U.S. v. Strand

• Decision Date: 22 April 1980
• Docket Number: No. 79-1155,79-1155
• Citation: 617 F.2d 571
• Parties: 80-1 USTC P 9309, Fed. Sec. L. Rep. P 97,324 UNITED STATES of America, Plaintiff-Appellee, v. Michael William STRAND, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 571

617 F.2d 571

80-1 USTC P 9309, Fed. Sec. L. Rep. P 97,324

UNITED STATES of America, Plaintiff-Appellee, v. Michael William STRAND, Defendant-Appellant.

No. 79-1155.

United States Court of Appeals, Tenth Circuit.

Argued Jan. 21, 1980.

Decided March 19, 1980.

Rehearing Denied April 22, 1980.

Steven W. Snarr, Asst. U. S. Atty., Salt Lake City, Utah (Ronald L. Rencher, U. S. Atty., Salt Lake City, Utah, with him on the brief), for plaintiff-appellee.

Richard J. Leedy, Salt Lake City, Utah, for defendant-appellant.

Before McWILLIAMS, BARRETT and McKAY, Circuit Judges.

BARRETT, Circuit Judge.

Michael William Strand (Strand) appeals his jury convictions of subscribing a false income tax return in violation of 26 U.S.C.A. § 7206(1) and fraud in the sale of securities in violation of the Securities Act of 1933, 15 U.S.C.A. § 77q(a) and 77x. A third charge for interstate transportation of stolen property was dismissed upon Strand's motion at the conclusion of the Government's case.

The alleged violations occurred during 1973. Strand was then involved in numerous selling and purchasing stock transactions of Epoch Corporation (Epoch), being traded on the over-the-counter exchange. Strand effectuated these transactions through his own accounts and through various nominee accounts ¹ at different brokerage houses. By utilizing both his own and various nominee accounts, Strand was able to control the purchase and sale "prices" of Epoch stock and create the appearance of an active market for its securities. In summarizing these transactions, Special Agent David Jensen of the Internal Revenue Service estimated Strand's Epoch transactions produced gross receipts of $293,793.37. The Government also established that during this same time frame, Strand was involved in preparations for two mergers for which he received finder's fees of $29,000.00.

Exhibit 27, admitted as a certified copy of Strand's income tax return for 1973, showed zero tax computations and income. It did not contain references to the gross receipts relating to Strand's sale of stocks or the aforesaid finder's fees.

Strand defended the charge that he had subscribed a false income tax return in violation of § 7206(1) on the basis that he had actually suffered a loss of $7,000 in 1973 on the Epoch transactions; that he did not realize he had any tax reporting obligation until after 1973 when he "heard" that even though he did not have income he was obligated to file; and that, accordingly, in January, 1975, he filed a 1973 return.

Strand defended the fraud in the sale of securities charge on the basis that: he took over trading in Epoch corporation when he thought its proposed merger with an insurance company would cause its stock to increase in value; the sale of Epoch stock, giving rise to the charges, was initiated by one Bruce Allen Jensen (Jensen); Jensen managed the entire transaction and was the principal actor throughout the whole transaction; he (Strand) was not aware that his account had been improperly used by Jansen; and when, as here, the alleged defrauded party, Jensen, was a principal in the transaction and wholly aware of the nature of the fraud, there was no fraud on that person simply because the transaction did not prove to be as beneficial as expected.

Following the jury verdicts of guilty on the charges of subscribing a false tax return (Count I) and fraud in the sale of securities (Count II), Strand was sentenced to three years on Count I, and five years on Count II, with all but six months suspended. Strand was ordered to serve the six months in a "jail type" facility. He was placed on probation for the balance of the sentence.

On appeal, Strand contends the trial court erred, inter alia, in: (1) instructing the jury on materiality in Count I; (2) not granting his motion to sever the Counts; (3) allowing specific evidence "of the general bad character of the appellant"; (4) imposing a different burden of proof on Count II in contradiction to another district judge's previous ruling; (5) not correcting the prejudicial error committed by the prosecutor's failure to produce evidence properly discoverable under Rule 16(a)(1)(A); and (6) refusing to dismiss Count II because of prejudicial pretrial delay.

I.

Strand contends the Court erred in instructing the jury on the materiality issue found in Count I of the indictment and in treating the issue as one of law. Strand argues that in so instructing, the Court effectively denied him his right to trial by jury.

Count I charged Strand with subscribing a false tax return in violation of § 7206(1). Section 7206(1) provides in part:

Any person who

1) Willfully makes and subscribes any return, . . . which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter, . . .

shall be guilty of a felony . . .

