U.S.A. v. Petrillo

• Decision Date: 23 October 2000
• Docket Number: Docket No. 99-1692
• Citation: 237 F.3d 119
• Parties: (2nd Cir. 2000) UNITED STATES OF AMERICA, Appellee, v. GERALD J. PETRILLO, Defendant-Appellant. August Term 2000 Argued:
• Court: U.S. Court of Appeals — Second Circuit

Page 119

237 F.3d 119 (2nd Cir. 2000)

UNITED STATES OF AMERICA, Appellee, v. GERALD J. PETRILLO, Defendant-Appellant.

Docket No. 99-1692

August Term 2000

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Argued: October 23, 2000

Decided: December 29, 2000

Appeal from judgment of United States District Court for the Southern District of New York (Jed S. Rakoff, J.) convicting defendant of conspiracy to defraud the Internal Revenue Service, the filing of false tax returns and mail fraud. We affirm defendant's convictions but, with the consent of the government, find that defendant's tax and mail fraud convictions should have been grouped pursuant to U.S.S.G. § 3D1.2(d) and therefore remand for re-sentencing.

J. GILMORE CHILDERS, New York, NY (Orrick, Herrington & Sutcliffe, LLP, Geoffrey W. Millsom, Marc P. Berger, Toni M. Mele, of Counsel), for Defendant-Appellant.

MARY JO WHITE, New York, New York, United States Attorney, Southern District of New York (William F. Johnson, Christine H. Chung, Assistant United States Attorneys, of Counsel), for Appellee.

Before: FEINBERG, MINER and SACK, Circuit Judges.

FEINBERG, Circuit Judge:

Defendant Gerald J. Petrillo appeals from a judgement of conviction entered in November 1999 in the United States District Court for the Southern District of New York (Jed S. Rakoff, J.). Following a jury trial, Petrillo was convicted on one count of conspiring to defraud the Internal Revenue Service (IRS) and file false tax returns in violation of 18 U.S.C. §371, three counts of evading taxes in violation of 26 U.S.C. 7201 and five counts of committing mail fraud in violation of 18 U.S.C. 1341 and 2. The district court sentenced Petrillo to a term of 27 months imprisonment followed by two years of supervised release, ordered him to pay restitution of $81,231.41 and imposed special assessments of $450.

I. Background.

From April 1992 to August 1994, Petrillo worked as a securities trader for A.F. Braun, a private investment firm (Braun). To carry out his trades, Petrillo would contact a broker who, in turn, would execute the order and charge Braun a commission. Ostensibly to reduce the burden of such commissions, Petrillo entered into so-called "soft dollar" arrangements with various brokerage firms whereby Braun received rebates on trading commissions. The term "soft dollars" refers to a securities industry practice developed by brokerage firms to attract and retain customers. In a typical soft dollar relationship, a brokerage firm will allocate a percentage of the commissions paid by a client to a soft dollar account in that client's name. Credits in the soft dollar account can then be used to pay third party vendors for various services that benefit the client, such as investment research, news service reports and electronic market information.

Although Braun's soft dollar accounts were apparently intended to cover expenses incurred by Braun to such third party vendors, on numerous occasions Petrillo submitted personal expenses to be paid out of these funds. Braun apparently sanctioned this use of soft dollars to cover personal expenses.

While at Braun, Petrillo conducted his trading and soft dollar payment activities through Ed Cohn, a broker who worked at Purcell Graham and later at Oakford, two of the brokerage firms hired by Braun to clear trades. At Oakford, Cohn convinced William S. Killeen and Thomas Bock, co-defendants in the present action, to conceal soft dollar payments from the IRS. As a result, even though Oakford issued checks from soft dollar funds to cover Petrillo's personal expenses, Oakford did not file 1099 forms.

Petrillo left Braun in August 1994 and joined Chelsey Capital as a trader. He continued his relationship with Cohn and used soft dollar proceeds to pay personal expenses. However, Petrillo's supervisor at Chelsey Capital, Stuart Feldman, was unaware, according to his testimony at trial, that Petrillo had arrangements with brokerage firms to pay his personal expenses out of soft dollar accounts. Petrillo's use of soft dollar funds during his tenure at Chelsey Capital is the basis of his mail fraud convictions.

Petrillo did not report the soft dollar payments, which totaled $200,000 during his employment at Braun and Chelsey Capital, as income on his tax returns for 1992-1994. To make matters worse, he also claimed the personal expenses as business deductions even though those expenses had been paid on his behalf out of soft dollar funds.

In the spring of 1994, Petrillo learned that the government had initiated an investigation of soft dollar practices at the brokerage firms with which he had dealt. Shortly thereafter, Petrillo decided to amend his tax returns for 1992 and 1993 to reflect the soft dollar payments. He later did the same with his 1994 tax return.

