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United States v. Binder

decided: December 16, 1971.


Lumbard, Mulligan and Oakes, Circuit Judges.

Author: Lumbard

LUMBARD, Circuit Judge:

William Binder, Max Blauner and Edward Samuels appeal their convictions for conspiracy and substantive offenses designed to evade payment of approximately $7 million owed under the Interest Equalization Tax (I.E.T.) on the trading of $45 million worth of foreign issue stocks in 1964 and 1965. We affirm the convictions.

The principal contention of the appellants is that their convictions are in violation of Article I, section 9 of the Constitution which provides "No Bill of Attainder or ex post facto Law shall be passed" as the government was allowed to prove what the defendants had done prior to the passage of the statute on September 2, 1964. We find no merit in this argument.

The indictment, filed November 29, 1966, contained 13 counts, of which we need to note only eight.*fn1 Count 1 charged Henry Scharf and the three appellants with conspiring, from November 1963 to February 1965, to evade the I.E.T. and defraud the United States by filing false and fraudulent returns for the quarters ending September 30, and December 31, 1964, and March 31, 1965. 18 U.S.C. § 371. Counts 2, 4 and 6 charged all defendants with attempted evasion of Scharf's I.E.T. 26 U.S.C. § 7201. Counts 9 through 12 charged all defendants with aiding, procuring and counseling the preparation and presentation of false and fraudulent I.E.T. returns on November 27 and November 30, 1964, and February 1, 1965. 26 U.S.C. § 7206(2); 18 U.S.C. § 2. Binder was convicted on Counts 1, 4 and 6, and Blauner and Samuels on Counts 1, 2, 4, 6, 9, 10, 11 and 12. Scharf, being a fugitive, was severed from the trial.

The enactment on September 2, 1964 of the I.E.T. statute, 26 U.S.C. § 4911 et seq., was preceded by many months of discussion in the Congress, which followed a message to Congress from President Kennedy on July 19, 1963, regarding methods of reducing the flow of capital funds from the United States. Designed to correct the flow of short-term capital from the United States, the I.E. T. statute levied an excise tax of up to 15% on the acquisition of foreign-issue stock by United States citizens from noncitizens.

As soon as it became known in financial markets, about March 1964, that passage of the I.E.T. was likely, American-owned foreign stock sold to United States citizens commanded a premium over foreign-owned foreign stock sold to United States citizens because no I.E.T. would become due on the former sales. Thus, in the few months prior to the enactment of the I.E.T., an American could purchase foreign-owned foreign stock and sell it at a small profit as American-owned foreign stock. This arbitrage profit, however, was not enough to cover the amount of the I.E.T. that would come due if the tax were passed.

To curb the capital flow while Congress was considering the legislation and to avoid arbitrage speculation, the President's original message to Congress on the I.E.T. asked that the tax be made retroactive. 109 Cong. Rec. 12,806 (Senate), 12,940 (House) (1963). When passed, the statute provided that taxes were to be imposed on all affected transactions in foreign stock which took place after July 19, 1963,*fn2 the date of the President's message.

In March 1964, the bill which was to become the I.E.T. passed the House of Representatives with its retroactive features intact and its likely passage through the Senate then apparent, and, at the very same time, Henry Scharf and the defendants began to deal through dummy corporations in an arbitrage scheme designed to recover for themselves the profit that an American citizen could receive by dealing in foreign stock if he was able to evade the I.E.T.

In March 1964, Weston Trading Corporation, an American corporation controlled by Scharf through Management House, Inc. began heavy trading in foreign securities. Foreign-owned foreign stock was bought by Weston and sold as American-owned foreign stock. The money for the transactions was supplied by Scharf as Weston had no assets.

In April 1964, a similar arbitrage account was opened by defendant Samuels' father, Sidney Samuels and one Bernard Luckman, in the name of Hondo Trading Corporation.*fn3 Hondo also had no assets and the money for its purchases was supplied by Luckman and Samuels. In July 1964, Scharf acquired control of Hondo.

Weston and Hondo traded in foreignowned foreign stock until August 1964. Blauner and Samuels were customers men at Coggeshall & Hicks, a New York brokerage house, and they handled all the transactions for the two corporations. The arbitrage profits on the sales were approximately $30,000 in addition to $177,000 paid to Blauner and Samuels in the form of brokerage commissions and other expenses. Part of these commissions was kicked back to Scharf. No I.E.T. was ever paid, although the government proved I.E.T. liabilities due on the corporations' transactions amounting to nearly $7 million.

In August 1964, after a meeting among Scharf, Blauner and Samuels, the defendants stopped trading through Weston and Hondo and Blauner began looking for an American citizen living in Canada who would be willing to sign his name to documents that showed that the stock purchases were made for his account. Binder, who was a long-time Scharf associate, introduced to Scharf one William Hazael who was an American citizen living in Canada. To get Hazael to agree to sign the necessary papers, Scharf agreed to pay him $150 per week; in return Hazael signed the necessary certificates of American ownership that were presented to him. Blauner and Samuels purchased foreign-owned foreign stock with Scharf's money in Hazael's name, from September 1964 until March 1965. The profits on these sales were $263,413 of which Hazael received only $4,939. Commissions on the sales, which were conducted by Carl Pollack, a co-worker of Samuels, amounted to $80,000, part of which Pollack kicked back to Samuels.

Although Hazael's tax returns had revealed substantial tax liabilities, no payments accompanied the returns. When the IRS moved to collect the money, Scharf told Hazael to "sit tight" and had Binder continue to pay Hazael the $150 weekly in cash. Scharf then sent Hazael an affidavit to sign which exonerated Scharf from any liability in the sale of the stocks, recited falsely that Hazael's family had an interest in local cannery, that Hazael had full knowledge of the I.E.T. and that Hazael had told Scharf that he was unaffected by the I.E.T. for which reason Scharf had undertaken to ...

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