United States v. Andrews, 15623.

• Decision Date: 17 June 1965
• Docket Number: No. 15623.,15623.
• Citation: 347 F.2d 207
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. Frank J. ANDREWS, Walter Owens, Peter A. Andrews, Jr., Willard Whitley, Gus Postell, Louis Tye, Frank D. Andriola, Russell A. Malone, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

347 F.2d 207 (1965)

UNITED STATES of America, Plaintiff-Appellee, v. Frank J. ANDREWS, Walter Owens, Peter A. Andrews, Jr., Willard Whitley, Gus Postell, Louis Tye, Frank D. Andriola, Russell A. Malone, Defendants-Appellants.

No. 15623.

United States Court of Appeals Sixth Circuit.

June 17, 1965.

James L. Cobb, Jr., Covington, Ky., and Daniel W. Davies, Newport, Ky., for appellants, Morris Weintraub, Newport, Ky., on the briefs, Jacob Kossman, Philadelphia, Pa., of counsel.

William S. Lynch and Philip J. Hoskins, Attys., Dept. of Justice, Washington, D. C., for appellee, Herbert J. Miller, Jr., Asst. Atty. Gen., Washington, D. C., on the brief.

Before MILLER, CECIL and EDWARDS, Circuit Judges.

EDWARDS, Circuit Judge.

These appeals are from convictions for conspiracy to violate, and specific violations of the Internal Revenue Statutes by fraudulently concealing and withholding gambling excise taxes.

The first count of the indictments was a conspiracy count and the balance of the counts, 2 through 32, consist of the substantive counts of willful understatement of or failure to pay the excise taxes. Count 33 charged violation of the Federal Communications Act, and Counts 34 and 35 charged willful failure to register and pay the wagering occupational tax.

Defendant Frank J. Andrews was found guilty on Count 1 and received a sentence of five years and $10,000 fine. Defendant Daniel Andrews was severed because of his illness. The other seven defendants were found guilty on Count 1 and on a variety of the substantive counts. They were sentenced to terms of five years on each count for which they were convicted, except that Peter A. Andrews and Russell A. Malone were sentenced to only one year for their convictions on Counts 34 and 35. All seven were also fined $10,000 for conviction on Count 1. All of the sentences were made to run concurrently.

This trial was a sequel to large-scale,¹ illegal but wide open gambling operations in Newport, Kentucky. This record clearly establishes the nature and extent of the gambling. Indeed, no defendant, other than Frank Andrews, takes the trouble to deny being in the "business" of gambling during the time concerned. All do deny conspiring to evade federal wagering taxes and the substantive offenses charged.

Each of the several briefs filed on behalf of defendants argues the insufficiency of the evidence to support the verdicts and in this regard relies upon the applicable law as set forth in Ingram v. United States, 360 U.S. 672, 79 S.Ct. 1314, 3 L.Ed.2d 1503 (1959). In that case the United States Supreme Court affirmed convictions as to defendants Ingram and Jenkins (described as "entrepreneurs") and reversed as to defendants Smith and Law (described as "relatively minor clerical functionaries").

The Court's distinctions are set forth in the majority opinion of Mr. Justice Stewart thus:

"But the evidence of agreement between Ingram and Jenkins to operate this gambling enterprise, which operation made them liable for federal taxes, and to conceal its operation and its income is clear on this record, and is virtually conceded by the petitioners. The evidence was sufficient to support a conclusion that they were engaged not only in a conspiracy to operate and conceal their gambling enterprise, but that they were also parties to an agreement to attempt to defeat or evade the federal taxes imposed upon the operators of such a business.

"As to Smith and Law, the case is quite a different one. While the record clearly supports a finding that Smith and Law were participants in a conspiracy to operate a lottery and to conceal that operation from local law enforcement agencies, we find no warrant for a finding that they were, like Ingram and Jenkins, parties to a conspiracy with a purpose illegal under federal law. Certainly there is nothing in the record to show that Smith and Law knew that Ingram and Jenkins had not paid the taxes, a fact obviously within the knowledge of the latter. * * *" Ingram v. United States, supra at 677, 79 S.Ct. at 1319.

Thus, we take it, convictions for conspiracy to evade federal gambling tax laws cannot be sustained absent proof 1) that defendants were parties to an agreement to defeat or evade the taxes, or 2) that defendants had knowledge that the taxes were due and were not being paid, plus conduct in furtherance of a plan to evade them.

