U.S. v. Fassnacht

• Decision Date: 06 June 2003
• Docket Number: No. 02-3059.,No. 02-3060.,02-3059.,02-3060.
• Citation: 332 F.3d 440
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. John FASSNACHT and Vincent Malanga, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 440

332 F.3d 440

UNITED STATES of America, Plaintiff-Appellee, v. John FASSNACHT and Vincent Malanga, Defendants-Appellants.

No. 02-3059.

No. 02-3060.

United States Court of Appeals, Seventh Circuit.

Argued February 27, 2003.

Decided June 6, 2003.

Rehearing and Rehearing En Banc Denied August 8, 2003.

Appeal from the United States District Court for the Northern District of Illinois, Blanche M. Manning, J Debra Riggs Bonamici (argued), Office of U.S. Atty., Chicago, IL, for Plaintiff-Appellee.

Vincent J. Connelly, Linda T. Coberly (argued), Mayer, Brown, Rowe & Maw, Chicago, IL, for Defendant-Appellant.

Before KANNE, DIANE P. WOOD, and EVANS, Circuit Judges.

KANNE, Circuit Judge.

John Fassnacht and Vincent Malanga appeal their convictions for obstructing justice in violation of 18 U.S.C. § 1503. They argue that the obstruction offense was neither properly charged in the indictment nor sufficiently proven at trial — basically, that the obstruction charge was included by the government as an afterthought, tacked on to the primary charges of tax evasion and conspiring to impede the Internal Revenue Service. We, however, find that the indictment provided sufficient notice of the conduct for which Fassnacht and Malanga were being charged and that the government presented sufficient evidence at trial for a rational jury to have found the defendants guilty of obstruction of justice. We affirm the convictions.

HISTORY

Donald Newell and Vincent Malanga were partners and each fifty-percent shareholders in the Chicago-based investment firm of LaSalle Portfolio Management Inc. ("LPM, Inc."). LPM, Inc. advised clients on investment decisions and invested client funds in return for management and incentive fees. Newell, as President of LPM, Inc., worked from its Chicago office, handling all administrative aspects of the firm. Malanga served as Vice President, and was the sole LPM, Inc. representative in the New York office, responsible for trading on behalf of its clients.

In the early 1990s, Malanga and Newell began to discuss the possibility of setting up an investment fund in Bermuda, which would allow foreign investor clients to avoid United States tax obligations on income generated from their investments. They enlisted the services of John Fassnacht, a certified public accountant knowledgeable in international financial transactions, to help set up the Bermuda entity. In February 1993, with the help of Fassnacht and a Bermuda law firm, LaSalle Portfolio Management, Limited ("LPM, Ltd.") was formally incorporated in Bermuda. By January 1994, Newell and Malanga were each twenty-five-percent shareholders in LPM, Ltd., while Edmond Burke, a Swiss investment advisor recommended by Fassnacht (but whom neither Newell or Malanga had ever met or spoken with), held fifty-percent of the Bermuda entity.

In early 1994, LPM, Inc. was due to receive an incentive fee of $1.35 million from one of its foreign clients, the Abu Dhabi Investment Authority ("ADIA") for services performed by LPM, Inc. in 1993 (ADIA had been a client of LPM, Inc. since 1990). Rather than receive the incentive fee directly, Newell and Malanga directed ADIA to deposit the fee in an LPM, Ltd. bank account in Bermuda. LPM, Inc.'s 1994 tax returns failed to include the $1.35 million fee as income. In turn, the individual 1994 tax returns for Newell and Malanga failed to include as income their portions of the $1.35 million fee.¹

Most of the $1.35 million fee sat in the Bermuda bank account for some 18 months. In February 1996, Malanga was planning to purchase a new home and needed a portion of the incentive fee to put toward a down payment. At a February 13th meeting in New York, Malanga discussed his need for the money with Fassnacht and Newell. The three agreed to forward $400,000 to Malanga, and on February 15th, that money was transferred to Malanga's real estate attorney.

Also in early 1996, Newell discovered that LPM, Inc. employee Angela Dancisak had been embezzling funds from both LPM, Inc. and LPM, Ltd. Shortly thereafter, Dancisak was fired under less than amicable conditions. Dancisak then contacted the IRS to provide information about LPM's Bermuda operations and the $1.35 million incentive fee diverted to LPM, Ltd.

