U.S. v. Kraig, s. 95-3734

• Decision Date: 08 November 1996
• Docket Number: 95-3771,Nos. 95-3734,s. 95-3734
• Parties: -7063, 96-2 USTC P 50,616 UNITED STATES of America, Plaintiff-Appellee, Cross-Appellant, v. Jerry B. KRAIG, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1361

99 F.3d 1361

78 A.F.T.R.2d 96-7063, 96-2 USTC P 50,616

UNITED STATES of America, Plaintiff-Appellee, Cross-Appellant, v. Jerry B. KRAIG, Defendant-Appellant, Cross-Appellee.

Nos. 95-3734, 95-3771.

United States Court of Appeals, Sixth Circuit.

Argued June 3, 1996.

Decided Nov. 8, 1996.

James R. Wooley, Asst. U.S. Attorney, Craig S. Morford (argued and briefed), Office of the U.S. Attorney, Cleveland, OH, for Plaintiff-Appellee, Cross-Appellant.

H. Louis Sirkin (argued), Marc D. Mezibov, Laura A. Abrams (briefed), Sirkin, Pinales, Mezibov & Schwartz, Cincinnati, OH, for Defendant-Appellant, Cross-Appellee.

Before: MERRITT and COLE, Circuit Judges; ECHOLS, District Judge. ^*

MERRITT, Circuit Judge.

Defendant Jerry Kraig, a lawyer, was convicted by a jury of a single count of conspiracy in assisting to conceal assets of Reuben Sturman (not a defendant herein) from the Internal Revenue Service, thereby preventing the ascertainment, computation and collection of taxes in violation of 18 U.S.C. § 371. Defendant was sentenced to 30 months in prison. He appeals his conviction and sentence. The government cross-appeals the sentence. We affirm both the conviction and the sentence.

I.

In the years before the advent of the conspiracy at issue here, Reuben Sturman was a nationwide manufacturer, distributor and marketer of adult entertainment material throughout the United States. In 1985, Sturman was indicted on 16 counts of tax evasion and related offenses. Sturman was convicted of all charges in 1989 in one of the largest tax evasion cases in the history of the IRS and his conviction was affirmed by this Court. United States v. Sturman, 951 F.2d 1466 (6th Cir.1991), cert. denied, 504 U.S. 985, 112 S.Ct. 2964, 119 L.Ed.2d 586 (1992).

The Defendant herein, Jerry Kraig, was Sturman's lawyer. Kraig was convicted of helping Sturman fraudulently conceal his assets, mainly real estate, through foreign "shell" corporations. Three other persons were also indicted with Kraig, as well as unnamed coconspirators. One of the coconspirators pled guilty and the other two went to trial separately from Kraig. This appeal concerns only Defendant Jerry Kraig.

Kraig was a lawyer with a small personal injury and criminal practice in Cleveland, Ohio. In 1982, Sturman hired Kraig to do First Amendment work for him relating to Sturman's business. As a result, Kraig moved part of his law offices into Sturman's headquarters in Cleveland.

In 1984, Kraig referred Sturman to Robert Garfield, another Cleveland lawyer and a close personal friend of Kraig's, to do tax and estate planning work for Sturman. Kraig testified that he believed Sturman wanted to establish a trust from various real estate holdings for the benefit of Sturman's children. Kraig served as Garfield's contact with the Sturman organization. Garfield Tr. at 88-89, Joint Appendix at 353-54. ¹

In 1986, Kraig, on behalf of Sturman, retained the services of a Panamanian law firm for the purpose of forming a corporation named Gemstone Realty Corporation. The lawyer whom he contacted was named Horatio Alfaro, one of the codefendants herein. During 1986, Kraig provided the necessary information to Alfaro to set up the corporation. Kraig instructed the Panamanian firm to send the Gemstone stock to a Swiss attorney to hold on behalf of Sturman. Offshore bank accounts, to which Sturman had access, were also opened in Gemstone's name. The coconspirators attempted to hide Sturman's ownership by making it appear as though Gemstone was owned by a foreign trust controlled by a Swiss citizen instead of by Sturman. Gov't Ex. 57, J.A. at 224. Kraig was the contact person between Sturman and the Panamanian law firm and Kraig received and reviewed the invoices sent by the Panamanian firm for the work it was doing relating to Gemstone. Ginsberg Tr. at 205, J.A at 403.

In advising Sturman about estate planning, Garfield initially suggested a domestic trust and not a foreign trust because a foreign entity could easily hide assets. In 1986, however, Sturman told Garfield to transfer properties to Gemstone. The transfers were to be made without disclosing Sturman's ownership of the properties. Garfield resigned in 1986 when he learned that the IRS had begun to investigate Sturman in 1985. He testified that he suspected that the project for which he had been hired might be a tax evasion plan. Garfield Tr. at 90-91, J.A. at 355-56. Garfield also testified that he advised Kraig to resign also so he would not get caught up in Sturman's "net."

