United States v. Weiss

• Decision Date: 15 January 1974
• Docket Number: Dockets 73-1964 to 73-1967.,No. 532-535,532-535
• Citation: 491 F.2d 460
• Parties: UNITED STATES of America, Appellee, v. Leon WEISS et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

491 F.2d 460 (1974)

UNITED STATES of America, Appellee, v. Leon WEISS et al., Defendants-Appellants.

Nos. 532-535, Dockets 73-1964 to 73-1967.

United States Court of Appeals, Second Circuit.

Argued November 21, 1973.

Decided January 15, 1974.

COPYRIGHT MATERIAL OMITTED

Howard A. Heffron, Washington, D. C. (Kostelanetz & Ritholz, New York City, Richard J. Medalie, Washington, D. C., of counsel), for defendants-appellants Leon Weiss and Ethel Weiss.

Richard J. Medalie, Washington, D. C. (Epstein, Friedman, Duncan & Medalie, Washington, D. C., of counsel), for defendants-appellants Melco International, Ltd. and Melco International, Inc.

Robert P. Walton, Asst. U. S. Atty. (Paul J. Curran, U. S. Atty., S. D. N. Y., Kenneth R. Feinberg, John D. Gordan, III, Asst. U. S. Attys., New York City, of counsel), for appellee.

Before LUMBARD, MANSFIELD and MULLIGAN, Circuit Judges.

MANSFIELD, Circuit Judge:

Following a nine-day trial before Judge MacMahon appellants Leon Weiss, Melco International, Inc. and its whollyowned subsidiary, Melco International, Ltd. (sometimes collectively referred to as "Melco") were on May 30, 1973, convicted of (1) conspiracy to violate 18 U.S.C. § 1001 by causing false invoices and documents to be submitted to the Army and Air Force Exchange Service of the Department of Defense ("Exchange" herein) (Count 1), (2) causing invoices containing false statements to be submitted to an agency of the Exchange in violation of 18 U.S.C. §§ 1001 and 2 (Counts 2-17), and (3) mail fraud in furtherance of the scheme in violation of 18 U.S.C. § 1341 (renumbered Count 18). Appellants Weiss and his wife, Ethel Weiss, were also convicted of corruptly endeavoring to obstruct justice in violation of 18 U.S.C. § 1503 by failing to produce documents subpoenaed by the Grand Jury investigating the scheme (renumbered Count 19).

Upon this appeal all defendants contend that the trial judge denied them a fair trial. Mr. Weiss and the two corporate defendants argue that certain evidentiary rulings were erroneous and require a new trial. The Weisses further urge that Count 19 (alleging a violation of 18 U.S.C. § 1503) fails to state a crime. Mrs. Weiss adds the argument that she was improperly joined, and the corporate defendants assert that the district court's jurisdiction over them was not established. As to the last claim we remand the proceedings against the corporate defendants for a hearing to determine whether the court had jurisdiction over them. Finding no merit in the other contentions, we affirm.

The record, viewed in the light most favorable to the government, United States v. McCarthy, 473 F.2d 300, 302 (2d Cir. 1972), reveals a scheme engineered by Weiss to defraud the Exchange of thousands of dollars upon the termination of a concession agreement with the Vietnam Regional Exchange by inflating the actual costs incurred in connection with performance of the contract, thus falsely increasing the amounts to which companies controlled by Weiss would be entitled by way of settlement. Beginning in 1966 Weiss was the President and controlling stockholder of defendant Melco International, Inc., a Liberian corporation which represented manufacturers in the sale of goods to Army and Air Force Post Exchanges ("PXs" herein) in the Far East. Weiss maintained his principal office in New York for the furnishing of supplies to PXs operated by the Exchange in various parts of the world.

In March 1967 Herbert J. McElroy, salesman for Melco International, Ltd., a wholly-owned Hong Kong subsidiary of Melco International, Inc., with Weiss' approval entered into a contract for the sale of Thai-manufactured goods to PXs in Vietnam. One month later, on April 18, 1967, the contract was terminated by the Exchange for reasons arising out of the adverse gold flow in the international balance of payments, which placed a strain upon the American dollar. Under the contract the termination entitled Melco to compensation for actual expenses and bona fide costs incurred in connection with its performance of the contract prior to its receipt of the termination letter.

