608 F.2d 889 (1st Cir. 1979), 78-1465, United States v. Lieberman
|Docket Nº:||78-1465, 78-1466.|
|Citation:||608 F.2d 889|
|Party Name:||UNITED STATES of America, Appellee, v. Benjamin LIEBERMAN, Defendant-Appellant. UNITED STATES of America, Appellee, v. Jack H. SHAPIRO, Defendant-Appellant.|
|Case Date:||November 07, 1979|
|Court:||United States Courts of Appeals, Court of Appeals for the First Circuit|
Argued April 5, 1979.
Certiorari Denied Jan. 7, 1980.
See 100 S.Ct. 673.
[Copyrighted Material Omitted]
Harvey A. Silverglate, Boston, Mass., with whom Thomas G. Shapiro and Silverglate, Shapiro & Gertner, Boston, Mass.,
were on brief, for defendant-appellant Benjamin Lieberman.
Peter L. Puciloski, Boston, Mass., with whom Edward J. Barshak, Natasha Lisman, and Sugarman, Rogers, Barshak & Cohen, Boston, Mass., were on brief, for defendant-appellant Jack H. Shapiro.
Michael A. Collora, Asst. U. S. Atty., Boston, Mass., with whom Edward F. Harrington, U. S. Atty., Boston, Mass., was on brief, for appellee.
Before COFFIN, Chief Judge, CAMPBELL and BOWNES, Circuit Judges.
BOWNES, Circuit Judge.
Giant Stores Corporation, which operated a chain of discount stores in New England, obtained large bank loans and made a successful public offering of common stock in 1972. On June 25, 1973, the Securities and Exchange Commission (SEC) launched a nonpublic investigation into Giant's financial affairs, during which it determined that Giant had defrauded banks and investors by overstating the company's income in financial statements for the fiscal year ending January 29, 1972 (FY 1972). Giant went bankrupt in 1973, and the SEC investigation ultimately led to the indictment of four former officers of Giant for fraud in the sale of securities, for filing false financial statements with two Boston banks and the SEC, and for conspiracy. 15 U.S.C. §§ 77q(a) and 77x, 78m and 78ff; 18 U.S.C. §§ 371, 1001, 1014. Chairman of the Board Theodore Kaufman and Controller. Gerald Silverstein pled guilty. After a jury-waived trial, President Jack Shapiro and Financial Vice-President Benjamin Lieberman were convicted.
The trial judge made detailed special findings. Fed.R.Crim.P. 23(c). At the outset, he found that Kaufman, Chairman of the Board, Silverstein, the Controller, Levin, the Assistant Controller, and other employees of Giant overstated the net income of the company by understating the merchandise accounts payable in two ways: (1) by physically removing the accounts payable records from the active files; and (2) by claiming over.$1.4 million in phony vendor credits. The court further found that all of the false accounting entries on the company books were made with the knowledge and at the general direction of Lieberman, and that Lieberman actively deceived auditors from Touche, Ross, and Company (Touche Ross), the accounting firm that certified the FY 1972 financial statement. 1 Although finding that Shapiro "operated only at the periphery of this conspiracy," the trial judge was nevertheless persuaded that Shapiro participated in the fraudulent misstatement of income for FY 1972, by assisting in the creation of phony credits.
