U.S. v. Morgenstern, 1183

• Decision Date: 22 May 1991
• Docket Number: D,No. 1183,1183
• Citation: 933 F.2d 1108
• Parties: UNITED STATES of America, Appellee, v. Seymour MORGENSTERN, Defendant-Appellant. ocket 90-1662.
• Court: U.S. Court of Appeals — Second Circuit

Page 1108

933 F.2d 1108

60 USLW 2046

UNITED STATES of America, Appellee, v. Seymour MORGENSTERN, Defendant-Appellant.

No. 1183, Docket 90-1662.

United States Court of Appeals Second Circuit.

Argued April 16, 1991.

Decided May 22, 1991.

Mark A. Summers, New York City (Hoffman & Pollok, of counsel), for defendant-appellant.

Paul A. Engelmayer, New York City, Asst. U.S. Atty., S.D.N.Y. (Otto G. Obermaier, U.S. Atty., S.D.N.Y., Samuel Whitney Seymour, Asst. U.S. Atty., of counsel), for appellee.

Before LUMBARD, FEINBERG and McLAUGHLIN, Circuit Judges.

FEINBERG, Circuit Judge:

Defendant Seymour Morgenstern appeals from a judgment of conviction on two counts entered in the United States District Court for the Southern District of New York, Robert W. Sweet, J., after a jury trial. Morgenstern was found guilty on Count One of executing a scheme to obtain approximately $728,000 of his client's funds from Chemical Bank without authorization and by false and fraudulent pretenses, in violation of 18 U.S.C. Sec. 1344(a)(2); and on Count Two of making, uttering and possessing counterfeit and forged checks in the approximate total amount of $32,590, in violation of 18 U.S.C. Sec. 513. Judge Sweet sentenced Morgenstern to a prison term of 27 months, to be followed by a three-year term of supervised release. On appeal, Morgenstern argues that (1) the district court lacked jurisdiction over the check fraud scheme alleged in Count One because this offense was not covered by the applicable federal bank fraud statute, 18 U.S.C. Sec. 1344(a)(2); (2) his conviction on Count Two, the forgery count, was invalid because the government did not show that all 13 checks identified in the indictment were forged; and (3) his indictment should have been dismissed because government misconduct led to the destruction of documents material to his defense. For reasons given below, we affirm.

I. Factual Background

A. Morgenstern's Fraud Scheme

From the evidence before it, the jury could have found the facts as follows: Starting in 1969, Seymour Morgenstern, an accountant, was employed on a part-time basis by Leo Gross and his son, Paul, to handle the tax affairs of three separate business entities engaged in the manufacturing and marketing of sweaters (the sweater companies). Morgenstern had two main responsibilities. First, he prepared annual tax returns for the companies and for the Gross family. Second, he determined the amounts owed by the companies for federal, state and local taxes, and prepared checks to satisfy these obligations.

In the mid-1980s, Morgenstern initiated a scheme to divert money designated to cover the sweater companies' payroll tax liability to an account under his own personal control at Chemical Bank. He did so by exploiting the Grosses' longstanding practice of using Chemical Bank as an intermediary to forward to the Internal Revenue Service (IRS) their federal payroll tax payments, e.g., withholding and social security taxes. Rather than sending payroll tax checks directly to the IRS, the sweater companies made their payroll tax checks payable to "Chemical Bank" and deposited them in an internal account at the bank known as a "payroll tax depository." The bank then forwarded the tax depository's contents to the IRS, indicating the portions attributable to the accountholders who had made deposits in it that day. Morgenstern drafted and presented to the Grosses payroll tax checks, payable to "Chemical Bank," and, after either Leo or Paul Gross had signed them, took them to the bank for deposit in the tax depository.

In early 1985, Morgenstern began to misrepresent to the Grosses the amount of payroll taxes the sweater companies owed. He presented them with checks made out to "Chemical Bank," which he told them were necessary for payment of payroll taxes although the total sum of such checks vastly exceeded the companies' actual payroll tax obligations. Relying on Morgenstern's assurance that payroll taxes were due in the amounts on the checks, the Grosses signed the checks and gave them to Morgenstern, assuming that he would deposit them in the tax depository at Chemical Bank.

Rather than doing that, however, between January 1985 and May 1989, Morgenstern deposited a large number of sweater company checks payable to "Chemical Bank" in a corporate account he controlled at the bank under the name "Amerco International". Morgenstern eventually withdrew nearly all the funds from that account, spending them on a wide array of personal expenses.

