U.S. v. Sarault

• Decision Date: 02 March 1988
• Docket Number: No. 86-1197,86-1197
• Citation: 840 F.2d 1479
• Parties: 9 Employee Benefits Ca 1872, 24 Fed. R. Evid. Serv. 1176 UNITED STATES of America, Plaintiff-Appellee, v. Stephen SARAULT, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1479

840 F.2d 1479

9 Employee Benefits Ca 1872, 24 Fed. R. Evid.

Serv. 1176

UNITED STATES of America, Plaintiff-Appellee, v. Stephen SARAULT, Defendant-Appellant.

No. 86-1197.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 6, 1987.

Decided March 2, 1988.

Cal. J. Potter, III, Lovell, Billbray & Potter, Las Vegas, Nev., for defendant-appellant.

Stanley W. Parry, Sp. Atty., U.S. Dept. of Justice, Las Vegas, Nev., for plaintiff-appellee.

Appeal from the United States District Court for the District of Nevada.

Before FLETCHER, FARRIS and CYNTHIA HOLCOMB HALL, Circuit Judges.

CYNTHIA HOLCOMB HALL, Circuit Judge:

Stephen Sarault appeals from his jury trial conviction of making false statements in a document required to be kept by the Employee Retirement Income Security Act (ERISA), 29 U.S.C. Sec. 1001 et seq., in violation of 18 U.S.C. Sec. 1027, and conspiracy in violation of 18 U.S.C. Sec. 371. We affirm.

I.

Stephen Sarault is an attorney who practiced primarily business and estate law. He represented Merchant's Bank of Commerce, an off-shore bank his father had established in the West Indies. Sarault was aware this was a "paper" bank: that it was funded with worthless bonds. Michael Strauss, whom Sarault knew had been convicted of fraud and had set up paper banks with Sarault's father, had discussed with Sarault the problems and uses of paper banks. Strauss also referred Sarault to Seymour Pollack, president of American Casualty and Indemnity Corp. (AC & I) so that Sarault might make some money representing AC & I. Soon thereafter, Sarault began to represent AC & I.

Seymour Pollack needed a new asset base for AC & I because the bank he had been using had its telephone disconnected. Pollack entered into an agreement with Anthony Cavanaugh for Cavanaugh to provide Pollack with certificates of deposit (CDs) drawn on Aiola Bank and Trust, an offshore bank based in the West Indies. In exchange, Cavanaugh would receive ten percent of the insurance premiums written by AC & I. Pollack provided neither cash nor cash equivalent in exchange for the CDs that would provide the "asset" base for AC & I; it was understood the CDs were worthless. Therefore, AC & I was an assetless insurance company.

Soon thereafter, Pollack and Sarault agreed that Sarault would hold in trust six million dollars in these Aiola Bank and Trust CDs as a reserve for any insurance policies written by AC & I. Later, this amount was increased to twenty million dollars. They further agreed that Sarault would provide to anyone who requested verification that he personally held in trust sufficient reserves to back the policies written by AC & I.

Pollack was contacted by an insurance broker, William Kilroy, about the possibility of AC & I underwriting fiduciary liability insurance for the Southern Nevada Culinary and Bartenders Health and Welfare Trust Fund and Pension Trust Fund (hereinafter "Trust Fund" or "Fund"). Kilroy informed Pollack in a letter dated May 12, 1980 that the Fund trustees needed proof of the financial stability of any potential insurance carrier, and that the trustees were going to meet on May 29, 1980 in Las Vegas to discuss fiduciary insurance. ¹ Arrangements then were made for Sarault to address the Fund trustees about the stability of AC & I.

Sarault was in Las Vegas on May 28 and May 29. Kilroy tried to meet with Sarault on the 28th to discuss the trustee meeting, and tried to take Sarault to the meeting on the 29th, but on both occasions Sarault was too intoxicated to cooperate. Kilroy attended the trustee meeting alone, and he asked to submit in writing a document that would attest to the stability of AC & I. Kilroy then contacted Pollack and Pollack assured Kilroy that there would be a letter forthcoming from Sarault stating that Sarault held sufficient assets of AC & I to warrant AC & I underwriting the Trust Fund insurance policy.

On June 13, 1980 Kilroy sent a cover letter to counsel for the Trust Fund and enclosed a June 10, 1980 letter from Stephen Sarault to the Fund trustees. The letter was written on letterhead from Sarault's law firm and bore Sarault's signature. In his grand jury testimony, Sarault stated that the signature on the letter was his. However, he claimed he did not remember the letter and believed he did not write it. This letter stated in part:

This letter is being written at the request of Mr. William Kilroy pursuant to your request for information relating to fiduciary liability insurance coverage for your Health and Welfare Fund as well as your Pension Plan.

