included in the account. "Qualified inventory" included only Cableco's inventory. To obtain advances, Cableco had to submit "borrowing base certificates" that included summary statements of its eligible accounts and qualified inventory. Besides assisting Fleet in determining whether to make new advances, accurate borrowing base certificates would demonstrate whether Cableco was "out of formula" as to existing loans. That is, the certificates would show whether Cableco had a higher loan balance than its qualified inventory and eligible accounts justified. If the current borrowing base certificate did not support the existing loan balance, Fleet could require Cableco to repay the excess amount. If Cableco failed to comply, Fleet had the right to declare a default.

NACC's startup did not go smoothly. The new company quickly encountered financial difficulties that affected Cabelco, which directly funded NACC. In September, Fleet referred the loan and line of credit to Katherine Lord of its managed assets or "work-out" division for intensive management.

Around the same time, Cableco began to engage in deceptive practices that increased the amounts it could borrow under its line of credit. From September 1993 through January 1994, Cableco -- at Carboni's direction -- often pre-billed invoices, that is, it created invoices for items it had not yet shipped.¹ Cableco then included these pre-billed invoices as eligible accounts receivable in daily borrowing base certificates that Carboni periodically reviewed before their submission to Fleet. Carboni also directed the paper transfer of certain NACC assets to Cableco shortly after Lord, on December 14, 1993, denied Cableco's request to use NACC assets as collateral for advances. Thereafter, Cableco included the NACC assets in its borrowing base certificates.

Fleet discovered both the pre-billing scheme and the inclusion of NACC inventory in Cableco's inventory figures during the course of a February 1994 audit. Fleet's bank examiner, Peter Rutigliano, determined that Cableco received approximately $ 547,000 in advances that were not justified by its qualified inventory and eligible accounts receivable. Rutigliano testified that Cableco pre-billed certain accounts by as much as fifty-eight days and that the goods justifying other invoices were never shipped. On March 11, 1994 Fleet called the loan, which had an outstanding balance of approximately $ 1.6 million. After collecting on certain valid accounts receivable and receiving $ 478,000 from the Connecticut Development Authority, which guaranteed a portion of the debt, Fleet Bank had a net loss of approximately $ 674,230.

The grand jury indicted Carboni on July 29, 1997. A superseding indictment returned October 22, 1997, charged Carboni with three counts of knowingly making false statements to procure advances on its line of credit. Although the indictment referred to fraudulent base borrowing certificates issued as early as September 1993, the counts charged in the indictment rest exclusively on the borrowing certificates issued on December 17, 1993, January 5, 1994, and January 17, 1994. Fleet loaned Cableco $ 120,000 after December 17, 1993.

Prior to trial, the government gave notice that it intended to introduce evidence of uncharged conduct, Carboni's addition of fictional inventory to Cableco's perpetual inventory. The government claimed that Carboni created fictional inventory because he wanted to conceal a discrepancy between Cableco's perpetual inventory and its general ledger. As the fictional inventory could have affected the bank's lending decisions, the government contended that the uncharged acts were part of the same course of conduct described in the indictment. Carboni strenuously objected, arguing that the alterations to the perpetual inventory occurred long before NACC ran into financial trouble and there was no evidence that the fictional inventory played any part in influencing Fleet to make any loan or advance.

The district court concluded that the evidence was admissible because the additions to the inventory were part of a series of transactions that involved Fleet, Cableco, and Carboni and because the evidence tended to show Carboni acted purposefully rather than out of ignorance or mistake when he committed the charged conduct. Carboni declined the district court's invitation to submit a limiting instruction. Both the government and the defense offered substantial testimony concerning the changes in the perpetual inventory.

At trial, a number of former Cableco employees including the company's comptroller, John Jablonski, implicated Carboni. Jablonski testified that Carboni knew about the pre-billed invoices and understood their effect on the base borrowing certificates. Much of Jablonski's testimony came in response to leading questions posed by the Assistant United States Attorney ("AUSA"). Without objection, Jablonski testified that pre-billed invoices created an inflated assets base and that he had conversations with Carboni in which Carboni indicated his awareness of pre-billing. After a question directed at discussions of pre-billed invoices at weekly staff meetings, Carboni's counsel objected that "we've passed into very much leading questions." The court overruled Carboni's objection. Although the prosecutor asked Jablonski other leading questions, Carboni made no further objections.

Carboni admitted creating a system for pre-billing invoices and adding NACC inventory to Cableco's inventory. He claimed, however, that he had no intent to mislead Fleet and explained that he transferred NACC's inventory to Cableco's books to protect Leone Giannitti, the owner of both companies, who had guaranteed payment for the transferred items, and implemented the pre-billing system "to overcome the burdensome, cumbersome, inefficient paperwork, to make sure that the product would be shipped and invoices cut in a timely fashion." Carboni claimed that invoices were generated based on projected shipping dates but acknowledged that the products invoiced were not always shipped by the projected date.

The jury convicted Carboni on all three counts, and the court sentenced him to fifteen months of imprisonment, three years of supervised release, and payment of restitution in the amount of $ 195,840 in monthly payments of $ 250 subject to "adjustment based on income following the term of incarceration." On appeal, Carboni contends the district court erred by (1) admitting evidence of the change in the perpetual inventory; (2) allowing the government to use leading questions in eliciting Jablonski's testimony; (3) calculating the amount of loss to Fleet; and (4) inadequately explaining its reasons for the restitution award.

DISCUSSION

I. The Perpetual Inventory

Federal Rule of Evidence 404(b) provides that

Evidence of other crimes, wrongs, or acts is not admissible to prove the character of a person in order to show action in conformity therewith. It may, however, be admissible for other purposes, such as proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident, . . . .

"We follow an inclusionary rule, allowing the admission of such evidence for any purpose other than to show a defendant's criminal propensity, as long as the evidence is relevant and satisfies the probative-prejudice balancing test of Rule 403 of the Federal Rules of Evidence." United States v. Inserra, 34 F.3d 83, 89 (2d Cir. 1994). The district court has wide discretion in making this determination, and we will reverse only for abuse of discretion. See id. Moreover, "evidence of uncharged criminal activity is not considered other crimes evidence under Fed. R. Evid. 404(b) if it arose out of the same transaction or series of transactions as...