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United States v. Klein

decided: September 3, 1957.

UNITED STATES OF AMERICA, APPELLEE,
v.
HYMAN HARVEY KLEIN, MAURICE HAAS, AND MORRIS O. ALPRIN, DEFENDANTS-APPELLANTS



Author: Clark

Before CLARK, Chief Judge, and SWAN and POPE, Circuit Judges.

CLARK, Chief Judge.

This appeal presents issues of income tax evasion arising out of extensive and involved transactions disclosed to a jury in a trial of almost five months' duration. The prosecution was difficult because the case arose out of concealed business affairs of both great magnitude and unusual complexity. This is indicated by the fact that defendants had organized no less than seventeen foreign corporations to carry on their business operations and, according to the Government's claim, to hide income and evade taxes. Representing the defendants were able and resourceful counsel who succeeded in procuring directed judgments of acquittal on the charges of specific tax evasions; and the trial had to proceed in somewhat dismembered form until a verdict was reached on a single separate count charging conspiracy to obstruct the Treasury Department in its collection of the revenue. Defendants have continuously attacked this count for a variety of reasons, generally centering on the point that it is too vague and general to afford a proper basis for a felony trial and conviction. The emphasis on this point is so strong that, as will appear, this appeal largely turns upon issues of federal criminal pleading.

The count upon which conviction was had is often termed "Fifth," since it appeared as such, though in slightly different form, in the original indictment. Of the other four original counts, three charged substantive evasions of Klein's income taxes, while the fourth charged conspiracy to evade the taxes of Klein and associates. On these counts acquittal was directed by the trial court, as stated in United States v. Klein, D.C.S.D.N.Y., 139 F.Supp. 135. Earlier there had been pretrial attacks on the indictment and particularly on the Fifth Count. Though these were unsuccessful, United States v. Klein, D.C.S.D.N.Y., 124 F.Supp. 476, the Government was moved to procure a superseding indictment on September 17, 1954, of which the Second Count took the place of the original Fifth Count. Originally indicted were nine persons, including the three present appellants, three Canadian residents who were never apprehended, a seventh defendant who died before trial, and two remaining defendants named only in the first four counts and freed when these counts ended in the acquittal judgments. After those judgments were entered on June 28, 1955, the trial, which had started on April 4, 1955, proceeded on the Fifth Count (in its superseded form) until the three appellants were convicted by the jury on August 22, 1955.The judgments entered on this verdict provided for substantial penalties of imprisonment and fine, the heaviest being assessed against Klein, the principal defendant.

We shall proceed to a statement of the facts as the jury could find them in deciding for conviction.

1. The Persons Involved. The crucial Fifth Count named seven defendants and two coconspirators. H. H. Klein was the principal defendant, a United States citizen, whose alleged evasion of immense amounts of income tax due in 1944, 1945, and 1946 was the crux of the first four counts in the indictment. He made tremendous amounts of money during the period when OPA was in effect in this country by manufacturing and selling "Harwood's," a brand of whiskey manufactured in Canada by himself and the three nonappearing Canadian residents - Isidor J. Klein, Albert McLennan, and George Norgan. Three lesser defendants were Morris O. Alprin, Maurice Haas, and Ellis Rosenberg, attorneys who served H. H. Klein in distributing Harwood's in this country. Rosenberg, Klein's most intimate lawyer, died before trial. Alprin, a personal friend of Klein's, gave legal advice and performed various odd chores.Haas, who is primarily an accountant, gave legal advice and did some accounting. Irving A. Koerner, named as a coconspirator, but not a defendant, in the Fifth Count, was the manager of the New York City wholesale division of R. C. Williams & Co., which imported Harwood's into the United States. Albert Roer, not named as either a coconspirator or defendant in the Fifth Count, was very active in selling Harwood's in this country and was in the same firm as Koerner at one time. William Rokoff, a coconspirator, was H. H. Klein's personal secretary and ran Klein's office in Baltimore. Harry Silver, the remaining coconspirator, played no significant part in the case. Thus the present appellants are H. H. Klein, one of the four owners of the enterprise; Maurice Haas, his accountant; and Morris O. Alprin, his attorney.

2. The Background Events . Prior to the start of the conspiracy H. H. Klein and the three Canadians employed the other named persons to assist them in running an immense whiskey selling business in a fashion calculated to minimize the amount of United States income tax they would have to pay. The whiskey was manufactured in Canada by a Canadian corporation and was billed f.o.b. Canada, so that title did not pass in the United States. The Canadian manufacturing corporation did not bill the whiskey direct to R. C. Williams & Co. in this country; Agencias, a Cuban corporation controlled by Klein and the three Canadians, was inserted in the chain of title, though the whiskey itself was sent directly from Canada to the customers in the United States designated by Williams.