At trial, Petrillo was convicted of conspiring with Ed Cohn and others to defraud the IRS, defrauding the IRS by filing false tax returns and committing mail fraud as a result of his unauthorized use of soft dollar funds at Chelsey Capital. To support the conspiracy charge, the government offered the negotiated plea allocutions of co-defendants William Killeen and Thomas W. Bock. Petrillo objected to admission of this evidence, but the district court admitted it nonetheless and elaborated on its ruling in a thoughtful opinion filed after the trial was completed. United States v. Petrillo, 60 F.Supp. 2d 217 (S.D.N.Y. 1999). After the jury verdict but before sentencing, Petrillo moved for a new trial based on newly discovered evidence. The district court denied the motion. At the sentencing hearing the following month, the district court denied Petrillo's request to group Petrillo's tax and mail fraud convictions pursuant to U.S.S.G. §3D1.2.

On appeal to this court, Petrillo challenges the admission of the plea allocutions, the denial of his motion for a new trial and the district court's refusal to group his mail and tax fraud convictions.

II. Admission of plea allocutions.

Petrillo first objects to the admission at trial of the guilty plea allocutions of co-defendants and alleged co-conspirators Killeen and Bock. Petrillo argues that the allocutions, admitted as statements against penal interest pursuant to Federal Rule of Evidence 804(b)(3), violated his rights under the Confrontation Clause of the Sixth Amendment. In particular, Petrillo contends that the allocutions fail to satisfy the Confrontation Clause safeguards established by the Supreme Court in Ohio v. Roberts, 448 U.S. 56 (1980) and Lilly v. Virginia, 527 U.S. 116 (1999).

In Ohio v. Roberts, the Court held that hearsay evidence could be admitted at trial without running afoul of the defendant's right to confront his accuser when (1) the declarant is unavailable and (2) the statement is either admitted pursuant to "a firmly-rooted hearsay exception" or has "particularized guarantees of trustworthiness." Ohio, 448 U.S. at 66. We have noted that this court has never decided whether a statement against penal interest under Fed. R. Evid. 804(b)(3) qualifies as a firmly-rooted hearsay exception, Latine v. Mann, 25 F.3d 1162, 1166 (2d Cir. 1994), as the district court here correctly pointed out. United States v. Petrillo, 60 F.Supp. 2d at 218. However, a plurality of the Supreme Court in Lilly held that, under circumstances somewhat similar to those of the present case, "accomplices' confessions that inculpate a criminal defendant are not within a firmly-rooted exception to the hearsay rule as that concept has been defined in our Confrontation Clause jurisprudence." 527 U.S. at 134. We note that Lilly does not decide the issue before us in the present case - the admissibility of plea allocutions where the accomplices' statements were redacted so that they did not inculpate the defendant. In any event, after consideration of all the relevant facts and circumstances, we agree with the district court that the allocutions were accompanied by such "particularized guarantees of trustworthiness" that cross-examination would have added little to an evaluation of their reliability. United States v. Matthews, 20 F.3d 538, 545 (2d Cir. 1994).

Petrillo argues that the guilty plea allocutions were inherently untrustworthy. He points to the unequal bargaining power of the government and the co-defendants during plea negotiations. Furthermore, Petrillo suggests that Killeen and Bock had a substantial incentive to provide the Government with allocutions containing inculpatory information given the fact that they simulaneously negotiated pleas to charges in the present indictment together with pleas to charges for securities fraud under a separate indictment.

While the potential for coercion or misrepresentation during the negotiation over guilty plea allocutions may be present in theory, we conclude on this record that the district court did not abuse its discretion in admitting the evidence. In United States v. Moskowitz, we held that an allocution admitted pursuant to Fed. R. Evid. 804(b)(3) has the requisite particularized guarantees of trustworthiness where, among other elements, "(1) the plea allocution undeniably subjected the defendant to the risk of a lengthy term of imprisonment ... (2) the allocution was given under oath; and (3) the district court instructed the jurors ... [to] consider [the] ... allocution only as evidence that a conspiracy existed." 215 F.3d 265, 269 (2d Cir. 2000) (per curiam) (citations and quotations omitted); see also United States v. Gallego, 191 F.3d 156, 167-68 (2d Cir. 1999).¹ The district court here found that the statements "were made in open court, under oath, before the sentencing judge, following extensive pre-trial proceedings, with the assistance of counsel, and against the declarants' penal interests." United States v. Petrillo, 60 F.Supp. 2d 217, 220 (S.D.N.Y. 1999). In addition, the court noted that "the jury was repeatedly instructed on the limited permissible use of this...