U.S. v. Furst

• Decision Date: 02 November 1989
• Docket Number: No. 89-5294,89-5294
• Citation: 886 F.2d 558
• Parties: 28 Fed. R. Evid. Serv. 1330 UNITED STATES of America v. FURST, Sidney D., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 558

886 F.2d 558

28 Fed. R. Evid. Serv. 1330

UNITED STATES of America v. FURST, Sidney D., Appellant.

No. 89-5294.

United States Court of Appeals Third Circuit.

Argued Aug. 10, 1989.

Decided Sept. 22, 1989.

Rehearing and Rehearing In Banc Denied Nov. 2, 1989.

Robert L. Potter (argued), Frank Arcuri, Strassburger, McKenna, Gutnick & Potter, Pittsburgh, Pa., for appellant.

James J. West, U.S. Atty., Scranton, Pa., Wayne P. Samuelson (argued), Asst. U.S. Atty., Lewisburg, Pa., for appellee.

Before SLOVITER and GREENBERG, Circuit Judges, and VAN ANTWERPEN, District Judge. ^*

OPINION OF THE COURT

GREENBERG, Circuit Judge.

Sidney D. Furst appeals from his conviction on multiple counts of theft from pension funds, making false statements in bank records, and making false statements in reports required by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1001 et seq. He contends that his motion at trial for a judgment of acquittal should have been granted and that, alternatively, because of trial errors he should be granted a new trial. He also appeals from the refusal of the district judge to disqualify himself from imposing sentence pursuant to these convictions.

We will reverse the convictions on the theft from pension fund counts and one of the three counts relating to false statements in ERISA records, and direct Furst's acquittal on those counts, but will affirm the convictions on the other counts. We will vacate the sentences imposed on the remaining counts and will remand this matter to the district court for reassignment to a different district judge for imposing a new sentence.

I. BACKGROUND

A. Underlying Facts

Furst was employed as a Vice President in the trust division of Northern Central Bank (NC Bank) in Williamsport, Pennsylvania, and in this capacity was responsible for investments for a number of trust accounts. Furst had a nationwide reputation in the investment community for his ability to select venture stocks.

In late 1979, Furst began investing the funds of some of the accounts which he oversaw with First Commodities Corporation of Boston (FCCB) and by the fall of 1980, $909,100.00 had been so invested. See Trial Transcript of Jan. 10, 1989, at 125 (testimony of M. Aderhold). Some of these funds were those of the Williamsport Orthopedic Association Defined Benefit Plan (WOA) ¹ and the Williamsport Foundation

(WF). ²

As of the fall of 1980, FCCB statements indicated that a very large portion of the funds invested had been lost. At the end of December, 1980, FCCB transferred the remaining sum, $236,015.52, to First Financial Corporation of Miami (FFCM), also identified as First Financial Corporation of America (FFCA).

On August 26, 1981, FFCM sent three checks for $307.10, $256.85 and $269.65 to NC Bank. See Trial Transcript of Jan. 10, 1989, at 132-34 (testimony of M. Aderhold); Trial Transcript of Jan. 11, 1989, at 20 (testimony of M. Aderhold). Although there is no evidence that the checks so indicated, see Trial Transcript of Jan. 11, 1989, at 119-20 (testimony of M. Aderhold), it appears that they represented the last remains of the $909,100.00 investment. See Trial Transcript of Jan. 10, 1989, at 133-34, 141-42, 166-67, 169, 170 (testimony of M. Aderhold); Trial Transcript of Jan. 11, 1989, at 20 (testimony of M. Aderhold).

In October, 1981, Furst directed that an entry be made in the NC Bank computer closing out the WOA investment in FCCB/FFCM for $180,000.00. Thereafter, as Furst explains in his brief:

In Spring, 1982, NC Bank's Trust Division had not received the $180,000 which had been booked as a receivable on the close out of WOA's investment in FCCB in October, 1981. A computer transaction was entered eliminating the receivable, debiting cash, and creating a deficit in the WOA account of $180,000.

Brief for appellant at 6.

In the 1983 WOA annual report Furst represented that FCCB/FFCM owed the fund $180,000.00. Thereafter, in the 1984 annual report Furst represented that the $180,000.00 was uncollected but was earning interest so that the total sum due was $220,617.67.

On February 14 or 15, 1985, an account captioned the WOA Escrow account was created in NC Bank's computer system and was opened with a balance of $0.00. See Appellee's app. at 382-84; Trial Transcript of Jan. 10, 1989, at 56 (testimony of M. Aderhold); Trial Transcript of Jan. 11, 1989, at 62 (testimony of M. Aderhold).

