US v. Ohle

• Decision Date: 12 January 2010
• Docket Number: No. S2 08 Cr. 1109(LBS).,S2 08 Cr. 1109(LBS).
• Parties: UNITED STATES of America, Plaintiff, v. John B. OHLE III and William E. Bradley, Defendants.
• Court: U.S. District Court — Southern District of New York

678 F.Supp.2d 215

UNITED STATES of America, Plaintiff, v. John B. OHLE III and William E. Bradley, Defendants.

No. S2 08 Cr. 1109(LBS).

United States District Court, S.D. New York.

January 12, 2010.

Steven David Blanc, Steven D. Blanc, Ltd., Wilmette, IL, Stuart Edward Abrams, Frankel & Abrams, New York, NY, for Defendants.

Stanley John Okula, Jr., Nanette Louise Davis U.S. Attorney's Office, New York, NY, for Plaintiff.

MEMORANDUM & ORDER

SAND, District Judge.

On August 11, 2009, the Government filed the Second Superseding Indictment ("Indictment") against Defendant John B. Ohle III ("Ohle") and Defendant William E. Bradley ("Bradley"). The Indictment, which includes eight counts, charges Ohle and Bradley with various tax and fraud offenses. The Indictment alleges that between 2001 and 2004, Ohle and various co-conspirators engaged in a massive scheme to cheat the Government out of over $100 million by causing dozens of United States taxpayers to engage in fraudulent tax shelter transactions and fraudulently report the results of those shelters on their tax returns. Ohle is alleged to have formed two conspiracies, charged in Count One and Count Five. Bradley is only alleged to have been a member of the Count Five conspiracy.

The Count One conspiracy (the "HOMER conspiracy") charges Ohle and others with conspiring to defraud the United States and to commit various tax crimes and mail and wire fraud. Ohle and his co-conspirators are charged with developing and implementing an allegedly fraudulent tax shelter known as "Hedge Option Monetization of Economic Remainder" ("HOMER"). Ohle, a certified public accountant and attorney, is charged with helping to design, market, and implement HOMER while he was working for a national bank ("Bank A"), which maintained its principal offices in Chicago, Illinois. The scheme was allegedly designed to eliminate or reduce the amount of U.S. income taxes paid by wealthy clients of Bank A and law firm Jenkens & Gilchrist, P.C. ("J & G"). The scheme generated extraordinary fee income for Bank A, J & G, Ohle, and his co-conspirators. The Indictment also alleges that Ohle and other members of the Innovative Strategies Group ("ING") at Bank A received bonuses based in part on the amount of fees each generated through their sale of the HOMER tax shelters. Ohle is charged with substantive tax evasion as to various clients in Count Two (Client D.W.), Count Three (Client C.P.), and Count 4 (Client D.D.).

The Count Five conspiracy, referred to in the Indictment as "The Mail and Wire Fraud and Personal Income Tax Fraud Conspiracy", charges Ohle, Bradley, and co-conspirators Douglas Steger and Individual C with conspiracy to commit fraud. The conspiracy alleged in Count Five consists of two schemes: the referral fees and Carpe Diem. The Indictment alleges that as part of an effort to market, sell, and implement HOMER tax shelters, Ohle, other members of Bank A's ISG, and attorneys from J & G agreed to pay referral fees to third parties who referred a client who ultimately entered into a HOMER tax shelter. Third-party referral sources sent invoices to J & G, who would then pay referral fees to those third parties based on the amounts stated in the invoices. The Indictment alleges that J & G would issue IRS Forms 1099-MISC, when appropriate, to the third parties to reflect the payment of the referral fees as non-employee compensation to the third parties. As part of the referral scheme, Ohle is alleged, along with Steger and Bradley, to have prepared fraudulent invoices to obtain referral fees from Bank A, which they were not entitled to receive under the fee arrangement. Ohle is alleged to have contacted Bradley to prepare invoices for referral fees in connection with Client Group 1's HOMER tax shelter, despite the fact that Bradley performed no services in connection with that deal. Bradley is also alleged to have prepared fraudulent invoices related to two of Bank A's HOMER clients.

Second, the Carpe Diem scheme alleges that Ohle approached Client E, with whom Ohle had an established business relationship, to invest in Carpe Diem, a Bermuda-based hedge fund for whom Steger was an independent salesman. Client E invested $7 million in Carpe Diem. The Indictment alleges that Ohle also met with Client F and Client G, both of whom were HOMER clients of Bank A. Client F and Client G invested $1 million each in Carpe Diem. Ohle is alleged to have received a 5% commission on each of the Carpe Diem transactions, even though he told Client E that he would not receive any commission on her investments. The Indictment also alleges, related to the Carpe Diem fees, that Ohle unlawfully diverted funds from Client E's trust account to be used for Ohle's personal benefit. When Client E informed Ohle that she and her lawyer wished to discuss the finances of the trust, Ohle, with the assistance of Bradley, replaced a portion of the funds that had been unlawfully diverted from the trust bank account.