Apparently aware that Dancisak — a disgruntled former employee with intimate knowledge of LPM, Inc.'s financial affairs — posed a risk of disclosing damaging information to government authorities, Newell, Malanga, and Fassnacht began discussing how to defend their tax treatment of the $1.35 million incentive fee. Newell testified that in a January 15, 1996 telephone call in which all three individuals participated, Fassnacht inquired whether "it would have been feasible to have paid someone a finder's fee for introducing LaSalle to the people at ADIA." Newell testified that he agreed to prepare a scenario "describing what would have had to have happened for this to have actually happened." They discussed using Edmond Burke as the "finder" who would have introduced LPM, Inc. to ADIA. According to this scenario, the LPM principals would testify that they reached an agreement with Burke in 1989 for him to assist in opening and managing the ADIA account in return for a one percent fee up to $1 million, plus a twenty-five-percent bonus if certain benchmarks were met. Newell clarified, however, that such a sequence of events "did not actually happen," and that there was no factual basis for any part of the scenario he had prepared.

Based on the information provided by Dancisak, the IRS opened a federal grand jury investigation (number 96 GJ 258) into whether LPM, Inc. and LPM, Ltd. had acted to avoid paying taxes due on the $1.35 million ADIA incentive fee. IRS Criminal Investigation Division Special Agent Kristine Tice served as the case agent (or lead agent) for the grand jury investigation. As part of this investigation, on March 26, 1996, IRS agents executed a search warrant at LPM, Inc.'s Chicago offices. Also on that day, the IRS sought to interview partners Newell and Malanga. Newell initially refused to talk to the agents, but Malanga was interviewed in New York by two IRS agents who identified themselves as special agents with the IRS Criminal Investigation Division. According to Special Agent Lawrence Egan, Malanga told the agents during that interview that Burke was a marketing representative for LPM, and in that capacity had introduced ADIA to LPM. He also told the agents that the $1.35 million incentive fee from ADIA was directed to the Bermuda account to pay Burke for his services and to help set up an offshore account for foreign investors. Malanga stated that he had received no part of the $1.35 million incentive fee.

On April 1, 1996, a grand jury subpoena was served on Fassnacht by Special Agent Egan; the subpoena requested that Fassnacht provide any and all records relating to LPM, Inc.; LPM, Ltd.; Donald Newell; and any entity owned or controlled by Newell. Fassnacht provided one document in response to the subpoena. Also on the day the subpoena was served, Fassnacht was interviewed via telephone by Special Agent Tice, who testified at trial that she also introduced herself as a Special Agent with the IRS Criminal Investigation Division. She testified that during her interview of Fassnacht, he told her that Burke had introduced ADIA to Newell, for which he was due a finder's fee of approximately $1 million, and that the $1.35 million incentive fee was directed to LPM, Ltd.'s account in Bermuda to be used to pay Burke's finder's fee.

After his initial refusal to cooperate with the IRS agents, and upon advice of counsel he retained after the search of LPM, Inc.'s offices, Newell began recording his telephone conversations with Malanga and Fassnacht without their knowledge. He later agreed to cooperate with the government and continued recording conversations using government-provided equipment. Newell's testimony and the recorded conversations were major elements of the government's case at the subsequent trial of Fassnacht and Malanga. Newell himself was tried and convicted on two counts of filing a false tax return (on behalf of himself and LPM, Inc.) and was sentenced to 30 months imprisonment. He testified at the trial of Fassnacht and Malanga under a grant of immunity from further prosecution.

Fassnacht and Malanga were ultimately charged by the grand jury in a five-count indictment. Count One alleged that the two defendants had conspired to commit tax evasion, Counts Two and Three alleged attempts to evade income tax due in connection with Newell's and Malanga's 1994 federal income tax returns, and Count Four alleged obstruction of justice with respect to the grand jury investigation into the alleged tax evasion. Fassnacht was separately charged in Count Five with making false statements to an IRS agent. At the close of the government's case-in-chief, the district court granted the defendants' joint motion for a directed verdict on Counts Two and Three. The jury found Fassnacht and Malanga guilty on the charge of obstructing justice (Count Four), not guilty on the charge of conspiring to defraud the IRS (Count One) and, with respect to Fassnacht only, not guilty on the charge of making a false statement to an IRS investigator (Count Five).

Pursuant to Federal Rule of Criminal Procedure 29, Fassnacht and Malanga moved for a judgment of acquittal on the obstruction of justice charge, the only count on which they were convicted, arguing that (1) Count Four of the indictment was vague and confusing, and the government had failed to cure this problem by providing further particulars, and (2) the evidence presented at trial was insufficient to support a guilty verdict on the obstruction charge. The district court denied the defendants' motion, and sentenced each defendant to serve one year and one day in federal custody.

Fassnacht and Malanga now appeal their convictions, arguing first that the...