U.S. v. Gurary, s. 90

Citation860 F.2d 521
Decision Date24 October 1988
Docket Number101,D,Nos. 90,100,s. 90
Parties-5871, 88-2 USTC P 9573 UNITED STATES of America, Appellee, v. Schnejer Zalman GURARY, Nochum Sternberg and Esther Sternberg, Defendants-Appellants. ockets 88-1114, 88-1115, 88-1121.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Rudolph W. Giuliani, U.S. Atty., S.D.N.Y. (Linda Imes, David Spears, John F. Savarese, Asst. U.S. Attys., of counsel), for appellee.

Cassidy, Larroca & Lewin, Washington, D.C. (Nathan Lewin, J.R. Caldwell, Jr., Anne M. Coughlin, of counsel), for defendant-appellant Schnejer Z. Gurary.

Paul K. Rooney, New York City, for defendant-appellant Nochum Sternberg.

Howard, Darby & Levin, New York City (Sara E. Moss, of counsel), for defendant-appellant Esther Sternberg.

Before KEARSE, VAN GRAAFEILAND, C.JJ., and POLLACK, District Judge. *

POLLACK, District Judge:

Defendants Schnejer Zalman Gurary, Nochum Sternberg and Esther Sternberg appeal from judgments of conviction on 45 counts of conspiracy and aiding and assisting the filing of false corporate and individual tax returns. Convictions were entered on March 9, 1988 after a jury trial before the Honorable John M. Walker, United States District Judge for the Southern District of New York.

Defendants appeal their convictions on the basis that: (1) the evidence was not sufficient to establish intent to violate the tax laws; (2) the trial court improperly instructed the jury on conscious avoidance; (3) the trial court interfered with the defendants' right to a fair trial by questioning witnesses; and, (4) the Part I judge violated the Speedy Trial Act by extending the time in which to return an indictment. We affirm the judgments of conviction.

BACKGROUND

The Government filed a complaint against Gurary and Nochum Sternberg (Gurary's son-in-law) on April 2, 1986, charging them with one count of a conspiracy to defraud the United States in violation of 18 U.S.C. Sec. 371, and three counts of currency reporting violations under 31 U.S.C. Secs. 5313 and 5322 in connection with tax returns filed by Irwin Feiner and his companies. Fifteen days later the Government applied for a sixty-day continuance of the time in which to return an indictment or hold a preliminary hearing pursuant to the Speedy Trial Act, 18 U.S.C. Sec. 3161(h)(8)(A). Judge Kevin T. Duffy, sitting in Part I, granted the continuance, finding delay of the preliminary hearing was "indispensable to the interests of justice." This Court On June 18, 1986, a grand jury returned an indictment 2 charging that all three defendants conspired to defraud the United States in violation of 18 U.S.C. Sec. 371; aided and assisted the presentation of false corporate income tax returns in violation of 26 U.S.C. Sec. 7206(2); and aided and assisted the principals of certain corporations in the presentation of false individual income tax returns, in violation of 26 U.S.C. Sec. 7206(2).

rejected defendants' interlocutory appeal from Judge Duffy's order. 1

At trial, the Government presented evidence indicating that, from 1978 to 1986, Gurary and the Sternbergs sold invoices to corporations, directly and through middlemen, falsely reflecting that one of the defendants' companies had sold goods to the invoice-purchasing company. Principals of those companies would then provide defendants with a company check in payment of the fictitious invoice. Defendants returned cash to the principal, in the amount of the check less a commission of five to fifteen percent for the defendants and their middlemen. No actual goods were involved.

Corporations purchasing the fictitious invoices included the non-existent goods in their calculations of cost-of-goods-sold for tax purposes, fraudulently misstating their taxable income. The principals involved converted part of the cash received to their own personal use without declaring those funds as income on their yearly tax returns. The substantive counts in the indictment relate to the corporate and individual tax returns filed by invoice purchasers and their principals.

DISCUSSION
I. Intent

Defendants contend the evidence presented by the Government was insufficient to support a finding that Gurary and the Sternbergs intended to violate the tax laws. Both the 26 U.S.C. Sec. 7206(2) substantive counts and the 18 U.S.C. Sec. 371 conspiracy count require a showing of specific intent. The specific standards for each, however, vary.

Section 7206(2) provides that:

Any person who ... [w]illfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document ... shall be guilty of a felony....

