U.S. v. Khanu

• Decision Date: 22 December 2009
• Docket Number: Criminal Action No. 09-087(CKK).
• Citation: 675 F.Supp.2d 55
• Parties: UNITED STATES of America, Plaintiff, v. Abdul Karim KHANU, Defendant.
• Court: U.S. District Court — District of Columbia

675 F.Supp.2d 55

UNITED STATES of America, Plaintiff, v. Abdul Karim KHANU, Defendant.

Criminal Action No. 09-087(CKK).

United States District Court, District of Columbia.

December 22, 2009.

COPYRIGHT MATERIAL OMITTED

John R. Roth, U.S. Attorney's Office, Patrick Joseph Murray, U.S. Department of Justice, Washington, DC, for Plaintiff.

MEMORANDUM OPINION

COLLEEN KOLLAR-KOTELLY, District Judge.

Before the Court are Defendant's motions for a judgment of acquittal following the close of the government's evidence and at the close of all of the evidence, on which the Court reserved its decisions pursuant to Federal Rule of Criminal Procedure 29(b), and Defendant's [80] Renewed Rule 29 Motion for Judgment of Acquittal, filed after the jury returned the verdict pursuant to Rule 29(c).¹ Defendant has filed an opening and reply brief in support of his motions as well as supplemental exhibits, and the Government has filed an opposition. Based on the evidence in the record, the parties' submissions, and the applicable law, the Court finds that the Government did present proof at trial beyond a reasonable doubt to sustain a conviction as to Counts 3 and 4 of the Indictment, the only counts on which the jury returned a verdict of guilty. The Court shall therefore DENY Defendant's motions for a judgment of acquittal.

I. BACKGROUND

Defendant Abdul Karim Khanu was indicted by the grand jury with one count of conspiring to defraud the United States in violation of 18 U.S.C. § 371, three counts of attempted tax evasion in violation of 26 U.S.C. § 7201, and eighteen counts of aiding and assisting in the preparation of filing false corporate income and employment tax returns in violation of 26 U.S.C. § 7206(2). After a jury trial, Defendant was acquitted of the conspiracy charge, the aiding and assisting in the filing of false tax return charges, and one count of tax evasion. The jury convicted Defendant of two counts of tax evasion relating to Defendant's federal individual income tax returns for the tax years 2002 and 2003. Because the jury convicted Defendant, the Court recites the facts in the light most favorable to the government. United States v. Kayode, 254 F.3d 204, 212 (D.C.Cir.2001).

Defendant operated several nightclubs in Washington, D.C. that he owned wholly or in part. From at least November 1997 through December 2003, Defendant owned 24% of a corporation called TAF, Inc. ("TAF"), which was co-owned by three unindicted co-conspirators. (See Indictment ¶ 5.) TAF operated a nightclub first known as DC Live and later renovated and reopened as VIP. (Id. ¶ 6.) Defendant separately formed a corporation called Abdul Productions II, Inc. for the purpose of running another nightclub called Platinum. (Id. ¶¶ 7-8.) Defendant initially owned 80% of Abdul Productions II, Inc. and, by 2002, owned 100% of the company. (Id. ¶ 7.) The Indictment alleged that Defendant and the co-owners of TAF conspired to skim cash from TAF's gross receipts so that the employees of TAF could be paid wages in cash, avoid paying employment taxes on those wages, assist the employees in avoiding paying income taxes, and concealing their own income and avoid income taxes. (Id. ¶¶ 12-13.) The Indictment further alleged that Defendant skimmed cash from both TAF and Abdul Productions II, Inc. and prepared false corporate and individual income tax returns. (Id. ¶¶ 25-38.)

The evidence at trial demonstrated that Defendant had substantial control and involvement in the operation of his nightclubs.² Employees³ testified that Defendant had the authority to hire and fire security guards, busboys, managers, and other club personnel. The nightclubs generated substantial volumes of cash from items such as cover charges at the door and sales from the nightclubs' many bars. Witnesses testified that proceeds from the door were deposited into safes at the clubs and that Defendant had access to those safes. A bank manager testified that Defendant was the only one who frequently deposited cash on behalf of the corporations that owned the nightclubs. After each night that the clubs were open for business, club employees sent a fax to Defendant's home reporting how much money was made that night. Witnesses also testified that Defendant made numerous expenditures with large sums of cash, paying thousands of dollars in cash for, among other things, swimming pool services, driveway paving, a big screen television, furniture, and a security fence at Defendant's home. (See Gov't Ex. 905 (summarizing cash expenditures made by Defendant).)