We regard this record as establishing beyond all peradventure of a doubt at least two substantial, deliberate and interrelated schemes for large-scale federal tax evasion. The first such scheme relates to a method for reporting approximately one-quarter of the taxes actually due on the "day" numbers game and other related gambling activities. As testified to by Ruth Jane Siuda, one of the six girls who "ran the work" on the "day" numbers, it was her job after the totalling of the work and after the hits had been determined to "pull the work." Her testimony leaves no doubt that this meant extracting the most convenient one-quarter of the bet slips so as to show a total take of $1,500-$2,000 per day, whereas in fact the daily total on this operation was $8,500. (See Appendix A.) The federal tax returns show clearly that taxes were paid only on the work thus "pulled."

The second major scheme for tax evasion involved the operation of a "night" numbers game. The record clearly establishes that no taxes were paid on this game at all, and it is argued to us that we should read the record as establishing that this game was within the exception to the wagering tax statute. Int. Rev.Code of 1954, § 4421(2) (A).

The evidence, however, is overwhelmingly to the contrary, as obviously the jury found. It is patent that many of the persons participating in the "night" numbers operation were not on the premises at the time of the declaration of the winners and that the fact situation here involved large-scale telephone bet procedures, as well as the writing of bets off the premises.

As to Walter Owens, Willard Whitley, Peter Andrews, Jr., and Gus Postell, there can be no doubt about their status as entrepreneurs in relation to one or the other of the two major tax evasion schemes which we have referred to above. The records of the gambling partnerships, the tax return forms, and the testimony of Internal Revenue Supervisor William R. Tabb, and Agent Robert L. Thomas is ample to establish this.

We believe that the testimony of the Revenue Agents, plus Government Exhibit 305 (See Appendix B) is sufficient evidence from which the jury could have found Louis Tye and Frank ("Bud") Andriola guilty on the conspiracy count as entrepreneurs likewise. Furthermore, there was testimony by a government handwriting expert that Exhibit 305 was in the handwriting of defendant Frank J. Andrews. (See Appendix C.)

As to Russell A. Malone, the testimony clearly indicates his role in advertising that no taxes were paid on the "night" numbers game, while at the same time assuring bettors that they did not in fact have to be present to win. Hence, his conviction on the conspiracy count seems warranted by the evidence herein. We regard it as consistent with the second of the two evidentiary standards set forth by Justice Stewart in the Ingram case.

As to defendant Frank J. Andrews, the evidentiary situation relating to Count 1 is quite different. He was admittedly owner of "The Sportsman's Club" wherein these wide open gambling operations were conducted. It is his contention that his relationship to the club was entirely that of owner of the building and the landlord of those defendants who rented the premises. There is, however, strong circumstantial evidence that defendant Frank J. Andrews was more than a landlord. The unconcealed nature of the gambling operations conducted at his Sportsman's Club, his presence on the first day of the "consolidated operation" of the numbers business, his ordering the installation of the burglar alarm system at the new Sportsman's Club, his visits to the bookkeeping room where the girls "ran the work," the testimony which indicates that it was he who dealt with the competitive threat of Junior Andrews' location, the fact that he hired one of the telephone operators for the "night" numbers game, and the fact that substantial sums were paid out of the "day" numbers proceeds for taxes or rental owed by defendant Frank J. Andrews personally all represent facts from which this jury could have inferred that defendant Frank Andrews had an entrepreneurial relationship to the gambling operation at the Sportsman's Club and knowledge of the two schemes for tax evasion which we have previously described.

Perhaps the most significant bit of evidence pertaining to Frank Andrews' knowledge and participation in the "day" numbers tax evasion scheme is the testimony which clearly establishes that Frank Andrews paid for construction of a hidden closet at the Sportsman's Club. This closet, controlled by an electrical attachment which "could be opened by touching two nails," was discovered at the time of the August 1961 raid. It contained the "pulled" and "bundled" work for July 1961. Testimony indicated that such "bundles" amounted to less than one-fourth of the total wagers. But the total of the "bundled" work found in the secret closet corresponded exactly with the amount of wagers reported for tax purposes for the month of July 1961.

In addition, testimony showed deposits of $103,000 in defendant Frank Andrews' bank account between October of 1960 and August of 1961. Many of these deposits to Andrews' account were made by an agent of the "day" numbers gambling partnership and over 100 of the checks deposited had symbols on them which were identified as the symbols of various numbers writers.

In short, we believe that the evidence of a substantial conspiracy to evade and defeat the payment of federal wagering taxes was overwhelming and that there was ample evidence to support the jury findings of guilty as to the...