U.S. v. Ragano

• Decision Date: 14 October 1975
• Docket Number: No. 74-2376,74-2376
• Parties: 75-2 USTC P 9827 UNITED STATES of America, Plaintiff-Appellee, v. Frank RAGANO, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1191

520 F.2d 1191

75-2 USTC P 9827

UNITED STATES of America, Plaintiff-Appellee, v. Frank RAGANO, Defendant-Appellant.

No. 74-2376.

United States Court of Appeals, Fifth Circuit.

Oct. 14, 1975.

E. David Rosen, Miami, Fla., Michael L. Kinney, Thomas T. Steele, Tampa, Fla., for defendant-appellant.

John L. Briggs, U. S. Atty., Jacksonville, Fla., Claude Tison, Jr., Asst. U. S. Atty., Tampa, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Florida.

Before WISDOM, SIMPSON and RONEY, Circuit Judges.

SIMPSON, Circuit Judge:

This appeal requires us to review for the second time the conviction upon income tax related charges of Frank Ragano, a Florida attorney. See United States v. Ragano, 5 Cir. 1973, 476 F.2d 410. A description of the prior proceedings before the district court and on appeal is essential to an understanding of the issues raised by the present appeal.

The appellant was charged in a three count indictment returned July 14, 1971, with tax evasion and false swearing. Count 1 charged him with tax evasion in his 1967 tax return in failing to report taxable income of $180,022.20, in violation of Title 26, U.S.C., Section 7201. ¹ Count 2 charged appellant with knowingly making a false declaration of income, under penalty of perjury, in his 1967 tax return, in that he knowingly received substantial income in excess of that reported, in violation of Title 26, U.S.C., Section 7206(1). ² Count 3, related to Ragano's tax return for the calendar year 1968 and charged that he knowingly made a false declaration that he had sold for $230,022.20 certain shares of stock in Two Seasons, Inc., obtained by him in consideration for a $50,000 promissory note, and in the resulting claim that the income of $180,022.20 was properly treatable as long term capital gain, in violation of Title 26, U.S.C., Section 7206(1). At the trial on these counts the government contended that the receipt by appellant in 1967 of certain shares of stock should have been reported as taxable ordinary income in that year. The appellant maintained that he had purchased the shares in 1967 when he executed the promissory note and that the retransfer of the shares to the original seller was a legitimate capital gain transaction. The jury returned a verdict of not guilty as to Counts 1 and 2 and guilty under Count 3. Appellant appealed his conviction and sentence under Count 3 and this court reversed and remanded. United States v. Ragano, supra.

In the prior appeal the reversal rested on two evidentiary matters. First, we held that the trial court erred in allowing a tax expert for the prosecution to testify that receipt of the shares of stock by appellant was payment for services. We held additionally that appellant's Sixth Amendment right of confrontation was infringed by the admission into evidence over objection of testimony that S. A. Rizzo, from whom the stock was obtained, had testified in an unrelated proceeding, to the effect that the stock had been given to Ragano for services rendered. United States v. Ragano, supra, 476 F.2d at 415.

Prior to the scheduled date of retrial on the original Count 3, a superseding six count indictment was returned against appellant. Count 1 charged appellant and Rizzo ³ under Title 18, U.S.C. § 371, with conspiracy to defraud the United States in the collection of revenue, by agreeing to disguise the payment of a "finder's fee" to appellant as a stock transaction on which he would claim a long term capital gain. Counts 2 and 3 charged appellant with tax evasion and false swearing in his tax return for the calendar year 1966 for failure to report $29,556.22 of income, in violation of Sections 7201 and 7206(1). Counts 4 and 5 charged Ragano with tax evasion and false swearing in his tax return for the calendar year 1968 by failing to report income of $33,645.44, in violation of Sections 7201 and 7206(1). Count 6 charged Rizzo with a 7206(1) offense, respecting his 1969 return's treatment of the Two Seasons stock delivered to Ragano. Count 6 was severed prior to trial and later dismissed. Note 3, supra. Appellant moved to dismiss the indictment on grounds of former jeopardy and collateral estoppel. ⁴ The district court denied appellant's motion, finding that the offenses charged in the superseding indictment were not identical to those in Counts 1 and 2 of the original indictment, and that no issue of fact as to any count of the superseding indictment could be said to have been resolved in appellant's favor at the first trial. A jury found appellant guilty of all five counts, and he was sentenced to five years imprisonment on each of Counts 1, 2, and 4, and to three years imprisonment on each of Counts 3 and 5. All sentences were directed to be served concurrently, execution of the sentences was suspended, and appellant was placed on three years probation. ⁵