On or about October 28, 2003, federal agents executed a search warrant at Defendant's home and found approximately $1.9 million in cash in a safe in the mud room of Defendant's house. Federal agents also searched Defendant's nightclubs and found various business records known as "white slips." These white slips, according to testimony by employees of the clubs, were essentially receipts for cash payments. Managers at the clubs testified that the business practice at the clubs was to pay certain employees (such as busboys, security guards, and in some instances, managers) in cash, and the managers would record the amount of cash paid out on a white slip. Those white slips were kept as business records and stored in the clubs' offices. Testimony at trial indicated that these cash payments were not reflected in the nightclubs' payroll system. (11/18/09 A.M. Tr. at 8-10.) After the execution of the search warrant, the business practice at the clubs changed so that employees were paid with payroll checks.

Much of the testimony at trial focused on the nature of the clubs' agreements with various promoters, who would essentially promote the club and bring in patrons each night in exchange for a percentage of the proceeds at the door. According to the club employees who testified, certain club employees, such as security guards, were paid in cash out of the door proceeds. Defendant's theory of the case was that these employees were not actually employees of the club, but in fact were employees of the promoter because they were paid out of the promoter's share of the proceeds. However, no one with personal knowledge of the promoters' agreements testified at trial.

The nightclubs' accountant, Craig White, testified that he was unaware of the white slips and the associated cash payments. (11/18/09 A.M. Tr. at 8-9.) However, he also testified that he advised Defendant that money paid to promoters should not be reported as corporate income for the nightclubs and that employees paid by the promoters are the promoters' responsibility. At Defendant's request, the Court instructed the jury that they may consider good faith reliance on the advice of an accountant to be a defense to the charges in the indictment relating to that advice (which does not include Counts 3 and 4). The Court also instructed the jury that Defendant's good faith belief was a defense to the element of willfulness.

The Government presented the bulk of its case with respect to Counts 3 and 4 through a summary witness, Revenue Agent Fred Lewis. Agent Lewis examined Defendant's use of and access to cash during a period beginning on April 12, 1999 and continuing through calendar year 2003. (11/19/09 A.M. Tr. at 84-85.) Lewis began his analysis with a starting cash on hand figure of just under $700,000, which he derived from a financial statement signed by Defendant on April 12, 1999 indicating that he had $700,000 in cash and bank accounts. (See Gov't Ex. 906A.) Testimony in the Defendant's case indicated that this financial statement was provided by Defendant to the lessor of the property that Defendant wanted to use for the Platinum nightclub and was not audited. By subtracting the amount of funds in Defendant's bank accounts on that date, Agent Lewis calculated that Defendant had $698,886.20 in cash on April 12, 1999. (11/19/09 A.M. Tr. at 81.) From that date forward, Lewis added to that figure all potential sources of cash that could be identified, including cash withdrawals and checks written to cash, income tax refunds and cash wages. (See Gov't Ex. 900.) Lewis then compared that figure to Defendant's cash expenditures, including cash deposits made into his bank accounts, the cash seized from Defendant's home in October 2003, and the purchases Defendant made with cash. As a result, Lewis calculated that in 2002, Defendant had total cash expenditures of $609,498.90 but only had $156,403.85 in total sources of cash, suggesting that Defendant had $453,095.05 (the difference) in unreported income. (See Gov't Ex. 900; 11/19/09 A.M. Tr. at 107.) Similarly, Lewis calculated that in 2003, Defendant had total cash expenditures of $3,006,154.00 but only had $778,463.93 in total sources of cash, suggesting $2,227,690.07 in unreported income. (See Gov't Ex. 900.)

II. LEGAL STANDARD

Rule 29(a) of the Federal Rules of Criminal Procedure provides in pertinent part that "[a]fter the government closes its evidence or after the close of all the evidence, the court on the defendant's motion must enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction." The Court must deny a motion for judgment of acquittal when, considering the evidence in the light most favorable to the government, "it is sufficient to permit a rational trier of fact to find all of the essential elements of the crime beyond a reasonable doubt." Kayode, 254 F.3d at 212 (quoting United States v. Harrington, 108 F.3d 1460, 1464 (D.C.Cir.1997)). "In ruling on a motion for a judgment of acquittal, `the trial court must view the evidence in the light most favorable to the Government giving full play to the right of the jury to determine credibility, weigh the evidence and draw justifiable inferences of fact." United States v. Treadwell, 760 F.2d 327, 333 (D.C.Cir.1985) (quoting United States v. Davis, 562 F.2d 681, 683 (D.C.Cir.1977)). This stringent standard contemplates...