In their appeal, Shapiro and Lieberman raise four major issues: (1) whether there was a violation of the Jencks Act, 18 U.S.C. § 3500, or of due process of law because the SEC went "off the record" at times during its investigative hearings; (2) whether there was error in the handling and denial of a motion to dismiss for preindictment delay; (3) whether it was an abuse of discretion to deny a subpoena compelling Touche Ross to produce its Giant work papers for FY 1970; and (4) whether the trial judge imposed on defendants the burden of proving a reasonable doubt as to their guilt. Lieberman has concentrated on the first and fourth issues, and Shapiro on the second, which we discuss seriatim. 2
THE SEC INVESTIGATION
During its investigation of Giant's financial affairs, the SEC called over fifty witnesses
to testify under oath. Before being questioned, each witness was given Miranda warnings and advised of the penalties for perjury; many witnesses were represented by counsel. Although stenographers were present to record the testimony given, many times during the proceedings one of the three SEC examiners would order that the proceedings be "off the record." Many volumes of testimony were generated, and transcripts of the hearings were provided to the United States Attorney's office. Some government witnesses reviewed pages of their SEC testimony before appearing in front of the grand jury. After the defendants were indicted, copies of the SEC transcripts were furnished them. Realizing that the defendants would be entitled to this material at the trial under the Jencks Act, 18 U.S.C. § 3500, the prosecutor made it available to defense counsel well in advance of trial. 3
After receiving and reviewing the first batch of transcripts, which clearly showed that the SEC proceedings went off the record frequently, counsel for Lieberman filed a motion to dismiss the indictment or to suppress the testimony of witnesses who testified before the SEC. Alleging that the SEC examiners intimidated and cajoled the witnesses, suggested what testimony they should give, and cut them off as they were giving exculpatory or nonincriminatory testimony, and that this was accomplished in part by going off the record, Lieberman claimed that potentially exculpatory evidence and Jencks Act material had been effectively destroyed, in violation of the fifth amendment, the Jencks Act, and SEC regulations. Lieberman further asserted that the prejudice he suffered was intensified by lengthy preindictment delay, which caused the memory of witnesses to fade and which would cause their trial testimony to be shaped by the sworn, inculpatory testimony preserved in the SEC transcripts. 4 Subsequently, Lieberman filed an "evidentiary submission" indexing those portions of the SEC transcripts he felt supported his claims, and further argued that the relief he requested could be granted pursuant to the district court's supervisory powers.
The magistrate to whom Lieberman's motion was assigned held an evidentiary hearing. In an effort to reconstruct what happened off the record, Lieberman called as witnesses four former Giant employees who testified before the SEC, an attorney who had represented a witness before the SEC, and a stenographer who had recorded some of the SEC proceedings. James Palin, Morton Levin, and Kenneth Feeley remembered little of what happened during the off the record breaks in their SEC testimony. Palin recalled only that he may have asked examiners to clarify some questions; Levin thought that sometimes Giant was discussed, documents were reviewed, or the SEC examiners conferred; Feeley remembered some discussions about his personal comfort (he was in a body cast) and some examination of documents. Each of these witnesses denied having been threatened by the SEC examiners, having been encouraged to inculpate Lieberman or discouraged from exculpating him. Attorney Paul Feinberg could recall only one off the record break during which he conferred with his client. Stenographer Jud Geerlings, who usually left the room to smoke during off the record intervals, could say only that SEC proceedings might go off the record more than other agency proceedings because of the large number of documents to be examined.
More informative and helpful to Lieberman was the witness Alphonse Miele, who was able to remember some of what was discussed off the record during his SEC testimony. Miele recalled one off the record interval, following on the record testimony that he saw no credit at Giant that seemed "unusually large," in which the examiner attempted to define an "unusually
large" credit. He also remembered telling the examiner off the record that he saw legitimate credits every day at Giant. Miele said there was also some on and off the record discussion of a $3,900 Rozefsky Brothers credit that the examiners suggested to him was phony, but that he had not originally found suspicious. Miele said some of his testimony (particularly about the Rozefsky credit) was met by raised eyebrows, but that no effort was made to keep information helpful to Lieberman off the record.
The government called no witnesses at the magistrate's hearing, but later submitted an affidavit from Richard Patterson, an attorney who conducted the SEC investigation but subsequently went into private practice in Alabama. 5 Patterson stated that it was usual practice for SEC examiners to go off the record during nonpublic investigations, and that he went off the record during the Giant investigation for the following reasons: (1) at the request of counsel for the witness; (2) to discuss a line of questioning with fellow examiners; (3) to clarify a term used in a previous question; (4) to take a recess; (5) to allow a witness to examine a group of documents; (6) to speak with the attorney representing a witness; or (7) to organize his further examination of a witness. Patterson added that he did not preinterview the witnesses who were called to testify, that he made no effort to keep exculpatory evidence off the record, and that "it was (his) policy not to conduct conversations of substance off the record, and certainly not where such conversations were not reflected on the record."
The magistrate recommended denial of Lieberman's motion to dismiss or to suppress the testimony of those who appeared before the SEC. The questions propounded by the SEC examiners struck him as "far from mottos (Sic ) worthy of trial practice discussion," but he found nothing in the record to indicate that the testimony they developed was "knowingly untrue, distorted, or exaggerated." Although he thought...
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