562 F.3d 478 (2nd Cir. 2009), 07-3958, United States v. Josephberg

Docket Nº:07-3958-cr.
Citation:562 F.3d 478
Party Name:UNITED STATES of America, Appellee, v. Richard JOSEPHBERG, Defendant-Appellant.
Case Date:April 09, 2009
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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562 F.3d 478 (2nd Cir. 2009)

UNITED STATES of America, Appellee,

v.

Richard JOSEPHBERG, Defendant-Appellant.

No. 07-3958-cr.

United States Court of Appeals, Second Circuit

April 9, 2009

Argued: Oct. 23, 2008.

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Stanley J. Okula, Jr., Assistant United States Attorney, New York, New York (Michael J. Garcia, United States Attorney for the Southern District of New York, Katherine Polk Failla, Assistant United States Attorney, New York, New York, on the brief), for Appellee.

Jared J. Scharf, White Plains, New York (Adam L. Scharf, White Plains, New York, Michael T. Sullivan, Riconda & Garnett, Valley Stream, New York, on the brief), for Defendant-Appellant.

Before: KEARSE, SACK, and KATZMANN, Circuit Judges.

KEARSE, Circuit Judge:

Defendant Richard Josephberg appeals from a judgment entered in the United States District Court for the Southern District of New York following a jury trial before Charles L. Brieant, Judge, convicting him on all counts of a seventeen-count indictment, to wit: evasion of payment of personal income taxes for the years 1977-1980 and 1983-1985, in violation of 26 U.S.C. § 7201 (Count 1); conspiracy to defraud the Internal Revenue Service (" IRS" ) and, in violation of 18 U.S.C. § 1347, to defraud Josephberg's health care insurer, all in violation of 18 U.S.C. § 371 (Count 2); evasion of personal income taxes for the years 1997 and 1998, in violation of 26 U.S.C. § 7201 (Counts 3 and 4); subscribing false income tax returns for the years 1997 and 1998, in violation of 26 U.S.C. § 7206(1) (Counts 5 and 6); willful failure to file timely personal income tax returns for the years 1999-2002, in violation of 26 U.S.C. § 7203 (Counts 7-10); willful failure to pay income tax due for the years 1999-2003, in violation of 26 U.S.C. § 7203 (Counts 11-15); obstructing and impeding the due administration of the Internal Revenue Laws, in violation of 26 U.S.C. § 7212(a) (Count 16); and health care fraud, in violation of 18 U.S.C. § § 1347 and 2 (Count 17). Josephberg was sentenced principally to 50 months' imprisonment to be followed by a three-year period of supervised release.

On appeal, Josephberg contends (a) that his convictions on Counts 1-6, 16, and 17 should be reversed, and those counts dismissed, on the ground of insufficiency of the evidence; (b) that his convictions on the remaining counts, 7-15, should be reversed and those counts dismissed on the ground that they violate his Fifth Amendment privilege against self-incrimination; (c) that as to any counts not dismissed, he is entitled to a new trial on grounds of

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prosecutorial misconduct and/or errors in the district court's instructions to the jury; and (d) that there were errors in the calculation of his sentence. For the reasons that follow, we reject Josephberg's contentions.

I. BACKGROUND

The present prosecution focused on the financial activities of Josephberg, an investment banker and investment advisor, during the period 1977-2004. At issue principally were transactions generating losses that were not permissible tax deductions because the transactions were entered into with no profit motive and involved no market risk, and Josephberg's conduct with respect to his personal tax liabilities resulting from those transactions. At trial, the government presented, inter alia, (a) documentary evidence such as IRS computer printouts of Josephberg's tax activity showing, e.g., the dates on which returns were filed or assessments were made or notices were sent, IRS certificates of assessments stating Josephberg's tax liability, IRS notices of deficiency, and financial records of Josephberg and his children; and (b) testimony from numerous witnesses, including Josephberg's former business partner Jeffrey Feldman, Josephberg's former accountant Hyman Fox, former clients of Josephberg who were instructed by Josephberg to send his compensation to accounts in the names of his children rather than to Josephberg himself, and revenue agents and officers of the IRS. The evidence, taken in the light most favorable to the government, summarized here and discussed in greater detail as necessary in Part II below, showed the following.

