518 F.3d 832 (10th Cir. 2008), 06-4232, United States v. Thompson
|Docket Nº:||06-4232, 06-4256, 06-4258.|
|Citation:||518 F.3d 832|
|Party Name:||UNITED STATES of America, Plaintiff-Appellee, v. James THOMPSON, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. Thomas E. Mower, Defendant-Appellant. United States of America, Plaintiff-Appellee, v. Leslie D. Mower, Defendant-Appellant.|
|Case Date:||March 12, 2008|
|Court:||United States Courts of Appeals, Court of Appeals for the Tenth Circuit|
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH (D.C. No. 2:02-CR-787-K)
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Scott C. Williams, Salt Lake City, UT, for Defendant-Appellant, James Thompson.
Max D. Wheeler (Rodney R. Parker and Sam Harkness with him on the briefs), of Snow, Christensen & Martineau, Salt Lake City, UT, for Defendant-Appellant, Thomas E. Mower.
Denver C. Snuffer, Jr. of Nelson, Snuffer, Dahle & Poulsen, P.C., Sandy, UT, for Defendant-Appellant, Leslie D. Mower.
Gregory Victor Davis, Attorney, Tax Division, United States Department of Justice, Washington, D.C., (Richard T. Morrison, Acting Assistant Attorney General; Alan Hechtkopf, Attorney, Tax Division, United States Department of Justice, Washington, D.C.; and Troy A. Eid, United States Attorney, District of Colorado, Denver, CO, of Counsel, with him on the briefs), for Plaintiff-Appellee.
Before KELLY, McWILLIAMS, and BRISCOE, Circuit Judges.
BRISCOE, Circuit Judge.
Defendants Thomas Mower and Leslie Mower appeal their convictions of one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and six counts of tax evasion, in violation of 26 U.S.C. § 7201, for the years 1992 through 1997. Defendant James Thompson appeals his conviction of one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and one count of corruptly endeavoring to interfere with the administration of internal revenue laws, in violation of 26 U.S.C. § 7212(a). Thomas Mower argues that (1) the evidence was insufficient to convict him of tax evasion for the years 1992, 1993, and 1997; (2) the district court erred in admitting the government's summary charts; and (3) the district court erred in compelling Thomas Mower's attorney, Allen Davis, to testify before the grand jury. Leslie Mower contends that (1) the evidence was insufficient to convict her of all counts; (2) the district court erred in admitting the government's summary charts; (3) her sentence was procedurally and substantively unreasonable; (4) the district court erred in not giving certain jury instructions; (5) the statute of limitations barred four of the counts of tax evasion, for the years 1992 through 1995; (6) her sentence violated the ex post facto clause; and (7) the district court erred in denying her motion for severance. James Thompson argues that (1) the evidence was insufficient to convict him of either count; (2) the statute of limitations barred both counts; and (3) the district court erred in denying his motion for severance. We exercise jurisdiction under 28 U.S.C. § 1291 and affirm.
On December 19, 2002, Thomas Mower and his wife, Leslie Mower, were indicted on one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and six counts of tax evasion, in violation of 26 U.S.C. § 7201, for the tax years 1992 through 1997. On April 8, 2003, the grand jury returned a Superseding Indictment, adding charges against James Thompson for one count of conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and one count of corruptly endeavoring to interfere with the administration of internal revenue laws, in violation of 26 U.S.C. § 7212(a).
Defendants Thomas and Leslie Mower owned three corporations--Neways US, Neways Australia, and Neways Malaysia1--each of which utilized a multi-level marketing system to sell a variety of personal care products. In a multi-level marketing system, the company manufactures or purchases product and sells it to distributors, who purchase the product at a discount and make money by selling it to the public at retail price. Distributors receive bonuses by signing up other distributors to sell product. Distributors who have recruited new distributors also receive bonuses as a
result of sales by distributors beneath them in the "downline." Individuals at the top of a Neways downline could make between $25,000 and $35,000 per month. The Mowers had a downline in Neways U.S. called "Base of the Tree," and a distributorship in Neways U.S. called "Mower Partnership."
