United States v. Olive

• Decision Date: 05 October 2012
• Docket Number: No. 3:12-00048,3:12-00048
• Parties: UNITED STATES OF AMERICA v. RICHARD OLIVE
• Court: U.S. District Court — Middle District of Tennessee

UNITED STATES OF AMERICA

v.RICHARD OLIVE

No. 3:12-00048

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION

Dated: October 5, 2012

Judge Sharp

MEMORANDUM

Pending before the Court is Defendant Richard Olive's "Motion to Dismiss or Strike the False Statements Alleged in Paragraphs 9(b), 9(c) and 10 of the Indictment" (Docket No. 20), to which the Government has responded in opposition (Docket No. 23), and Defendant has replied (Docket No. 24). For the following reasons, the motion will be denied.

I. BACKGROUND

On March 1, 2012, a federal grand jury returned a nine count Indictment against Defendant, charging him with three counts of mail fraud in violation of 18 U.S.C. § 1341; four counts of wire fraud in violation of 18 U.S.C. § 1343; and two counts of money laundering in violation of 18 U.S.C. § 1957. The allegations in the Indictment span the period from late January 2006 until May 2007, and center around Defendant's role as president and executive director of the National Foundation of America ("NFOA"), a corporation.

According to the Indictment, NFOA claimed to be organized to provide charitable and humanitarian aid to numerous listed philanthropic causes but, in actuality, was geared towards defrauding owners of annuities. As a part of the alleged scheme to defraud, Defendant filed paperwork with the State of Tennessee to create NFOA as a nonprofit corporation. Thereafter, Defendant, "through highly compensated insurance agents across the country, offered and soldinvestment contracts labeled as NFOA's 'Installment Plan Agreement[s]'" that were marketed essentially as charitable gift annuities. (Docket No. 1, Indictment ¶ 8).¹

To induce annuitants and other potential customers to transfer assets to NFOA, the Indictment alleges that Defendant "and others acting on his behalf made various misrepresentations or material omissions with the intent to defraud." (Id. ¶9). So far as relevant to the present motion, these include representations that NFOA was a non-profit and charitable foundation under the Internal Revenue Code, and that Defendant's failure to disclose to potential customers that NFOA had been subjected to cease-and-desist letters from several states.

Through the alleged scheme, Defendant is alleged to have received "approximately $20 million, a portion of which he, intentionally and with the intent to defraud, took to further the scheme and for his and others' personal benefit." (Id. ¶ 12).

II. DISCUSSION

Prior to discussing the substance of Defendant's motion, the Court notes that the Government spends a good deal of time in its response brief arguing why the Indictment should not be dismissed. This is understandable given that the motion is styled a "Motion to Dismiss or Strike." However, the caption of the motion goes on to state that it is directed to certain paragraphs, and both the introductory and concluding paragraphs indicate that Defendant is moving to dismiss or strike certain language in the Indictment, not the entire Indictment itself.

Regardless, insofar as Defendant's motion could be construed as a request for dismissal, the same will be denied because, even without the challenged language, sufficient factual allegationsexist to support the charges of mail fraud, wire fraud, and money laundering, and Defendant makes no argument supporting dismissal of the Indictment. See, United States v. Coss, 677 F.3d 278, 287 (6th Cir. 2012) (citation omitted) ("[A]n indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defend, and, second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense"). Accordingly, the Court construes Defendant's motion as one seeking to strike language from paragraphs 9(b), 9(c) and 10.

Rule 7(d) of the Federal Rules of Criminal Procedure provides that "[u]pon the defendant's motion, the court may strike surplusage from the indictment or information." Fed. R. Crim. P. 7(d). "The advisory committee's notes state that '[t]his rule introduces a means of protecting the defendant against immaterial or irrelevant allegations in an indictment or information, which may, however, be prejudicial.'" United States v. Laurienti, 611 F.3d 530, 546 (9th Cir. 2010) (quoting, Fed. R. Crim. P. 7(d)). Thus, "'[t]he purpose of a motion to strike under Fed. R. Crim. P. 7(d) is to protect a defendant against prejudicial or inflammatory allegations that are neither relevant nor material to the charges." Id. at 546-47 (citation omitted).

