The opinion of the court was delivered by: DUFFY
Defendant Irving Goldman moves to dismiss the indictment, requests discovery and inspection of certain items, and seeks a bill of particulars. In order to understand the basis for these motions, it is necessary to outline the indictment.
Count 1 alleges a conspiracy between Goldman, Jack Zander, an unindicted co-conspirator, and others from January 1, 1967 to the date of the indictment with three objects: to defraud the New York City Transit Authority ("Transit Authority"); to defraud Interborough News Company, Inc. ("Interborough") and, to defraud the United States, the Internal Revenue Service ("IRS") and the Treasury Department. Specifically, he is charged with conspiring to violate the mail fraud provision, 18 U.S.C. § 1341 and the prohibition against false income tax returns, 26 U.S.C. § 7206(1). The indictment alleges that Goldman was president and chief operating officer of Jola Candy, Inc. ("Jola") from January 8, 1975 until the indictment, and vice-president and a director of Interborough from October 1967 to September 1973. Zander became president of Interborough on March 8, 1967 and president of Interborough's parent corporation, Sportservice Corporation ("Sportservice") in January 1973; he left both positions on March 3, 1975.
The indictment charges that the following means were used to accomplish the first object of the conspiracy, the fraud against the Transit Authority: Goldman prepared three false Jola invoices in the amounts of $7,500, $750 and $750, and caused them to be mailed to Zander at Interborough News in Buffalo; thereafter, Zander caused checks to be drawn on Sportservice payable to Jola and mailed to Jola. Goldman then allegedly caused checks to be drawn on the Jola bank account and to be negotiated in order to pay Seymour Wasserberger, who was at the time Director of Concessions, New York City Transit Authority.
The second object of the conspiracy, defrauding Interborough, was allegedly accomplished as follows: Interborough, during the time of the conspiracy, was under contract with the Transit Authority and supplied vending machine products for placement and sale in vending machines located within the subway system. Zander caused Interborough employees to order products directly from manufacturers and suppliers, and have the products delivered to Interborough's New York office, but the bills and invoices for the products were sent to Jola rather than Interborough. Thereafter, Goldman would have Jola mail invoices to Interborough charging inflated prices for the products or charging Interborough for merchandise which Interborough had received for free from manufacturers and suppliers. The Jola invoices were then paid by Interborough's parent, Sportservice, and mailed to Jola; Goldman had checks drawn on Jola in the approximate amount of $200,000 payable to his daughters, Joy and Laurie, and to Zander's children, Brian and Robin; these checks were then negotiated. It is further charged that Goldman and Zander concealed Zander's interest in Jola from Interborough and Sportservice.
The fraud upon the United States was allegedly accomplished through false income and expense entries on the books of Jola, upon which entries false federal corporate income tax returns were filed. Specifically, the indictment asserts that Goldman filed false United States Small Business Corporation Income Tax Returns (Form 1120) for the years ending January 31, 1971, January 31, 1972, and January 31, 1973. The indictment recites the amount of gross receipts and sales and the amount of deductions reported for each year and charges that those amounts are false.
Nineteen overt acts are alleged in furtherance of the conspiracy. Among them are a December 18, 1970 conversation between Goldman and Zander in which a $5,000 payment to Wasserberger was discussed for Wasserberger's assistance in renegotiating Interborough's contract with the Transit Authority, and December 1971 and January 1973 conversations between Goldman and Zander in which $500 payments to Wasserberger were discussed.
Counts 2 through 44 charge separate counts of mail fraud. Each count represents the mailing of one or more checks or invoices; in each instance the date of mailing, the addressee, and a brief description of the contents is set forth.
I. THE MOTIONS TO DISMISS
Goldman moves to dismiss Count 1 on the ground that it fails to allege a conspiracy to commit either mail fraud or tax fraud. He moves to dismiss Counts 8 - 16 on the ground that the mailings occurred after the completion of the alleged fraud and to dismiss Count 17 as barred by the statute of limitations. Goldman further urges that various state indictments against him are so similar to the federal indictment that the latter should be dismissed or stayed pending the outcome of the state cases. As a final ground for dismissal, he alleges prosecutorial misconduct.
A. Conspiracy to commit mail fraud
The mail fraud provision, 18 U.S.C. § 1341 provides as follows:
"Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, . .. for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Post Office Department, . . . shall be fined not more than $1,000 or imprisoned not more than five years, or both."
Goldman asserts that the conduct alleged in the indictment does not fall within the ambit of the statute because there was no "scheme to defraud." His counsel's argument is best summarized in his own words: "Surely, if Wasserberger was the one who was 'bribed' -- and the Bill of Particulars asserts that he allegedly received monies -- he was not defrauded. And to say that Wasserberger's 'employer,' the Transit Authority, was 'defrauded' by his being bribed is certainly extending the definition of 'defraud' into areas far beyond its ordinary situs." (emphasis in original) (Defendant's Memorandum of Law at 7-8).
