U.S. v. Dale

• Decision Date: 16 June 1993
• Docket Number: Nos. 91-3228,s. 91-3228
• Citation: U.S. v. Dale, 991 F.2d 819, 301 U.S. App. D.C. 110 (D.C. Cir. 1993)
• Parties: , 76 A.F.T.R.2d 95-7649, 38 Fed. R. Evid. Serv. 745 UNITED STATES of America, Appellee, v. David M. DALE, Appellant. UNITED STATES of America, Appellee, v. Michelle ASHTON, Appellant. UNITED STATES of America, Appellee, v. Martin SEGAL, Appellant. UNITED STATES of America, Appellee, v. AUTOMATED DATA MANAGEMENT, INC., Appellant. UNITED STATES of America, Appellee, v. Terence SWEENEY, Appellant. to 91-3232.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 819

991 F.2d 819

301 U.S.App.D.C. 110, 76 A.F.T.R.2d 95-7649,

38 Fed. R. Evid. Serv. 745

UNITED STATES of America, Appellee, v. David M. DALE, Appellant.

UNITED STATES of America, Appellee, v. Michelle ASHTON, Appellant.

UNITED STATES of America, Appellee, v. Martin SEGAL, Appellant.

UNITED STATES of America, Appellee, v. AUTOMATED DATA MANAGEMENT, INC., Appellant.

UNITED STATES of America, Appellee, v. Terence SWEENEY, Appellant.

Nos. 91-3228 to 91-3232.

United States Court of Appeals District of Columbia Circuit.

Argued Nov. 18, 1992.

Decided April 6, 1993.

Rehearing and Rehearing En Banc

Denied June 16, 1993.

Rehearing Denied in No. 91-3228

July 27, 1993.

[301 U.S.App.D.C. 116] Appeals from the United States District Court; for the District of Columbia (Criminal No. 90-00027).

Samuel J. Buffone, Washington, DC, for appellant David M. Dale in No. 91-3228.

Paul Mogin, with whom Brendan V. Sullivan, Jr., Washington, DC, was on the brief, for appellant Michelle L. Ashton in No. 91-3229.

Alan M. Dershowitz, Cambridge, MA, with whom R. Stan Mortenson and Scott L. Nelson, Washington, DC, were on the brief, for appellant Martin Segal in No. 91-3230.

W. Neil Eggleston, with whom Laura S. Shores, Washington, DC, was on the brief, for appellant Terence A. Sweeney in No. 91-3232.

Kenneth Michael Robinson, Washington, DC, was on the brief for appellant Automated Data Management, Inc. in No. 91-3231. Robert F. Muse, Boston, MA, also entered an appearance for appellant Automated Data Management, Inc.

Stephen P. Anthony, Asst. U.S. Atty., with whom Jay B. Stephens, U.S. Atty., and John R. Fisher, Robert J. Meyer and Helene Kazanjian, Asst. U.S. Attys., Washington, DC, were on the brief, for appellee.

Before WALD, RUTH BADER GINSBURG and HENDERSON, Circuit Judges.

Opinion PER CURIAM.

PER CURIAM:

The defendants, a corporation and its officers, challenge their convictions and sentences on various counts of fraud against the United States and its agencies. For the reasons set out below, we affirm their convictions in toto but remand for resentencing pursuant to Part X(F) of this opinion.

I. FACTS

On appeal from a criminal conviction, this court must view the evidence in the light most favorable to the government, allowing it the benefit of all reasonable inferences that may be drawn from the evidence and permitting the jury to determine the weight and credibility of the evidence. United States v. Smith, 964 F.2d 1221, 1223 (D.C.Cir.1992); United States v. Butler, 924 F.2d 1124, 1126 (D.C.Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 205, 116 L.Ed.2d 164 (1991). So viewed, the evidence reveals the following material facts.

Defendant Automated Data Management, Inc. (ADM) is a Washington, D.C. firm founded in the early 1980s by defendant Michelle Ashton, its president. In late 1984, Ashton hired defendant David Dale as "Executive Vice-President" and at about the same time issued to him 18% of ADM's stock, retaining the other 82% for herself. In early 1985, ADM obtained a contract to sell computers to the United States Army under the "minority set-aside" program of the Small Business Administration (SBA).

In late 1985, ADM established offices abroad in Germany and Korea and hired a new vice-president to manage each: defendant Terence Sweeney in Germany and defendant David Bowers in Korea. In addition, defendant Martin Segal was hired as ADM's in-house accountant in September 1986 and later received the title "Chief Financial Officer."

In August 1987 Bowers left ADM after a falling-out with Dale and Ashton--and after secretly taping telephone conversations he had with each of them. Bowers subsequently assisted a government investigation of ADM's operations that led to the defendants' indictments and convictions. Those convictions were based on the defendants' allegedly fraudulent tax treatment of various financial transactions involving ADM's Asian and European operations and on certain alleged misrepresentations or nondisclosures on government forms completed by defendants Ashton and Dale. We now summarize the facts underlying the convictions.