THE UNDERLYING FACTS

The facts involve a complicated series of transactions. We delineate them in the view most favorable to the government. Glasser v. United States, 1942, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680, 704. In 1964 or 1965 Salvatore A. Rizzo, also known as Sam Rizzo, approached Ragano to seek his assistance in obtaining a five million dollar loan from the Southeast and Southwest Areas Pension Fund of the International Brotherhood of Teamsters (Pension Fund). Appellant agreed to assist Rizzo, and traveled to Chicago on several occasions to discuss the proposal with trustees of the Pension Fund. He did not, however, formally represent Rizzo at the Pension Fund meetings at which the loan was discussed. For his assistance in obtaining loans of this type, appellant would in common practice be entitled to a "finder's fee" of 5% of the loan proceeds from the recipient of the loan. ⁶

The Rizzo loan application was submitted to the Pension Fund on February 9, 1965, and approved on March 3. On January 29 of that year articles of incorporation were approved for Two Seasons, Inc., a Florida corporation, organized for the purpose of acquiring and developing real estate. On the same date that the loan application was submitted to the Pension Fund the first meeting of Two Seasons was held. Rizzo was elected chairman of the Board and President. All fifty shares of stock in the company were issued jointly to Rizzo and his wife.

Appellant received a check for $15,000 from Two Seasons on May 11, 1965, which was charged on the company's books to the "Acquisition Costs" account. A second payment of $10,000 on September 22, 1965 to appellant was charged as a legal expense on the company's books. From November 15, 1965 through 1967 appellant received amounts ranging up to $30,000 from Two Seasons which were recorded on the company's books as loans. These loans, however, were neither secured by promissory notes nor was interest provided for or paid on them. By the end of 1967 these loans under the government's calculations totaled approximately $90,550, of which $30,000 was transferred during the year on the company's books to the "Legal Expense and Land Acquisition Costs" account, leaving a loan balance of $60,550.

During this same period of time Ragano began borrowing funds from two banks. In November 1966 and March 1967 he borrowed $25,000 and $30,000, respectively, from the County National Bank of North Miami Beach. At the beginning of 1965 Ragano owed a balance of $16,500 to the Central Bank of Tampa on an existing loan. Between February 1965 and October 1967, eight additional loans were obtained by him from that bank in amounts ranging between $2,500 and $12,500. Although, interest was paid through September 1967, no principal payments were made on any of these loans after September 1967, except for payments on an installment loan and three payments totaling $1,755.45 on two others. The outstanding balance on these loans as of September 1967 was $43,000. During that same month an employee of Two Seasons, Sheldon Kay, was requested by Rizzo to obtain a $10,000 loan from the County National Bank, which Rizzo would guarantee, the proceeds to be paid to appellant.

On January 3, 1967, Rizzo transferred 20 shares (40%) of Two Seasons stock to Ragano in exchange for appellant's execution of an unsecured, non-interest bearing, demand note in the amount of $50,000. No principal or interest payments were made on this note prior to its cancellation by Rizzo in 1968. At the second trial the government introduced expert testimony showing that the fair market value of the shares on the date of transfer to appellant was $400,000 to $600,000. ⁷ On the same day that this transaction occurred, appellant was elected vice president of the company and named to the three member board of directors.

The certificate representing the twenty shares held by appellant was retransferred to Rizzo on March 24, 1967, and on November 6, 1967 two certificates of ten shares each were issued to appellant. In March 1967, but as of January 3, 1967, appellant in connection with a loan application filed with the County National Bank listed his assets to include the twenty shares of Two Seasons stock valued at $2,288,000. However, neither the $50,000 demand note held by the Rizzos nor any of the loans on the Two Seasons books were listed among his liabilities.

In December 1967, appellant delivered ten shares of the Two Seasons stock to the County National Bank as security for his outstanding loans. The bank was Appellant and Rizzo on January 2, 1968, executed a shareholders' agreement providing that if either stockholder pledged his stock as security for indebtedness and that indebtedness came into default, the remaining stockholder would have the right to pay the obligations, to redeem the stock pledged, and assume full ownership of it. By a handwritten codicil (so labeled) to this agreement dated January 12, 1968, the appellant assigned the 20 shares to Rizzo "in consideration for the said S. A. Rizzo assuming the...