The term "scheme to defraud" as used in Section 1341 is not intended to convey any technical meaning; it simply requires a plan "reasonably calculated to deceive persons of ordinary prudence and comprehension." Silverman v. United States, 213 F.2d 405, 407 (5th Cir. 1954); see Gusow v. United States, 347 F.2d 755 (10th Cir. 1965), cert. denied 382 U.S. 906, 15 L. Ed. 2d 159, 86 S. Ct. 243 (1965). To adopt defendant's reasoning would be to countenance all manner of frauds on governmental and private entities whenever a responsible agent or employee of the entity participated in the fraud. Defendant's argument sidesteps the allegation of the indictment that the Transit Authority, not Wasserberger, was the object of the fraud. Moreover, defendant's narrow reading of Section 1341 is not supported by precedent. See United States v. Bush, 522 F.2d 641 (7th Cir. 1975), cert. denied, 424 U.S. 977, 47 L. Ed. 2d 748, 96 S. Ct. 1484 (1976) (concealment by city official of interest in advertising and use of official influence to obtain contract for agency); United States v. Keane, 522 F.2d 534 (7th Cir. 1975), cert. denied, 424 U.S. 976, 47 L. Ed. 2d 746, 96 S. Ct. 1481 (1976) (city alderman's intentional concealment of personal interest in property sold to him by county); United States v. Isaacs, 493 F.2d 1124 (7th Cir.), cert. denied, 417 U.S. 976, 94 S. Ct. 3183, 41 L. Ed. 2d 1146 (1974) (bribery of governor); United States v. States, 488 F.2d 761 (8th Cir. 1973), cert. denied, 417 U.S. 909, 94 S. Ct. 2605, 41 L. Ed. 2d 212 (1974) (vote fraud scheme by candidate for city office). But see United States v. McNeive, 536 F.2d 1245, 1251 (8th Cir. 1976) ("acceptance of small unsolicited gratuities" by city inspector does not violate Section 1341).
Counsel for the defendant further argues that there was no scheme to defraud Interborough since Jola Candy merely performed legitimate middleman functions. At trial, counsel's view of the case may well prevail. At this stage, however, the Court's duty is to determine whether the indictment properly alleges a crime. The allegations that Goldman caused the mailing of Jola invoices to Interborough which charged "inflated and excessive prices" and charged for merchandise which Interborough received free of charge from suppliers, when coupled with the allegations that Goldman and Zander concealed from Interborough and Sportservice Zander's interest in the Jola profits, is sufficient to withstand a motion to dismiss.
The defense argues that even were this Court to find that a scheme to defraud is alleged, the indictment must be dismissed because the mails were not used "for the purpose of executing such scheme." Any mailings, it is argued, were tangentially, if at all, related to the scheme. However, the law does not require that the "scheme contemplate the use of the mails as an essential element," United States v. Maze, 414 U.S. 395, 400, 38 L. Ed. 2d 603, 94 S. Ct. 645 (1974) quoting Pereira v. United States, 347 U.S. 1, 8, 98 L. Ed. 435, 74 S. Ct. 358 (1954). In any event, the indictment charges more than a casual and incidental use of the mails; since the alleged fraud against Interborough encompassed a concealment of Zander's true affiliation with Jola, the use of the mails to deliver the three Jola invoices to Interborough and to mail the Sportservice payments to Jola could reasonably have contributed to the appearance of arms length dealings. Thus, the allegations are sufficient, even under a narrow reading of the statute, to withstand a motion to dismiss.
B. Conspiracy to violate the tax laws
Goldman has been charged with conspiring to violate 26 U.S.C. § 7206(1) which provides as follows:
(1) . . . Willfully makes and subscribes any return, statement or other document, which contains or is verified by a written declaration that it is made under penalties of perjury, and which he does not believe to be true and correct as to every material matter; . . .
shall be guilty of a felony . . . ."
The defendant urges dismissal on the ground that any misstatements contained in the three tax returns resulted in an overpayment of taxes and, therefore, were not material. The government disagrees with defendant's interpretation of Section 7206(1) and argues that not only did the allegedly false invoices result in overstatement of income but also the alleged bribes were deducted as business expenses.
Although there does not appear to be a universally accepted definition of materiality, compare United States v. Romanow, 509 F.2d 26, 28 (1st Cir. 1975) with United States v. DiVarco, 343 F. Supp. 101 (N.D.Ill. 1972), aff'd, 484 F.2d 670 (7th Cir. 1973), cert. denied, 415 U.S. 916, 94 S. Ct. 1412, 39 L. Ed. 2d 470 (1974), the cited authorities do suggest that a statement is material if it is capable of influencing actions of the IRS in any matter within its jurisdiction. The question then is whether overstatement of income is a material matter. The accuracy of items of taxable income reported on the return of one individual or entity may affect the ability of the IRS to assess the tax liability of another taxpayer. Furthermore, overstated income may shield from scrutiny falsely inflated deductions. Thus, an overstatement of income impairs the ability of the IRS to determine if the correct amount of tax has been paid. United States v. DiVarco, 343 F. Supp. at 103. The conclusion that an overstatement of income may result in a prosecution is buttressed by the Congressional determination to make Section 7206(1) a crime separate and apart from income tax evasion, 26 U.S.C. § 7201.
But this does not end the inquiry. In its request for a Bill of Particulars, the defense sought "the precise manner in which it is claimed that each Jola Federal corporate income tax return was 'false'." The government responded as follows:
"13(f). Gross receipts and gross sales improperly included amounts relected in the fraudulent invoices identified in paragraph 10 of the Indictment.
Other deductions improperly included amounts paid to ...