In the context of this statute, "willfully" means an intentional violation of a known legal duty. See, e.g., United States v. Bishop, 412 U.S. 346, 93 S.Ct. 2008, 36 L.Ed.2d 941 (1973); United States v. Pomponio, 429 U.S. 10, 97 S.Ct. 22, 50 L.Ed.2d 12 (1976).

The crux of defendants' argument is that the conduct of Gurary and the Sternbergs, however reprehensible, was not directed at the tax laws. More specifically, defendants claim they had no reason to know corporate invoice-purchasers would commit tax fraud, since merchants in the garment industry use both cash and false invoices for purposes other than tax evasion. Instead, defendants contend they believed fictitious invoices were used as a ruse to avoid corporate bookkeepers and bookkeeping procedures which restrict the issuance of checks for cash. Similarly, defendants assert they had no reason to believe corporate principals would pocket cash received and fail to report the money as income on their individual income tax returns.

In considering whether the jury's verdict should be overturned, we must view the evidence and make all permissible inferences in the light most favorable to the Government. United States v. Carson, 702 F.2d 351 (2d Cir.), cert. denied, 462 U.S. 1108, 103 S.Ct. 2456, 77 L.Ed.2d 1335 (1983); United States v. Ciambrone, 787 F.2d 799 (2d Cir.), cert. denied, 479 U.S. 1017, 107 S.Ct. 668, 93 L.Ed.2d 720 (1986); United States v. Heinemann, 801 F.2d 86 (2d Cir.1986), cert. denied, 479 U.S. 1094, 107 S.Ct. 1308, 94 L.Ed.2d 163 (1987). The question presented here is whether the Government presented any evidence from which the jury could infer that defendants knew their scheme would result in the filing of false corporate and individual tax returns, and deliberately proceeded with their scheme in the face of that knowledge. We hold the Government presented such evidence.

Evidence presented by the Government tends to show that over an eight-year period defendants sold, directly and through middlemen, fictitious invoices with a face value of over $136 million. For each transaction defendants deducted a fee of five to fifteen percent and split that fee with middlemen. Defendants created and dissolved thirty-six different corporations, opened and closed bank accounts for the processing of checks and funds, yet conducted no substantive business through those corporations--only the sale of invoices. Fictitious invoices were prepared and revised in accordance with purchasers' specifications. Each and every purchaser testifying at trial indicated that they included the fictitious invoices in calculating the deduction for cost-of-goods-sold on their corporate tax returns.

In addition to this indirect evidence, the Government presented direct evidence indicating defendants knew the fictitious invoices were used to prepare fraudulent tax returns and nevertheless proceeded with the scheme. Irving Katcher testified that he had been a middleman in defendants' sales of fictitious invoices. Katcher recounted a conversation where Gurary, in response to a question on why people would want to buy invoices, responded that invoice purchasers could "save money on taxes by building up the inventory, or ... buy piece goods and get the dollar amount back and use it either to pay off buyers or expand [the purchaser's] business or keep it personally." Tr. 1934. Samuel Mandel, who purchased invoices through his company Randy Hall, Inc., testified that on one occasion Nochum Sternberg advised Mandel that Gurary wanted to speak with him. At the meeting and in the presence of Nochum Sternberg, Gurary stated that one of Mandel's partners was in trouble with the IRS and inquired whether the partner would tell the IRS where he had been receiving his cash. Employees of another invoice purchaser ("Ahead By a Length" and Irwin Feiner), testified that they instructed Esther Sternberg on correlating checks with invoices and on completing invoices to comport with the type of goods Ahead By a Length purchased in its business.

This undercuts defendants' contentions that they did not know invoices would be used to file false returns or intend to assist in the violation of tax laws. Several factors in particular would allow a jury to infer defendants knew the fictitious invoices were being used as support documentation for fraudulent tax returns and not merely as a ruse to get corporate bookkeepers to issue checks: the length and extent of the scheme; the explanation of uses for fictitious invoices made to Katcher; the meeting between Nochum Sternberg, Gurary and Mandel to discuss the IRS investigation of Mandel's partner; and Esther Sternberg's conversations with invoice purchasers, including the corporate bookkeeper of one purchaser, regarding the descriptions included in the invoices. Defendants' continuation of the scheme in the face of that knowledge is indicative of an intent to aid and assist in the filing of fraudulent corporate tax returns.

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