United States v. Carpenter
| Citation | 808 F.Supp.2d 366 |
| Decision Date | 01 September 2011 |
| Docket Number | Criminal Action No. 04–10029–GAO. |
| Parties | UNITED STATES of America v. Daniel E. CARPENTER, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
OPINION TEXT STARTS HERE
Jonathan F. Mitchell, Michael J. Pineault, Jack W. Pirozzolo, United States Attorney's Office, Boston, MA, for Plaintiff.
Robert M. Goldstein, Paula J. DeGiacomo, Gary R. Greenberg, A. John Pappalardo, Greenberg Traurig, LLP, Boston, MA, Edward A. McDonald, Dechert LLP, New York, NY, Jack E. Robinson, Stamford, CT, for Defendant.
The defendant, Daniel E. Carpenter, was, for the second time, tried before a jury on a Superseding Indictment that alleged fourteen counts of wire fraud in violation of 18 U.S.C. § 1343 and five counts of mail fraud in violation of 18 U.S.C. § 1341. Following his first trial and conviction in July 2005, this Court granted the defendant's motion for a new trial pursuant to Federal Rule of Criminal Procedure 33 on the basis of several prejudicial inflammatory remarks made by the government during its closing argument. United States v. Carpenter, 405 F.Supp.2d 85, 101–03 (D.Mass.2005). That order was affirmed on appeal, United States v. Carpenter, 494 F.3d 13, 24 (1st Cir.2007), and subsequently the defendant was re-tried. After a very brief period of deliberation, the second jury found the defendant guilty on all counts. He then moved again for a judgment of acquittal or in the alternative for a new trial.
For the reasons discussed below, the evidence was sufficient to sustain a conviction on all counts, and therefore the defendant is not entitled to a judgment of acquittal. However, because there is a very substantial possibility that the jury's verdict was based on a theory of the case that was not sufficient to support a conviction on any count, the interest of justice requires that the defendant's conviction be vacated and a new trial be ordered.
The defendant was the Chairman of Benistar, Ltd., a corporation headquartered in Simsbury, Connecticut. Benistar Property Exchange Trust Company, Inc. was a Benistar subsidiary located in Newton, Massachusetts. Martin Paley was its President. Because the corporate formalities are not significant for the issues at hand, these entities will both be referred to as “Benistar.” The defendant and Paley formed the subsidiary to serve as a qualified intermediary in property exchanges performed pursuant to Section 1031 of the Internal Revenue Code. See 26 U.S.C. § 1031.
The functions necessary to Benistar's property exchange business were divided between the Newton office and the Simsbury office. Paley and the Newton office handled the marketing of Benistar's property exchange services to potential exchangors, as well as the logistical details of arranging the property exchange transactions. The defendant and the Simsbury office then handled the exchange funds, once obtained. These funds were placed in accounts at Merrill Lynch and, later, at PaineWebber, through which the defendant invested in securities, including stock options.
A property exchange, also known as a “like kind exchange,” allows the seller of property—in this case, real estate—to defer the payment of capital gains tax when that property is exchanged for property of like kind—here, another piece of real estate. See id. § 1031(a)(1). When properly completed, this exchange allows the exchangor to delay recognizing a gain on the property sold. See id. The tax basis of the relinquished property carries forward to the replacement property, and the recognition of a gain and payment of the attendant capital gains tax are thereby delayed until occasioned by some future event. See id. § 1031(d).
For the replacement property to qualify as “like kind” it must be identified within forty-five days and be purchased within one hundred and eighty days of the sale of the relinquished property. See id. § 1031(a)(3). The exchangor also must not receive the proceeds from the sale of the relinquished property, either actually or constructively, during the prescribed period. See 26 C.F.R. § 1.1031(k)–1(a). A qualified intermediary can be used to hold the sale proceeds in the interim, preventing the exchangor's receipt of the funds. See id. § 1.1031(k)–1(g)(4). The tax provisions contain no requirement or restriction as to how the qualified intermediary is to hold the proceeds, and, so far as the tax code is concerned, the intermediary may invest the proceeds or not in ways that it may see fit. The attributes of the relationship between the qualified intermediary and the exchangor are generally set by their private agreement.
The Superseding Indictment charged the defendant with fourteen counts of wire fraud in violation of 18 U.S.C. § 1343 and five counts of mail fraud in violation of 18 U.S.C. § 1341. These statutes proscribe substantially the same conduct, the difference generally being in the use of either the mails or interstate wire communications. To convict the defendant of mail or wire fraud, the government had to prove beyond a reasonable doubt the defendant's knowing and willful participation in a scheme to defraud, or to obtain money or property by means of false or fraudulent pretenses, representations, or promises as to a material matter or matters, with the specific intent to defraud, and the use of the mails or interstate wire communications in furtherance of the scheme. See United States v. Woodward, 149 F.3d 46, 54 (1st Cir.1998) (quoting United States v. Sawyer, 85 F.3d 713, 723 (1st Cir.1996)).