In Counts Six and Seven, Ohle is charged with personal tax evasion for the tax years 2001 and 2002, respectively. Count Eight of the Indictment alleges that Ohle obstructed and impeded the due administration of the internal revenue laws. With this background, the Court now addresses Defendant Ohle's and Defendant Bradley's various pretrial motions. For the purposes of these motions, all of the allegations in the Indictment are accepted as true.

I. Discussion

a. Use of the Mail Fraud Statute (Count One)

Ohle argues that Count One of the indictment impermissibly uses the wire fraud statute to reach an alleged criminal tax conspiracy, citing United States v. Henderson, 386 F.Supp. 1048 (S.D.N.Y. 1974). Henderson held that the mail fraud statute (the scope of which is identical to the wire fraud statute, United States v. Schwartz, 924 F.2d 410, 417 (2d Cir.1991)), was not intended to reach cases of alleged tax evasion and was superseded by the comprehensive system of penalties Congress later enacted in the Internal Revenue Code. Henderson, 386 F.Supp. 1048. Though it has never explicitly disapproved Henderson, the Court of Appeals for the Second Circuit has recently stated that "Henderson—which other circuits have rejected,... provides weak authority for the proposition that schemes aimed at defrauding the government of taxes do not fall within the scope of the mail and wire fraud statutes." Fountain v. United States, 357 F.3d 250, 258 (2d Cir.2004).¹ We agree with the many courts of appeals² and courts within this District³ that have declined to follow Henderson. Ohle's motion to dismiss the wire fraud allegations is denied.⁴

b. Duplicity (Count Five)

Ohle and Bradley both move to dismiss Count Five as duplicitous. An indictment is duplicitous if it joins two or more distinct crimes in a single count. United States v. Aracri, 968 F.2d 1512, 1518 (2d Cir.1992). Duplicitous pleading is not presumptively invalid; rather, it is impermissible only if it prejudices the defendant. United States v. Olmeda, 461 F.3d 271, 281 (2d Cir.2006). Duplicity is only properly invoked when a challenged indictment affects one of the doctrine's underlying policy concerns: (1) avoiding the uncertainty of a general guilty verdict, which may conceal a finding of guilty as to one crime and not guilty as to other, (2) avoiding the risk that jurors may not have been unanimous as to any one of the crimes charged, (3) assuring the defendant has adequate notice of charged crimes, (4) providing the basis for appropriate sentencing, and (5) providing the adequate protection against double jeopardy in subsequent prosecution. Olmeda, 461 F.3d at 281 (citing United States v. Margiotta, 646 F.2d 729, 732-33 (2d Cir.1981)).

The Court of Appeals for the Second Circuit has recognized that application of the duplicity doctrine to conspiracy indictments presents "unique issues." United States v. Murray, 618 F.2d 892, 896 (2d Cir.1980). In this Circuit, "it is well established that the allegation in a single count of a conspiracy to commit several crimes is not duplicitous, for the conspiracy is the crime and that is one, however diverse its objects." Aracri, 968 F.2d at 1518 (internal citations and quotations omitted). "A single conspiracy may be found where there is mutual dependence among the participants, a common aim or purpose or a permissible inference from the nature and scope of the operation that each actor was aware of his part in a larger organization where others performed similar roles equally important to the success of the venture." United States v. Vanwort, 887 F.2d 375, 383 (2d Cir.1989). Each member of the conspiracy is not required to have conspired directly with every other member of the conspiracy; a member need only have "participated in the alleged enterprise with a consciousness of its general nature and extent." United States v. Rooney, 866 F.2d 28, 32 (2d Cir.1989). If the Indictment on its face sufficiently alleges a single conspiracy, the question of whether a single conspiracy or multiple conspiracies exists is a question of fact for the jury. Vanwort, 887 F.2d at 383; see also United States v. Szur, No. S5 97 CR 108(JGK), 1998 WL 132942, at *11 (S.D.N.Y. Mar. 20, 1998). Accordingly, courts in this Circuit have repeatedly denied motions to dismiss a count as duplicitous. See United States v. Nachamie, 101 F.Supp.2d 134, 153 (S.D.N.Y.2000) (collecting cases).

Bradley, pointing to United States v. Muñoz-Franco, 986 F.Supp. 70 (D.P.R. 1997), argues that Count Five is duplicitous on its face. We find Judge Rakoff's decision in United States v. Gabriel, 920 F.Supp. 498 (S.D.N.Y.1996), to be more instructive in this case.⁵ In Gabriel, Judge Rakoff found that, although the count at issue contained boilerplate allegations of a single conspiracy, the subsequent paragraphs in the count were more consistent with two conspiracies than a single conspiracy. Gabriel, 920 F.Supp. at 503. As in Muñoz-Franco, the...