In instructing on Count I the Court stated:

The question of materiality of the allegedly false statements made in connection with the subscribing of a tax return is a question of law for the Court. The Court instructs you that if you find that a substantial amount of gross receipts or other income was omitted from the tax return at issue herein, such omission is of a material matter as contemplated by Section 7206, Subsection 1, of Title 26 of the United States Code.

(R., Supp.Vol. VI at p. 921).

Section 7206(1) is a felony statute, which "is violated when one '(w)illfully makes and subscribes any return', under penalties of perjury, 'which he does not believe to be true and correct as to every material matter' ". United States v. Bishop, 412 U.S. 346, 93 S.Ct. 2008, 36 L.Ed.2d 941 (1973) at p. 350, 93 S.Ct. at p. 2012.

While acknowledging that there is a diversity of authority on whether the issue of materiality under § 7206(1) is properly one of law for the court, Strand contends that the correct rule is set forth in United States v. Null, 415 F.2d 1178 (4th Cir. 1969) wherein the Court stated that the test of materiality was:

. . . whether a particular item must be reported "in order that the taxpayer estimate and compute his tax correctly" . . . This issue was properly submitted to the jury.

415 F.2d at p. 1181.

This Court has not heretofore ruled on whether the issue of materiality under § 7206(1) is properly one of fact for the jury or one of law for the court. We hold that it is one of law for the court. We agree with this rationale contained in United States v. Taylor, 574 F.2d 232 (5th Cir. 1978), cert. denied, 439 U.S. 893, 99 S.Ct. 251, 58 L.Ed.2d 239 (1978):

This appeal raises squarely the question of whether a taxpayer's failure to report substantial amounts of gross livestock receipts on Schedule F renders the return materially false. We hold that it does.

The trial judge did not err in deciding the question of materiality as a matter of law rather than submitting it to the jury. We have long held that in a prosecution for perjury the materiality of the alleged false statement is a question of law. Blackmon v. United States, 108 F.2d 572, 574 (5th Cir. 1940). The rule applies to prosecutions under section 7206(1). Hoover v. United States, 358 F.2d 87 (5th Cir. 1966), cert. denied 385 U.S. 822, 87 S.Ct. 50, 17 L.Ed.2d 59 (1966); accord, United States v. Romanow, 509 F.2d 26 (1st Cir. 1975).

574 F.2d at p. 235.

The Court, in Taylor, supra, further noted:

Other courts of appeals have considered directly whether omission of gross receipts is a material falsehood. In Siravo v. United States, 377 F.2d 469 (1st Cir. 1967), the court affirmed a conviction under section 7206(1), holding that gross receipts from the taxpayer's business were "material items necessary to the computation of income." Id. at 472. In striking similarity to Taylor, Siravo received wages, which he reported, and also operated a jewelry assembling business. He made no entry on his Form 1040 opposite the heading "profit (or loss) from business," nor did he file a separate Schedule C. The government proved that he had received gross receipts ranging from $22,242 to $54,319 for the three years in question.

574 F.2d at p. 236. (Footnote omitted).

This view was also adopted in United States v. Warden, 545 F.2d 32 (7th Cir. 1976). The Court there stated:

The test of materiality with respect to a false return case "is whether a particular item must be reported 'in order that the taxpayer estimate and compute his tax correctly.' " United States v. Null, 415 F.2d 1178, 1181 (4th Cir. 1969). Since deductions are subtracted from gross income or adjusted gross income to reduce the ultimate tax liability, they are material to the contents of the return. Stated otherwise, the deduction will invariably affect the taxpayer's liability. Thus, when Judge McLaren instructed the jury that the deductions were material matters as that term is used in the indictment, he did no more than state the obvious fact that deductions affect the computation of tax liability.

545 F.2d at p. 37.

In adopting this rule, we do not, as well stated in United States v. Haynes, 573 F.2d 236 (5th Cir. 1978), cert. denied, 439 U.S. 850, 99 S.Ct. 154, 58 L.Ed.2d 153 (1978), interfere with the jury's obligation of deciding the ultimate issue of whether the returns were willfully falsified:

Accordingly, we hold that the materiality question under § 7206(2) should be treated no differently than the same issue under § 7206(1) and other federal perjury statutes. That is, materiality is a question of law to be decided by the court. We point out that the jury still must decide the ultimate issue of whether the returns had been willfully falsified, and this issue is generally the focal point of § 7206 cases. See United States v. Pomponio, 429 U.S. 10, 97 S.Ct. 22, 50 L.Ed.2d 12 (1976); United States v. Bishop, 412 U.S. 346, 93 S.Ct. 2008, 36 L.Ed.2d 941 (1973); United States v. Brown, (548 F.2d 1194 (5 Cir. 1977)) supra....