Please be advised that I am the general counsel for American Casualty and Indemnity Co., Ltd. and have been requested to advise you as to the reserves currently on deposit that could be set aside as a contingency for your needs.

We currently have reserves in our Trust Account in excess of twenty million ($20,000,000) dollars and, therefore, can assure you that we are prepared to set aside an actuarial reserve for the liability involved.

Actually, Sarault held twenty million dollars in worthless CDs. There were no assets to put aside as an actuarial reserve.

This letter was read to the Fund trustees at their June 24 meeting. One of the Fund trustees testified that he had relied on this letter in choosing AC & I as the Fund's fiduciary liability insurance carrier: he believed that AC & I had sufficient assets to back the policy.

On June 30, 1980 Sarault sent a letter to selected businesses and individuals announcing his resignation as counsel for AC & I. He did not send this letter to anyone associated with the Trust Fund. On July 17, 1980 the trustees adopted a resolution to pay AC & I a $126,000 premium for the fiduciary liability policy.

II.

Sarault contends that his writing the letter to the Trust Fund does not violate 18 U.S.C. Sec. 1027. We review de novo a question of statutory interpretation. Trustees of Amalgamated Ins. Fund v. Geltman Industries, 784 F.2d 926, 929 (9th Cir.), cert. denied, --- U.S. ----, 107 S.Ct. 90, 93 L.Ed.2d 42 (1986).

Title 18 U.S.C. Sec. 1027 (1982) provides in full:

Whoever, in any document required by title I of the Employee Retirement Income Security Act of 1974 (as amended from time to time) to be published, or kept as part of the records of any employee welfare benefit plan or employee pension benefit plan, or certified to the administrator of any such plan, makes any false statement or representation of fact, knowing it to be false, or knowingly conceals, covers up, or fails to disclose any fact the disclosure of which is required by such title or is necessary to verify, explain, clarify or check for accuracy and completeness any report required by such title to be published or any information required by such title to be certified, shall be fined not more than $10,000, or imprisoned not more than five years, or both.

This statute prohibits any knowingly made false statements or representations of fact, as well as certain knowingly concealed, covered-up, or undisclosed facts. In order to be within the statutory proscription, a false statement or representation of fact must be made in a document required by ERISA to be either (1) published by an employee welfare benefit plan or employee pension benefit plan, (2) kept as part of the records of such a plan, or (3) certified to the administrator of such a plan. ² A concealment, cover-up, or failure to disclose likewise must occur in a similar document, but it also must relate to a fact the disclosure of which is required by ERISA or is necessary to verify, explain, or check for accuracy and completeness any information required by ERISA to be published. See United States v. Martorano, 596 F.Supp. 621, 624-25 (E.D.Pa.1984), aff'd, 767 F.2d 63 (3d Cir.), cert. denied, 474 U.S. 949, 106 S.Ct. 348, 88 L.Ed.2d 296 (1985).

At trial, the government argued and offered supporting evidence that Sarault knowingly made a false statement in the letter to the Trust Fund. In reviewing a jury's verdict, we must determine whether a reasonable jury, after viewing the evidence in the light most favorable to the government, could have found Sarault guilty beyond a reasonable doubt of each essential element of the crime charged. United States v. Douglass, 780 F.2d 1472, 1475 (9th Cir.1986). After carefully reviewing the record, we conclude that there is sufficient evidence that Sarault knowingly made a false statement in his letter. Because the jury rationally could have concluded that Sarault knowingly made a false statement, we need not determine whether Sarault's statement violated the "concealment" clause of 18 U.S.C. Sec. 1027.

Our next inquiry is whether Sarault's false statement was made in a document that ERISA requires the Trust Fund to keep as part of its records. This is an issue of first impression before this court.

Form 5500, reprinted in Pension Reporter Reference File (BNA), 14 Special Supplement No. 1, January 5, 1987, is an annual report form that ERISA requires be published and filed. Among other things, Form 5500 requires disclosure of any premiums paid for fiduciary liability insurance. Id., line 14j(iv). Assets and liabilities of the plan also must be listed. Under normal accounting procedures, prepaid insurance premiums would be listed on an annual report as assets. This was done on the Form 5500 filed in this case in 1986. The amount that the Trust Fund paid for fiduciary insurance also was included on its Form 5500.

Title 29 U.S.C. Sec. 1027 (1982) describes the records mentioned in 18 U.S.C. Sec. 1027 that must be kept by "[e]very person subject to a requirement to file any description or report ... under this subchapter." Because the Form 5500 annual report is a document that the Fund must file, the following types of records must be retained regarding the information included on a Form 5500:

[R]ecords on the matters of which disclosure is required which will provide in sufficient detail the...