United States v. Epstein

• Decision Date: 13 June 1957
• Docket Number: Cr. No. 19035.
• Citation: 152 F. Supp. 583
• Parties: UNITED STATES of America v. Harold EPSTEIN.
• Court: U.S. District Court — Eastern District of Pennsylvania

152 F. Supp. 583

UNITED STATES of America v. Harold EPSTEIN.

Cr. No. 19035.

United States District Court E. D. Pennsylvania.

June 13, 1957.

G. Clinton Fogwell, Jr., U. S. Atty., Henry J. Morgan, Asst. U. S. Atty., Philadelphia, Pa., for plaintiff.

Jacob Kossman, Philadelphia, Pa., for defendant.

VAN DUSEN, District Judge.

This case comes before the court on post-trial motions filed by defendant after the jury found him guilty of devising a scheme to defraud and carrying it out, through the use of the mails to send false financial statements to persons from or through whom he wished to secure credit, in violation of 18 U.S.C.A. § 1341.¹

I. Motion For Judgment of Acquittal

The uncontradicted evidence showed that defendant asked an accountant (Mr. Segal) to prepare financial statements of the condition of his retail clothing store business as of 12/31/53 and 3/31/54 "for the purpose of procuring credit" (N.T. 75). The defendant told the accountant that these statements were to be sent to the "usual credit agencies in the trade" (N.T. 76). In preparing the statement, the accountant asked the defendant "how much stock do you have that is your own" (N.T. 84, 86) and told him that consignment merchandise should not be included in this inventory figure.² The defendant told the accountant to include $10,804 in inventory as of 12/31/53 and $12,500 as of 3/31/54 (N.T. 74-5). The defendant admitted on at least one occasion in February of 1954, incident to investigation of a burglary loss in his store, that 95% of the stock in defendant's store was on consignment (N.T. 90 and 38, 54). Counts of the merchandise in the store made on February 19 and April 1, 1954, indicated that the greater portion of such stock was on consignment (N.T. 70-72). The value of the defendant's own stock or inventory on March 31, 1954, did not exceed $2,000. The $12,500 inventory figure was the largest item on the March 31, 1954, statement and, with this item, the statement showed capital of $22,585.41 (see Exhibit G-2).

Copies of these statements were given by defendant to the accountant (N.T. 76). Also, at defendant's "direction" on April 27, 1954, the accountant typed and signed a covering letter of transmittal of the March 31, 1954, statement addressed to Credit Exchange, Inc., New York City, and delivered this letter, with a copy of the statement, to defendant so he could mail it in Credit Exchange's envelope to New York City (N.T. 77-9; see G-2 and N.T. 19).

The Credit Exchange³ received a financial statement of Harold Epstein, dated March 31, 1954, through the mail in an envelope postmarked Philadelphia, Pa., April 27, 1954. The statement was accompanied by a letter of transmittal on the stationery of Benjamin M. Segal, Public Accountant and Auditor, the letter being dated April 27, 1954, and signed by Benjamin M. Segal.⁴

It has been repeatedly held that sending of false financial statements through the mail in order to secure credit, knowing that such statements are false, is a violation of this provision of the Federal Criminal Statutes. Slakoff v. United States, 3 Cir., 1925, 8 F.2d 9; Scheinberg v. United States, 2 Cir., 1914, 213 F. 757; Bettman v. United States, 6 Cir., 1915, 224 F. 819; United States v. Yorsaner, D.C.,E.D.N.Y.1937, 20 F.Supp. 902.

Under these circumstances, the motion for judgment of acquittal must be denied.

II. Motion For New Trial

Since the foregoing section of this opinion makes clear that the guilty verdict was not against the weight of the evidence, only the following three alleged grounds for new trial need be commented on in this opinion:

A. Admission of testimony given voluntarily by defendant in involuntary proceeding under Section 21, sub. a of the Bankruptcy Act before the adjudication that he was a bankrupt.

Defendant alleges that Section 7, sub. a (10) of the Bankruptcy Act, 11 U.S. C.A. § 25, sub. a (10),⁵ made it error for the trial judge to have admitted into evidence in this criminal proceeding (N. T. 165-8), over the objection of counsel for the defendant, portions of testimony of the defendant, taken January 3, 1955, and January 10, 1955, after the filing of an involuntary petition in bankruptcy by his creditors, before a Referee in Bankruptcy at special meetings under Section 21, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 44.⁶