Prior to the receipt of the notice of termination McElroy had on behalf of Melco obtained the agreement of three Thai suppliers (Longsan Limited, Thai Lapidary, and Thai Celanese) to furnish one month's supply of goods at a cost of approximately $43,000. At the same time, in order to gain a secret mark-up for Melco, McElroy had, with Weiss' approval, arranged with two of the Thai suppliers (Longsan and Thai Lapidary) that they would prepare double sets of invoices covering approximately $40,000 of the goods, one set showing the actual wholesale price to Melco and the other a higher wholesale price (increased by 10% on goods to be furnished by one supplier and 25% on goods from the other) for submission to the Exchange. Under this arrangement the two Thai suppliers, who were themselves realizing their profit on the lower invoiced price, would collect and "kick back" to Melco the difference between the two invoiced prices. In this way Melco would realize not only a mark-up amounting to the difference between the wholesale and retail prices disclosed to the Exchange but the secret "kick back" as well.

After receiving the notice of termination McElroy, again with Weiss' approval, secured the agreement of the Thai suppliers to a plan whereby they would cooperate with Melco in enabling it falsely to represent to the Exchange that it, prior to the termination of the Exchange contract, had made irrevocable commitments to them to buy approximately $300,000 worth of Thai goods instead of the actual commitments of approximately $43,000. Accordingly a settlement proposal based on the false $300,000 commitment was submitted in June 1967 by Melco to the Exchange with Weiss' approval, supported by back-dated letters from the two collaborating Thai suppliers, falsified invoices, and fraudulent affidavits signed by McElroy.

Upon McElroy's being transferred by Weiss to Germany, John Moore, a Melco representative in Hong Kong, was assigned to conclude the settlement negotiations after being fully briefed by Weiss regarding the fraud and the hidden markup to be realized by Melco. Rather than risk delaying receipt of the kick back from the two suppliers until after they had received the inflated prices from the Exchange, Weiss arranged through a Swiss bank to pay each supplier the agreed-upon lower secret price (10% lower than the price on each invoice bearing the Exchange stamp in the case of Longsan and 25% lower in the case of Thai Lapidary) upon proof that the goods had been shipped to the Exchange at the inflated price. He then received from the suppliers releases falsely acknowledging that they had received the inflated amounts in payment when in fact they had been paid the lower true amounts. Melco was thus in a position directly to collect the inflated sums from the Exchange. As a result it realized approximately $42,000 to which it would not have been entitled if the truth had been revealed to the Exchange.

Mrs. Weiss became involved in the scheme after the Grand Jury began an investigation into Weiss' activities and a subpoena was on March 5, 1971, served on Weiss for production of invoices and records relating to the settlement of the Vietnam PX contract. Thereupon Mrs. Weiss, after discussing the matter with her husband, made a secret trip from New York to Hong Kong where, aided by Leland Gage, Moore's successor at Melco's office there, she obtained the incriminating invoices showing the actual prices paid by Melco to the Thai suppliers. These documents were taken by her to Switzerland and, except for one such invoice from Thai Lapidary apparently furnished to the Grand Jury by mistake, were never turned over to the Grand Jury. Shortly thereafter Weiss denied to the district court having made any effort to obtain the documents from Hong Kong.

The Exclusion of Evidence Tending to Show that Melco May Not Have Realized an Overall "Profit"

In support of its settlement of the terminated contract with the Vietnam PX Melco submitted to the Exchange not only the false invoices from the two Thai suppliers but also evidence of other costs incurred, including outlays for supplies, travel expenses, equipment, office rental, automobile purchases and rentals, advertising, and the like. None of these latter charges were alleged by the government to have been falsified or inflated. Nor were they the subject of any charges in the indictment. Nevertheless Weiss and the corporate defendants sought to introduce proof at trial that it had understated these merchandising expenses and that Melco's total costs and expenses in connection with the contract exceeded its total proceeds received from the Exchange under the termination agreement, leaving it no profit.

Weiss argues that the trial court's exclusion of the foregoing evidence of merchandising expenses was error, in view of the prosecutor's repeated statements to the jury that the defendants had realized a "secret profit" from the alleged fraud. We disagree. The argument distorts the charge against the defendants and the meaning of the word "profit" as used in context by the government. The indictment alleged, and the evidence established, that by use of false invoices and other fraudulent representations Weiss and Melco knowingly induced the Exchange to buy a greater quantity of Thai merchandise than it was actually obligated to purchase and to pay higher prices for the goods than those which it would have been required to pay if the truth had been revealed. The "secret profit" referred to by the prosecutor clearly referred to the fraudulent markup or difference between the actual and falsely inflated prices for the goods, including the prices for merchandise which Melco falsely represented itself as being committed to buy when it was not.

Whether or not Melco realized an overall profit or loss on its settlement of the entire...