Generally, the government alleged in the Superseding Indictment, and argued to the jury, that although Benistar represented to seven exchangors that their exchange funds would be held safely and securely in an interest-bearing account, instead the defendant was investing the exchange funds in risky stock options. It was a necessary part of the government's case to argue that the defendant specifically intended to obtain the exchangors' money by making false representations. The government's theory was that the defendant specifically intended to obtain the exchange funds on the basis of representations to the exchangors that the exchange funds would not be subjected to any risk and would simply be “parked” in an escrow account, when he knew that these representations were false because his investment strategy was in fact extremely risky.
Each of the nineteen counts of mail or wire fraud alleged represents an instance when funds were obtained by Benistar for a property exchange transaction between August 8, 2000 and December 14, 2000 with one of seven exchangors: Bellemore Associates, Joseph Iantosca, Byron Darling, Eliot Snider, Gail Cahaly, Brian Fitzgerald, and Jeffrey Johnston. Most of the exchangors entered into more than one transaction during this period, hence the nineteen counts.
III. Summary of Pertinent EvidenceA. Representations
When soliciting potential exchangors, Paley routinely presented them with Benistar's standard marketing materials (the “marketing materials”). When Paley's marketing pitch proved successful, he presented the exchangors with the agreements necessary to effectuate the property exchange (the “exchange documents”) and executed them on behalf of Benistar. The marketing materials and exchange documents, and the allegedly false representations contained therein, were crucial pieces of evidence in the government's case against the defendant. Although the defendant was never directly involved in presenting these documents to the exchangors, the government connected these documents to him by evidence that he reviewed and approved all of the documents used by Paley, had authored some parts of them, and therefore had knowledge of and authorized the representations being made to the exchangors. An examination of the content of these documents is important.
Paley prepared a PowerPoint presentation entitled “Benistar Presents: 1031 Tax–Deferred Property Exchanges,” which explained the mechanics of a § 1031 exchange, its tax advantages, and the role of a qualified intermediary. It also provided guidance in choosing an intermediary and suggested why Benistar should be an exchangor's choice:
• Your selected qualified intermediary should have a lot of experience with exchanges. They should have an exemplary reputation among real estate and legal professionals. Examine their track record, and be sure to check references.
• Because unexpected details can have major ramifications, the intermediary should be able to manage the entire 1031 process, from beginning to end.
• A good benchmark for any proposed intermediary is their experience with reverse exchanges. Any firm which lacks this experience may not have what it takes to properly manage your exchange.
• Ask about the security of your funds, and find out what guarantees are offered. The intermediary should be bonded, and carry Errors & Omissions insurance coverage.
• This is a place where quality is imperative! Do not select an intermediary on the basis of price alone.
• With more than $100MM in exchanges successfully completed since 1995, Benistar has the experience you need in a qualified intermediary.
• Benistar can manage your exchange from start to finish, because we know the entire process.
• Benistar routinely handles reverse exchanges.
• Merrill Lynch Private Bank is used for all our escrow accounts. This provides 3%—6% interest on the escrow. Funds transfer is accomplished in a state-of-the-art environment, utilizing electronic wire transfers for security and timeliness.
(Trial Ex. 1 at 14–15.) These slides were shown or provided in paper form to Eliot Snider, ( id.; Trial Tr. 2:113–114), Brian Fitzgerald, (Trial Ex. 59; Trial Tr. 4:119–124), an advisor to Bellemore Associates, (Trial Tr. 6:19), Jeffrey Johnston, (Trial Ex. 119; Trial Tr. 12:96–97), and Joseph...
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United States v. Carpenter
...second time and a jury again found him guilty on all counts. He moved for a new trial and the motion was granted. SeeUnited States v. Carpenter, 808 F.Supp.2d 366 (D.Mass.2011). This time, however, the order was reversed and the convictions were reinstated. SeeUnited States v. Carpenter, 73......
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United States v. Carpenter
...insufficient evidence based on a version of this argument after both trials. Carpenter, 405 F.Supp.2d at 93–94 ; United States v. Carpenter, 808 F.Supp.2d 366, 378 (D.Mass.2011). Nevertheless, Carpenter continued (and continues in this appeal) to argue that any evidence showing that Merrill......
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United States v. Neuman
...based on pretrial representations by the government that it would limit its use of the term. Relying on United States v. Carpenter, 808 F. Supp. 2d 366, 382 (D. Mass. 2011), a case also involving a 1031 qualified intermediary, Defendants contend a new trial is warranted because the governme......
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United States v. Carpenter
...trial were improper and whether they accordingly warranted a new trial, as the district court held. See United States v. Carpenter, 808 F.Supp.2d 366, 380–85 (D.Mass.2011). Defendant Daniel Carpenter has now been tried twice on charges of wire fraud and mail fraud. Both times, the jury retu......