Although defendant was directed by the court to appear at the examination before a Referee under § 21, sub. a⁷ of the Bankruptcy Act, he was under no duty to testify. He could not have been compelled to testify unless the Act makes it his duty to do so, and it is only in such instances that his testimony may be privileged.⁸ Arndstein v. McCarthy, 1920, 254 U.S. 71, 41 S.Ct. 26, 65 L.Ed. 138, affirmed 1923, 262 U.S. 355, 43 S.Ct. 562, 67 L.Ed. 1023, reaffirmed, 1924, 266 U.S. 34, 45 S.Ct. 16, 69 L.Ed. 158; Goldstein v. United States, 5 Cir., 1926, 11 F.2d 593, certiorari denied, 1926, 271 U.S. 667, 46 S. Ct. 483, 70 L.Ed. 1141. See, also, Cajiafas v. United States, 6 Cir., 1930, 38 F.2d 3; White v. United States, 1 Cir., 1929, 30 F.2d 590; Optner v. United States, 6 Cir., 1926, 13 F.2d 11, 13.⁹

Section 7 of the Bankruptcy Act¹⁰ details the duties of the bankrupt,¹¹ and any testimony of the bankrupt given at an examination under this Section, being compulsory, may be privileged.¹² But testimony under § 21 is given by the bankrupt as it would be by any other witness in a proceeding in which it is not made his duty to testify, and, therefore, it is not privileged.¹³

Thus, if the defendant was in fear of furnishing incriminating information against himself at the examination under § 21, sub. a, he could have then asserted his constitutional privilege and refused to answer the questions asked of him. McCarthy v. Arndstein,¹⁴ supra. If the Referee had certified the matter for contempt proceedings to the court as the result of his refusal to answer, he could then have claimed the protection of the Fifth Amendment. Goldstein v. United States, supra.

B. Portion of the charge concerning the requisite intent for guilt under 18 U.S.C.A. § 1341

The trial judge charged the jury that if the inaccurate representation in the financial statement as to the inventory was made by defendant with reckless indifference as to whether it was true or false, this was sufficient intent to make the defendant guilty,¹⁵ provided that the other elements of the crime (mailing or knowingly causing it to be mailed, etc.) were present.

The federal courts have repeatedly held that 18 U.S.C.A. § 1341 is violated if the defendant either knows the representation is false or makes it with reckless indifference as to whether it is true or false. West v. United States, 10 Cir., 1933, 68 F.2d 96, 98; Slakoff v. United States, 3 Cir., 1925, 8 F.2d 9, 10;¹⁶ cf. United States v. Murdock, 1933, 290 U.S. 389, 394-395, 54 S.Ct. 223, 78 L.Ed. 381;¹⁷ Kercheval v. United States, 8 Cir., 1926, 12 F.2d 904, 908; Kaplan v. United States, 2 Cir., 1916, 229 F. 389, 390.¹⁸

C. Statement that consideration of whether defendant should be prosecuted in state or federal courts "is a red herring."

Counsel for defendant used the following language in his opening statement to the jury (N.T. 10):

"There wouldn't be any case here if he had brought it over to Dun & Bradstreet and handed it to them. Then the creditors would have to pursue their remedy in the state court. But technically, because they say he mailed it, that case has to wind up and take up our time."

The trial judge made no mention of the possibility of the defendant's prosecution in the state court at any time during the trial or in his charge. However, after the jury had been deliberating for about two hours,¹⁹ several questions, including the following, were sent to the trial judge (N.T. 206):

"`In your charge, we were told that the only reason this case has come to Federal Court is because he used the mails to send this statement. If a man uses the mails for such a statement must the Government prove that the defendant had knowledge of the law governing such mailing.'"

In answering this question, the trial judge said (N.T. 207-8):

"Now, I think maybe you have got confused by some argument that counsel made to you with what I said. You should not consider whether counsel may think this prosecution should be in the State Court or in the Federal Court. That is none of your and my concern. Congress has made this a crime. Whether it may be a crime under state law, too, or under any other law, has nothing to do with your decision here. * * *

"Now, do not go off on whether or not it should be in the Federal Court or somewhere else, as counsel for the defendant indicated to you at one point in the trial. That is a red herring. This is a situation where you are to decide on whether or not what was done by this defendant fell within a statute of the United States Congress. It is not for you or me to say whether we think this should be a crime. Congress says that, and we are sworn to follow the laws of Congress."

Near the end of the supplemental instructions to the jury, after objection by counsel for defendant to the use of the term "red herring," the trial judge said (N.T. 214):

"I want to emphasize that when I use the term `red herring,' I am not trying to characterize the arguments of the defense counsel as foolish, because they are very good. He is an extremely able lawyer. He has presented a very good argument to you. You remember it all, and you should remember the United States Attorney's argument. All I am saying is that I do not want you to decide the thing on the fact that this might have been brought before a court somewhere else. You have got an Act of Congress that you as a jury in this court must decide on. You must decide whether it has been violated or not. That is your job."

After a careful review of the entire record, the trial judge does not believe that it is "in the interest of justice"²⁰ to grant a new trial because of use of...