Thomas Mower was the president of Neways US, and he was in charge of running the company--"the go-to person." Neways employees regularly discussed the financial status of the company with him, and he made most of the decisions for Neways US. Randy Lindstrom, a former general manager of Neways US, testified that Thomas Mower had a basic understanding of accounting, as evidenced by their conversations about income and expenses. According to Lindstrom, Thomas Mower "didn't like to pay taxes."
Leslie Mower also made decisions on a daily basis for Neways US, although she dealt more with distributors than with sales. In the early 1990s, she had virtually no involvement with the financial side of the business. Later, for a period during the mid-1990s, she became Chief Financial Officer of Neways US, 2even though she did not have any expertise in accounting or finance, and she had some difficulty understanding the company's financial statements. She would sometimes pay the corporation's bills, but she mostly just promoted the product.
Because of its rapid growth in the early 1990s, Neways U.S. was very heavily indebted to creditors and needed money for operating expenses. The Mowers did not want to borrow working capital from a bank, so they instead tried to solve the company's money problems by bringing in cash from Neways Australia. Thomas Mower began meeting with his attorneys to determine how to get money out of Neways Australia without paying taxes on it. Soon, Neways U.S. began receiving hundreds of thousands of dollars from Neways Australia, which Neways U.S. recorded as pre-payment for product that it later sent to Neways Australia. In addition to these pre-payments, Neways U.S. received other amounts from Neways Australia that it classified as loans.
Neways Australia had two primary bank accounts: an operating account and a bonus checking account. It paid for its day-to-day operations--including bills, payments for product, salaries, and royalty payments to Neways US--from its operating account. Every month, it paid distributor bonuses from the bonus checking account. When examined, the books and records at Neways Australia were found to be in poor condition.
At the top of the Neways Australia downline were seven distributorships: Images, Inc. 1 through 7, which later became Neways, Inc. 1 through 7, and then Mower Properties, Inc. 1 through 7.3 Marija Lee, a former employee at Neways Australia and Neways Malaysia, testified that John Hunter, the then-CEO of Neways Australia, asked her to place these distributorships at the top of the Neways Australia downline. Thomas Mower had originally wanted to set up the Neways Australia downline like the Neways U.S. downline, but John Hunter advised him to create these seven entities to absorb more bonus
payments than one entity alone could absorb. These amounts are known in the industry as "breakage." The Neways 1 through 7 distributorships did not have to sell product to receive commissions, and they were structured to absorb any bonuses that would otherwise flow up to the company itself. Mr. Hunter had several conversations with Thomas Mower regarding Neways 1 through 7, and the need for Neways U.S. to get money from Neways Australia. He assumed the commission payments to Neways 1 through 7 were going to Neways US, because that was why they set up Neways 1 through 7 in the first place. The Neways 1 through 7 entities received commission checks and later, wire transfers, from Neways Australia's bonus checking account. On its books and records, Neways Australia treated these payments as expenses.
Michael Cunningham, a former CEO of Neways Australia, did not know what happened to the commission checks for the Neways 1 through 7 entities after Neways Australia sent the checks to Utah. Marija Lee testified that she sent them to Utah, and none of the checks were ever voided. John Hunter testified that he sent the checks directly to Thomas and Leslie Mower in Utah, although he had no idea what happened to them after they reached the United States. When the checks were late a couple of times, Leslie Mower called Mr. Hunter to ask whether they had been mailed. Once, when the Mowers visited Australia, they asked Mr. Hunter to sign some of the checks over to cash, and he obliged.
Neways 1 through 7 distributorships were also set up at the top of the Neways Malaysia downline, and Neways Malaysia sent the commission checks for these distributorships to the United States. At trial, the government introduced commission checks from Neways Malaysia to several of the Neways 1 through 7 distributorships in 1994 and 1995, as well as registers of commission checks from Neways Malaysia for 1996 and 1997. In 1996, the register showed commission checks issued to Neways 1 through 7, as well as Mower Properties 1 through 7, and these entities had the same identification numbers.4 In 1997, the register showed checks to five other entities with these same identification numbers: Rezults, N. Trust, N. Properties, Eclat, and CC Corp.
Patricia Sandberg, Thomas Mower's former secretary...
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