During the very profitable years, 1944-1946, the intercorporate manipulation and complexity were carried to a great length to obtain tax advantages. The basic theory of the prosecution's first four counts was that these corporations were sham and that Klein and his three associates were actually doing business as joint venturers. While the judge below eventually held that the corporations were bona fide, there was considerable doubt in the minds of Klein and his friends at the time they were selling Harwood's that the corporate entities would be respected by the United States Treasury and several legal opinions were solicited. Having thus learned that the Treasury would be more inclined to ignore the Cuban corporation device if it discovered that the corporate officers were directing operations from the United States, Klein and his associates took steps to hide such facts. There was a second secret contract between Agencias and R.C. Williams & Co., the importer; and this gave Klein considerable control over the details of merchandising in this country. Alprin, Haas, Rosenberg, and Roer all performed services for the Harwood's syndicate in the United States; and Rokoff conducted much of the bookkeeping and billing of Agencias from Baltimore, while making it appear that the corporation operated out of Cuba. Contemplating an impending end to price controls, which were a large factor in the success of the enterprise, Klein and his companions introduced several new nonoperating foreign corporations into the intercorporate structure, arranging the bookkeeping so as to draw off the enterprise's profits into them. Among them was Tivoli Trading Co., S.A.

3. The Conspiracy before September 18, 1951 . Since the indictment upon which the appellants were prosecuted was filed September 17, 1954, the three-year statute of limitations here applicable, 18 U.S.C. ยง 3282, requires proof of a conspiracy continuing after September 17, 1951. The indictment charged that the conspiracy began in June 1946, and we turn now to the events between June 1946 and September 1951. Klein, Alprin, Roer, Koerner, and Rosenberg decided to form a new batch of Cuban corporations which could be used as personal pocketbooks by key Harwood's employees who were to receive large sums upon the imminent breakup of the syndicate. The corporations were eventually formed, Rosenberg receiving one, and Koerner, Roer, and Aplrin four apiece. Later Roer transferred one of his - LaRibera - to Haas.

On February 24, 1947, Klein, who then controlled Tivoli Trading Co., caused Tivoli to pay $35,000 to Haas' LaRibera corporation by check. On March 27, 1947, Klein caused Tivoli to purchase three Canadian bank drafts in large amounts. Two were identical: made out in favor of one of Alprin's Cuban corporations in the amount of $264,162.70 apiece. A third was in favor of one of Roer's corporations in the sum of $272,423.62. Klein instructed Haas to deposit his $35,000 check in a Canadian bank, and not to use it until instructed. He delivered Roer's draft to him with similar instructions about nonuse. Klein gave Alprin the two identical drafts, explaining that one was for him and one for Koerner and that Alprin should deposit his own in a Canadian bank and hold onto Koerner's.

The recipients of the drafts had many reasons for accepting payment in that fashion, but one of them was a desire which they shared with H. H. Klein to keep from the United States Treasury information which might lead it to conclude that he and the three Canadians had erroneously reported their income for the years 1944-1947. Their fear was this: If the Treasury found the drafts, they might be construed as payment for services rendered to Klein's corporations in the United States during the years 1944-1947; the Treasury might then be more inclined to disregard the corporate veil; if the corporations - which were Canadian, Cuban, and Panamanian - were disregarded, immense profits from whiskey sales were earned by Klein personally; in that event they would be taxable as ordinary income, for a United States citizen must pay tax on his earnings abroad. H. H. Klein, the benefactor and employer of these people, was in effect paying Roer, Koerner, and Alprin large sums, and Haas a lesser amount, for past services rendered, but was asking them to hold up use of the funds until his income tax liability was safely resolved.

Klein had Rokoff record the drafts in Tivoli's books as "commissions" paid by Tivoli, and the loan or gift to Haas was put in the Tivoli books the same way. This enabled Tivoli falsely to deduct the sums as business expenses. On the same day that Klein purchased the bank drafts he sold out the assets of Tivoli to Hannes & Co., another corporation wholly owned by Klein. Klein later filed his return for 1947 with the assistance of Haas, and in a rider he stated that Tivoli had large "contingent liabilities" which were assumed by Hannes.

Roer held his draft and did not deposit it until 1950. Alprin split up his draft into three parts and deposited them in three Canadian bank accounts in the names of three of his Cuban corporations. Alprin held onto Koerner's draft, on instructions from Klein, despite Koerner's desperate efforts to obtain it. Haas deposited his check in Canada. For a while the accounts in Canada were frozen by the Canadian Government, and during the same general period H. H. Klein's long difficulties with the United States Treasury began. They started with a jeopardy assessment in March 1948 and have led in ultimate course to the present appeal. When Klein succeeded in unfreezing the Canadian accounts he instructed Alprin to put his money together again in the form of a single draft in favor of a Cuban corporation and to hold onto it until given further instructions. Later an escrow arrangement was worked out, involving Klein, Haas, Koerner, and Alprin, to appease Koerner, who still wanted his draft.

In 1949 Klein was asked some interrogatories by Treasury agents, and Haas helped him with the answers. Klein falsely stated that he was "not in a position to answer" questions about the nature and amount of funds paid over by Tivoli to certain named Cuban corporations - those controlled by Haas, Roer, and Alprin - or to identify the beneficial owners of these companies. He also claimed that all the books of account of his foreign corporations were maintained at the corporations' Cuban office, although he knew that the chief set of books had been kept by Rokoff in Baltimore.

4. The Events between September 18, 1951, and September 17, 1954 . On November 3, 1951, Klein signed the interrogatories which he had submitted to Treasury officials in 1949, leaving his answers unchanged and swearing to the truth of what he had said. On February 29, 1952, Klein and Alprin held the telephone coversation which constitutes the first overt act in the Fifth Count of the indictment. Klein told Alprin that he could use his own draft and could release Koerner's. Klein said: "Yes, you can use your check. Get a good tax man." Alprin asked, "What do you mean?" The reply: ...


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