In a memorandum dated February 21, 1985, Richard Neidig, an employee of NC Bank who reported to Furst, sent revised schedules of assets of WOA for use in WOA's annual report for the period ending October 31, 1984. See Gov't Ex. 165. The attached schedule of assets and portfolio summary both indicated: "The above market value does not include $220,617.67 being held in the W.O.A., Inc. Pension Escrow account," id., the account which had just been opened the week before with no balance.

In September 25, 1985, Furst engaged in a three-step transaction to sell stock held by another account he controlled, Stock Bond Fund 501C, to an ERISA account, Stock Fund Number 2, he also controlled. ³ See Trial Transcript of Jan. 10, 1989, at 54, 55, 57 (testimony of M. Aderhold). The stock involved was a venture capital stock in the Machine Vision Company. By buying the stock from the first account at a lower price than he sold it to the third account, ⁴ Furst generated $240,000.00 in the second account, the WOA Escrow account, through which the trades were implemented. This was the first positive balance the WOA Escrow account had since it was opened on or about February 14, 1985. See Appellee's app. at 383-85; Trial Transcript of Jan. 10, 1989, at 56-57 (testimony of M. Aderhold).

On September 30, 1985, the sum so generated was distributed to WOA, one of the accounts that had lost money as a result of the FCCB/FFCM investment. See Trial Transcript of Jan. 10, 1989, at 57-60 (testimony of M. Aderhold); Trial Transcript of Jan. 11, 1989, at 19-20, 30, 81-82 (testimony of M. Aderhold). ⁵

On October 31, 1985, WOA's fiscal year ended and its annual report reflected the receipt of $240,000.00. However, instead of indicating that this sum was attributable to the gains generated through the Machine Vision trade, the report represented that the $240,000.00 was the $220,617.67 account receivable due from FCCB/FFCM listed in the 1984 annual report together with interest.

In the fall of 1985, Furst and another NC Bank employee, Marshall Raucci, were negotiating with Guarantee Bancshares (GB) about leaving NC Bank to open a trust company for GB. In December, 1985, Furst and Raucci met with GB's officers and GB's attorney, David W. Marston, to discuss how Furst and Raucci should conduct themselves during the interim period before they left NC Bank.

On December 26, 1985, Furst conducted a second internal stock trade through accounts he controlled, this one involving stock in the Rocking Horse Child Care Center. Like the earlier trade this transaction used different rates for the two sales, ⁶ thus generating a sum that was distributed to WF, one of the other accounts that had lost money as a result of the FCCB/FFCM investment. ⁷ As in the case of the Machine Vision transaction, the second transfer of the Rocking Horse shares was to ERISA accounts. Neidig facilitated this internal stock trade and the distribution of the proceeds.

In April, 1986, Furst and Raucci left NC Bank and established Guarantee Trust Company in Williamsport, Pennsylvania, for GB. In October, 1986, as allegations of misconduct by Furst in his position at NC Bank began to surface, officers of GB requested that he attend a meeting in Philadelphia to explain the situation. The meeting was attended by William Dimeling, GB's chairman, see appellee's app. at 649, Marston, GB's attorney who arrived after the meeting started, Furst, and Richard East. See appellee's app. at 649, 666-67, 681 (listing those present as Furst, Dimeling, Marston, and East); Gov't Ex. 175 (same).

East was an officer of Tobias Knoblauch Private Bank, a bank not affiliated with GB, but in which GB's chairman, Dimeling had an interest. It appears that Dimeling asked that East be present because East had actually heard the specific allegations of misconduct. See appellee's app. at 667.

At the October, 1986, meeting Furst related most of the foregoing facts to those present. Furst allegedly explained that he was aware of three potential areas in which his conduct at NC Bank may have been questioned. First, he had distributed the proceeds of a class action settlement into the trust department's operating funds rather than to specific beneficiaries. Second, he had traded in his mother's account, an activity for which he had been criticized at NC Bank. He indicated, however, that inasmuch as he had her permission he did not think this presented any real problem. Third, Furst explained that "he had invested in some gold commodities on behalf of a couple investment funds in the early eighties and had sustained substantial losses and had used other trades subsequently to 1980 to try to make good the losses in those accounts." Appellee's app. at 685-86. This third area of potential difficulty related to the Machine Vision and Rocking Horse transactions.

With respect to this third area, Furst allegedly explained that the commodities had declined in value by $700,000.00 shortly after the investment. See appellee's app. at 686. Moreover, Furst supposedly admitted that he carried the commodities investment on the books at the value of the original investment so that the investors were unaware of the loss. See appellee's app. at 687. And Furst allegedly explained that he used profits generated from internal bank trades to make up the commodities loss. See appellee's app. at 687-88. Furst allegedly conceded that if a subordinate had engaged in these transactions and it came to his attention, Furst would have been forced to terminate him. See appellee's...