A. The Straddle, and Simulated Straddle, Transactions

In the late 1970s, a company owned by Josephberg and Feldman, Cralin Associates, Inc. (" Cralin" ), entered into an agreement with a company owned by one Bernard Manko, pursuant to which Josephberg and his Cralin business associates would " syndicate" - i.e., sell interests in (Trial Transcript (" Tr." ) 130-31)-limited partnerships that were created to invest in tax shelter " straddle" transactions involving United States Treasury bills (" T-Bills" ) (collectively the " Manko tax shelters" or " tax shelter partnerships" ). A straddle is the simultaneous ownership of a contract to buy a commodity for delivery in a future month and a contract to sell the same amount of the same commodity in a different future month, see generally United States v. Atkins, 869 F.2d 135, 137-38 (2d Cir.) (" Atkins " ), cert. denied, 493 U.S. 818, 110 S.Ct. 72, 107 L.Ed.2d 39 (1989). As each Manko tax shelter partnership owned both contracts to buy and contracts to sell, either the purchase contracts or the sale contracts could be sold at a loss. Each year the partnerships sold the category of contracts that had decreased in value, thereby realizing losses. As the losses (or gains) realized by a partnership flow through to the individual partners in proportion to their respective ownership interests, see generally United States v. Helmsley, 941 F.2d 71, 84 n. 5 (2d Cir.1991), cert. denied, 502 U.S. 1091, 112 S.Ct. 1162, 117 L.Ed.2d 409 (1992); 26 U.S.C. § § 701-04, the individual investors in a given Manko tax shelter partnership claimed their shares of those losses as deductions on their income tax returns for that year. The partnership's sale of the offsetting profitable contracts was deferred until the following year; but tax shelter straddle transactions were repeated through 1980, with the amounts escalating each year ( see Tr. 142) in order to generate losses that would offset the gains that had been rolled forward from the year before ( see id. at 133-34). While

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an " ordinary straddle is not risk free because there is no assurance that the gain on the second leg will be equal in amount to the loss on the first leg," Atkins, 869 F.2d at 137, Josephberg and his Cralin associates sought to structure their straddles or simulated straddles in ways that would ensure that " everything washe[d] out," i.e., that " if there was a profit" it was " the same amount as [the] loss" (Tr. 154).

In 1981, the accumulated deferred gains for Josephberg, Feldman, and their tax shelter partners totaled some $140 million; absent an offsetting loss, taxes on those gains would have been owing in 1982. These gains could not be offset by further Manko tax shelters, however, because of a provision in the Economic Recovery Tax Act of 1981 requiring generally that a straddle owner claiming a straddle loss must recognize the gain in the offsetting commodity contract in the same year as the claimed loss, even if the gain was as yet unrealized. See 26 U.S.C. § 1092. In order to obtain losses to offset the $140 million in gains rolled into 1981, Josephberg and his associates entered into an agreement with a government bond dealer, New York Hanseatic (" Hanseatic" ), whose principal was Charles Atkins, to generate tax losses in T-bill transactions by using repurchase agreements (or " repos" ), which are " devices for financing the purchase or sale of securities," Atkins, 869 F.2d at 138. T-bills are purchased at a discount and appreciate through the dates of their maturity. Repo transactions were used by Josephberg and his associates to " simulate a straddle" (Tr. 145) by deducting the financing expense in one year and realizing the gain from the T-bills' appreciation in the following year. In 1981 Cralin paid Hanseatic approximately $1 million to purchase $140 million in T-bill repo losses (" without any physical securities being involved" ( id. at 151)), and the individual investors claimed their shares of those losses as deductions on their income tax returns to offset the tax-shelter-deferred gains ( see id. at 150).

The Manko tax shelter straddles had been designed to create deductions amounting to four times the investor's capital contribution. ( See id. at 131-32.) Both the Manko and the Hanseatic-related shelter transactions were " pre-arranged," " manipulated," " rigged," and " riskless" ( e.g., id. at 150-51, 159, 168-69); and Josephberg and his partners engaged in these transactions not for the purpose of producing profits but solely for the purpose of generating losses that investors could deduct from income on their tax returns ( see id. at 142-43, 147-55). Indeed, in 1981, when Cralin entered into its first transaction with Hanseatic, Cralin could have made a profit of more than $20 million at the second planned stage of the financing process, due to an anomalous and precipitous decline in interest rates; but instead of financing the repo expense at the lower rate, Cralin chose to pay the originally planned, non-prevailing, higher interest rate in order to achieve the desired $140 million loss. ( See id. at 146-50.)

Cralin continued these simulated straddle transactions until the IRS began an investigation of the transactions with Hanseatic. ( See Tr. 155-56.) The last Hanseatic repo deal occurred in 1984, with losses taken in that year and the gains deferred into 1985. ( See id. at 155.) Feldman, who described the Manko and Hanseatic transactions at trial, and had pleaded guilty to conspiring to commit tax fraud with respect to the purchase of $140 million in tax losses from Hanseatic in 1981 ( see id. at 158, 161),...

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