"The decision whether to strike language from an indictment rests within the sound discretion of the district court." United States v. Emuegbunam, 268 F.3d 377, 394 (6th Cir. 2001). A motion to strike surplusage should be granted only where it is clear that the language is irrelevant and prejudicial. United States v. Moss, 9 F.3d 543, 550 (6th Cir. 1993). This has been characterized as "a most exacting standard," United States v. Brye, 318 Fed. Appx. 878, 880 (11th Cir. 2009) (citation omitted), and, therefore, "[i]f the language in the indictment is information which the government hopes to properly prove at trial, it cannot be considered surplusage no matter howprejudicial it may be (provided, of course, it is legally relevant)." Moss, 9 F.3d at 550.

A. Tax Exempt Status Language

"In order to qualify for a tax exemption under 26 U.S.C. § 501(a), an organization must meet the qualifications laid out in § 501(c)(3)." Asmark Institute, Inc. v. Commissioner, 2012 WL 2550474 at *3 (6th Cir. July 30, 2012).² "The entity must be (1) organized and operated 'exclusively' for a tax-exempt purpose, and (2) have no part of its net earnings inure to the benefit of any private shareholder or individual." Id. (citation omitted). "Notably, donations to 501(c)(3) organizations are tax-deductible[.]" Christian Coalition of Florida, Inc. v. United States, 662 F.3d 1182, 1191 n.9 (11th Cir. 2011).

The Indictment in this case contains language alleging that Defendant misrepresented the tax exempt status of NFOA. Specifically, paragraphs 9(b) and 10 (with the language Defendant seeks to strike in boldface) read as follows:

9. (b) Throughout the entire scheme, Richard Olive and others acting on his behalf falsely represented to annuitants and other potential customers that NOFA was a non-profit charitable foundation recognized under the U.S. Internal Revenue Code for which contributions were tax deductible. Specifically, OLIVE falsely represented that NFOA was tax exempt under 501(c)(3) of the Internal Revenue Code. As OLIVE well knew, NFOA was not tax exempt under section 501(c)(3). Rather at all material times NFOA only had a pending application for 501(c)(3) status and that application was later denied in February 2008.

10. It was further a part of the scheme that Richard Olive falsely represented to administrators of existing annuities that NFOA was a recognized charitable tax-exempt foundation under the Internal Revenue Code in order to avoid required income tax withholding and to receive additional funds.

(Docket No. 1, Indictment ¶¶ 9(b) & 10, emphasis added).

Defendant asserts the statements that NFOA was tax exempt were true, writing:

NFOA was a non-profit charitable foundation. As the Indictment alleges, and is the fact, NFOA was registered as a non-profit corporation under Tennessee law. (Indictment, ¶7) As the Indictment also alleges, and is the fact, NFOA filed an application for recognition as a tax exempt entity under Section 501(c)(3) in January 2006, and the Application was pending during the entire period NFOA sold installment plans from January 2006 to May 2007. (Indictment, ¶9.b) As the Indictment further alleges, and is the fact, the IRS denied NFOA's application in February 2008, nine months after NFOA's operations were shut down in May 2007 by the Tennessee Commissioner of Insurance. Thus, whether the alleged statements were false depends upon whether the applicable sections of the Internal Revenue Code and Treasury regulations can and should be interpreted as providing that NFOA was recognized as a tax exempt entity under 501(c)(3) for which contributions could be deducted based upon its pending Application.

(Docket No. 20 at 3). Defendant goes on to argue that the tax code and accompanying regulations "make plain that upon filing its Form 1023³ application on January 27, 2006, NFOA was a tax exempt organization for which contributions could be conducted," and neither the code or regulations "state that the application must be approved before the organization is recognized as tax exempt and contributions to it are tax deductible." (Id. at 7).

Conspicuously absent in the above excerpt from Defendant's brief is a citation to the Indictment for the proposition that NFOA was, in fact, operated a non-profit charitable organization. The Indictment suggests otherwise, characterizing NFOA at the outset as being "purportedly organized to provide charitable and humanitarian through various philanthropic causes," and later alleging that Defendant "obtained $20 million," at least some of which was used for his own personal benefit, or to further the scheme. (Docket No. 1, Indictment ¶¶ 1 & 12).

Defendant's premise - that NFOA was, in fact, a charitable organization - may prove to be wrong, and is something for the jury to determine. This potentially faulty premise also mandates denial of his Motion to Strike.

Defendant cites Section 501(a) for the proposition that tax exempt status is granted to an organization that files an application for such status "unless such exemption is denied." 26 U.S.C. § 501(a). However, that language must be read in context because the statute states that "[a]n organization described in subsection (c) . . . shall be exempt from taxation under this title unless such exempt is denied." Id. (emphasis added). Subsection (c), in turn, lists exempt organizations, including, so far as...