A. Tax Fraud

All five defendants were convicted both of tax fraud and of conspiracy to commit tax fraud. While the substantive tax fraud counts involved only ADM's 1986 corporate return, the conspiracy count involved other aspects of ADM's operations in both Asia and Europe. We describe separately the fraudulent activity relating to each location.

1. Asia

After taking charge of ADM's Korean operations, defendant Bowers determined ADM should take advantage of Asian business opportunities unrelated to its Army contracts. In order to circumvent legal restrictions on such activity, ¹ Bowers, after consulting with Dale, arranged for Nancy Edwards, a legal adviser to ADM's Korean office, to set up a Guam corporation which would not be subject to the restrictions. Edwards and her husband incorporated Asia Management Systems, Inc. in late summer 1986. Soon thereafter the corporate name was changed to ADM Asia and ownership transferred to Ashton, Dale and Bowers. Ashton and Dale each acquired a 37.5% interest in the company, while Bowers received the remaining 25%. Upon Dale's instruction to acquire additional companies, Bowers arranged for Edwards to purchase four Hong Kong corporations, Capulus, Fossano, Swaffham and Gemona, which were apparently shells with no assets other than documents of incorporation. During late October and early November 1986 ownership of Swaffham and Gemona was transferred to Ashton, Dale and Bowers in the same percentages as ADM Asia. ² There followed a number of financial transactions involving the related corporations on which the government based some of its tax fraud charges.

First, during 1986 Bowers arranged for Dale and Ashton to obtain payments totalling $50,000 from ADM funds channelled through the Korean office. Dale received $20,000 in February 1986 ³ and Ashton received $20,000 in May ⁴ and $10,000 in September. ⁵ Neither Dale nor Ashton reported these amounts as personal income on their 1986 federal income tax returns.

Second, between August 1986 and March 1987 ADM made three payments to related companies that it treated, falsely, as legitimate business deductions.

In August 1986, ADM paid $200,000 to Arlington Associates (Arlington), a company owned in equal shares by Dale and Ashton. ⁶ This payment was recorded in Arlington's books as a bank loan from Guam National Bank. Sometime in late summer or early fall 1986, Dale instructed Bowers to draft documents representing that the $200,000 payment was a loan to Arlington from Asia Management Systems, Inc., the Guam corporation that Ashton, Dale and Bowers had acquired on August 29, 1986, and subsequently renamed ADM Asia, Inc.

During December 1986 ADM paid a total of $417,532 to Swaffham and Gemona, the two Hong Kong companies acquired by Ashton, Dale and Bowers, for studies and services never actually performed. ⁷ ADM recorded these payments as deductible business expenses.

Finally, in March 1987 Bowers and Dale created a phony debt of $500,000 to Swaffham and documentation to support it. The debt was for software development purportedly performed by Swaffham but actually performed by employees of ADM in Korea at a cost of only about $30,000. ⁸ The debt was treated as an accrual and deducted as a business expense on ADM's 1986 tax return.

2. Europe

In Germany, defendant Sweeney hired Larry Knight in February 1986 as a consultant to assist with the European operations. Later that same year, Sweeney and Knight formed an interim German partnership to enable ADM to take advantage of non-Army business opportunities in Germany until a German corporation could be established. ⁹ On November 18, 1986, a German corporation, ADM Hard- und Software Handelgesellschaft GmbH in Deutschland (ADM H & S), was incorporated to assume the partnership's business. ¹⁰ Ownership of ADM H & S was divided among Ashton (37.5%), Dale (37.5%) and Sweeney (25%) and Knight was appointed general manager. ¹¹

Over the next two years, ADM made substantial payments to Bourbonia Invest AG, a Swiss investment firm operated by Gerd Wormer, an investment counselor and old friend of Knight. At trial, the government asserted and furnished evidence to show that these payments in fact accrued to the benefit of Ashton, Dale, ADM and ADM H & S and were fraudulently treated by ADM as business deductions.

The first Bourbonia payment, for $316,000, was made in December 1986, pursuant to two invoices signed by Wormer and dated December 11, 1986, a time when Sweeney and Knight were in the midst of a two-day meeting with Wormer at Wormer's home. One of the invoices sought payment for "Product Development Consulting for the period March 86, to December 86," Joint Appendix (JA) 1984, and the other "for Services rendered in accordance with letter contract as of March 11, 1986 for Machine Language Translation Research and Development Project," JA 1985. Request forms to ADM for checks to pay the Bourbonia invoices were marked "OK MS from D. Dale 12/22/86" and "Sent Via Bank Wire 12/22/86" and one of them was signed by Segal. ADM deducted the $316,000 payment as a business expense on its 1986 tax return. In late 1986, Bourbonia made a payment to ADM H & S of about $125,000 to purchase five vehicles, one for Knight's use and the other four to be leased to ADM., Inc. Sweeney and Knight characterized the payment as a loan, but the government maintains the funds came from the $316,000 Bourbonia payment and were never intended to be repaid, which in fact they were not.

The second Bourbonia payment was made in January 1988 pursuant to an invoice dated December 26, 1987, requesting payment of $102,655 for "consulting services for 1987 as per sep. agreement." Ashton signed a check request form dated January 5, 1988, indicating payment had been requested by Segal and authorizing payment of the requested amount. Dale signed a check...