Garfield testified that he doesn't remember if he ever talked to Kraig about the specifics of Sturman's relationship to Gemstone but states that he "probably" did. Garfield Tr. at 94-95, J.A. at 259-60. Garfield also testified that he did express his general concerns about Sturman to Kraig. Garfield Tr. at 94, 124, J.A. at 359, 371. Furthermore, Garfield sent memos to Kraig describing some of the problems relating to the Gemstone transfers. (Garfield Tr. at 96, J.A. at 361). Garfield testified that after he resigned, Kraig told him that the files on the asset transfer project were to be assigned to another Cleveland lawyer named Marvin Ginsberg, a codefendant in this case. Ginsberg later pled guilty to the conspiracy charge and testified against his codefendants.

Ginsberg testified that when he was arranging the property transfers, Kraig was the person to whom he turned when he needed information about Gemstone. Kraig went over all the transactions concerning Gemstone with Ginsberg. See, e.g., Ginsberg Tr. at 207, 217-18, 220-22, J.A. at 405, 415-16 418-20. In 1988, Ginsberg began working directly with Horatio Alfaro, the Panamanian lawyer, to make the transfers and not always going through Kraig.

As to ownership of the trust, Ginsberg testified that at a March 1989 meeting he attended with Kraig, he learned that there was no trust and that Reuben Sturman was the beneficial owner of Gemstone. Ginsberg Tr. at 194-95, J.A. at 392-93. Kraig contends that he always believed there was a legitimate trust and that it was not beneficially owned by Sturman. Ginsberg testified to facts from which a jury could legitimately infer that Kraig must have known that there was no trust because Kraig also attended the same meeting where Ginsberg discovered there was no trust. Id.

In addition to hiding the assets from his real estate holdings through Gemstone, Sturman also sold his adult bookstores and attempted to hide the income from these sales. The evidence also supports the inference that Sturman sold the bookstores after his indictment so that, in the event he was convicted, the IRS would not discover and attach his property in order to pay the taxes owed.

The government showed that Kraig also took part in this portion of the conspiracy. For example, in 1988, Kraig prepared a contract indicating that one of Sturman's employees, John Bordone, was purchasing adult bookstores from Eduardo Stockali, one of the coconspirators in this action. In fact, Sturman, not Stockali, owned the stores. Bordone made installment payments on the stores he had purchased. Bordone testified that he sent the checks, which were made out to Stockali, to Kraig in Cleveland. Kraig forwarded the checks to Stockali for deposit in one of the Swiss offshore accounts set up on behalf of Sturman by the Panamanian law firm. Kraig accepted these payments from Bordone between 1988 and 1991. Bordone Tr. at 49-69, J.A. at 239-59.

In 1990, after Sturman was convicted, the IRS entered a large tax assessment against Sturman and proceeded to try to collect the amount through levies and liens on Sturman's properties, including Gemstone. Sturman, through the coconspirators in this case, including Kraig, hired two Cleveland lawyers, Frank DeSantis and Jim Scott, to file lawsuits against the United States to challenge the tax levies and for wrongful prosecution. The new lawyers said they would only take the case if it could be demonstrated that Sturman was not the beneficial owner of Gemstone. Ginsberg Tr. at 241-45, J.A. at 435-43. Kraig testified that he told the new lawyers that he thought the trust was owned by Sturman for the benefit of Sturman's children but "he wasn't sure." DeSantis Tr. 336, 366, J.A. at 267, 297. One of the lawyers testified at trial that Kraig "assured" him that Sturman was not the owner. DeSantis Tr. 336-43, 406-07, J.A. at 267-74, 302-03. In 1991, Kraig met with Ginsberg and Horatio Alfaro, the Panamanian lawyer and a coconspirator in this case, to decide what information about Gemstone to turn over to the newly-hired lawyers for purposes of the suit against the United States.

Kraig prepared a memorandum for Sturman advising him that to prevail in a wrongful levy action against the IRS, he would need to show that someone else owned Gemstone or to show that Gemstone is fully owned by an irrevocable trust. As mentioned above, Ginsberg testified that Kraig had known since at least a 1989 meeting that both Ginsberg and Kraig attended with Sturman that Gemstone was not owned by a trust. Ginsberg Tr. at 256-64, J.A. at 454-62. Ginsberg ultimately drafted a false affidavit stating that a Swiss citizen named Thomas Kummer was the owner of Gemstone and that Sturman had no ownership interest in Gemstone. Ginsberg Tr. at 253, J.A at 451; Gov't Ex. 64, J.A. at 234. This affidavit was presented to the IRS by the new lawyers as proof that Sturman did not own Gemstone. The new lawyers, however, went to Switzerland to meet with the alleged owner of the trust and discovered that Sturman was in fact the beneficial owner of Gemstone. The new lawyers resigned. Ginsberg Tr. 180, DeSantis Tr. at 361-62, J.A. at 328, 292-93.

Kraig was tried separately from his codefendants and was convicted by a jury in April 1995. He was sentenced after a hearing to 30 months in jail, three years supervisory release and a $10,000 fine.

II.

A. The Conviction

1. Motion to Dismiss the Indictment

Kraig first...