In carrying out his scheme, Morgenstern made almost all of his unauthorized deposits in the Amerco account at the same Chemical branch, located near his home one block from Lincoln Center in Manhattan. During this period he also used the same branch to carry out hundreds of legitimate transactions involving checks drawn on the sweater companies' accounts and signed by Leo or Paul Gross. These included the large majority of payroll tax checks that Morgenstern properly deposited in the tax depository as well as the fee checks he received from the Grosses for his accounting services, which he generally deposited in the Amerco account.

In early 1988, responsibility for drafting and depositing the sweater companies' payroll tax checks was shifted from Morgenstern and given to a firm hired to print employee paychecks. This change compelled Morgenstern to modify his scheme. He began to alter checks made out to various tax authorities, e.g., New York State or the IRS, which the Grosses had signed and given to him for mailing. Using a pen eraser, Morgenstern erased the name of the original payee on the checks and then rewrote the payee as "Chemical Bank." He also altered the dollar amounts on the face of many of these checks, generally increasing the amounts to between $1500 and $6000. Morgenstern then presented these checks--now made out to Chemical Bank and signed by the Grosses--to his neighborhood branch for deposit in the Amerco account.

In sum, Morgenstern deposited into the Amerco account a number of sweater company checks on which he had altered the payee to read "Chemical Bank." Counting the payroll tax checks Morgenstern had previously diverted, a total of approximately 225 checks made out to "Chemical Bank" were deposited in the Amerco account by Morgenstern. These checks totaled roughly $728,000.

B. Government Mishandling of Documents

In May 1989, a bank teller at the Lincoln Center branch of Chemical Bank noticed erasures in the payee and dollar amount areas of a check that Morgenstern had tried to deposit in the Amerco account, and immediately notified her superiors at the bank. A subsequent investigation by Chemical Bank revealed the full extent of Morgenstern's fraudulent deposits of checks payable to the bank, and the Grosses reported the results of this investigation to the United States Attorney and the FBI. Shortly thereafter, special agents of the FBI searched Morgenstern's apartment in Manhattan pursuant to a search warrant and seized seven boxes of financial records relating to the Grosses and to Morgenstern. Included among these documents were tax and financial records of the sweater companies and the Gross family dating back 20 years, which Morgenstern had retained in his apartment to prepare their tax returns.

In July 1989, Special Agent Gregory Pack, who was in charge of supervising the documents seized from Morgenstern, was contacted by Paul Gross, who requested access to the documents to enable his new accountant to prepare individual and corporate tax returns that were coming due. The FBI initially permitted Gross to review the papers in two of the seven boxes, and Agent Pack agreed to photocopy the sets of papers that Gross claimed his accountant needed. Agent Pack did not, however, photocopy all the documents required by Gross, and in late September 1989, after consulting with the Assistant United States Attorney then handling the case, he loaned Gross two boxes containing the original seized documents formerly in Morgenstern's possession that related to the Grosses. No item-by-item inventory of the documents in the two boxes was made at the time of Paul Gross' removal of the original documents, nor did the FBI make copies of the removed documents.

In the interim, in September 1989, the grand jury returned an indictment against Morgenstern. In November 1989, Morgenstern and his attorney visited the FBI's office to review the seized documents, and, after noticing that papers relating to his work for the Grosses were missing, Morgenstern was informed that two boxes of documents had been loaned to the Grosses. Agent Pack then contacted Paul Gross requesting return of the documents, and shortly thereafter most (though not all) of the documents contained in the two boxes loaned to the Grosses were returned to the FBI.

Morgenstern's counsel then had the opportunity to inspect the recovered documents at the FBI and prepare his own detailed inventory. After reviewing this inventory, Morgenstern filed an affidavit stating that although he could not say "for certain that any particular document is missing from among those [he] had in [his] apartment," based upon his review of his counsel's inventory "certain" unspecified documents which at one time were among the inventoried records appeared to be missing. On this basis, Morgenstern moved to dismiss the indictment for the government's misconduct in delivering the documents to the Grosses. In a later affidavit following a review of the contents of the boxes at the FBI, Morgenstern did list specific documents he claimed were missing. Most of these documents related to questionable business transactions in which the Grosses had supposedly engaged.

The district court held an evidentiary hearing on Morgenstern's motion to dismiss, and denied the motion in an opinion dated May 30, 1990. Applying the balancing test set forth in United States v. Grammatikos, 633 F.2d 1013 (2d Cir.1980), the district...