UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK
June 13, 1978
UNITED STATES of America
Norman TURKISH, Jules Nordlicht, Michael A. Kellogg, Frank Knell, and Donald B. Conlin, Defendants
The opinion of the court was delivered by: BRODERICK
Five defendants are charged under 18 U.S.C. § 371
with conspiracy to defraud the United States "by impeding, impairing, obstructing and defeating the lawful functions of the Department of the Treasury in the collection of income taxes."
The alleged objects of the conspiracy were a) the fraudulent creation of losses for an oil company, C. R. Rittenberry & Associates, Inc. ("Rittenberry"), through rigged commodity futures transactions on the Crude Oil Market which would guarantee the realization by the oil company of fraudulent tax losses in one fiscal year and matching gains in the next; and b) the manipulation of contract prices on the Crude Oil Market "to achieve the predetermined losses and gains."
Defendants Michael A. Kellogg, Donald B. Conlin and Frank Knell ("the moving defendants") each moved for transfer of the action against him to the district of his place of residence respectively the Middle District of California, the District of New Jersey, and the Eastern District of New York. Each urged that 18 U.S.C. Section 3237(b) mandates such a transfer. By Order dated May 31, 1978, I denied the motions for transfer. This memorandum delineates the bases for that denial.
There are no substantive charges against any of the moving defendants. The two remaining defendants, Norman Turkish and Jules Nordlicht, who are also charged in the conspiracy count, are additionally charged with substantive counts of tax evasion under 26 U.S.C. § 7201
and filing false tax returns under 26 U.S.C. § 7206(1).
The substantive charges with respect to each pertain to his own federal income tax returns. Turkish and Nordlicht allegedly claimed deductions for fraudulent losses from commodities futures trading for their own accounts. Turkish also allegedly failed to report as income monies he received from Rittenberry and from one Joseph R. Hamilton, as compensation for his role in the commodities market manipulation to which the conspiracy charge pertains.
18 U.S.C. Section 3237(b)
provides in pertinent part that "where an offense involves use of the mails
and is an offense described in section 7201 or 7206(1), (2),
of (the Internal Revenue) Code . . . and prosecution is begun in a judicial district other than the judicial district in which the defendant resides, he may . . . elect to be tried in the district in which he was residing at the time the alleged offense was committed: Provided, That the motion is filed within twenty days after arraignment."
Each of the moving defendants has established by affidavit that at the time of the conspiracy alleged in the indictment he resided in the district to which he seeks transfer, and that he still resides there.
The defendants assert that the thrust of the conspiracy count is that the defendants are "charged with conspiracy to defraud the United States by assisting in the establishment of fraudulent tax deductions and the filing of false and fraudulent income tax returns." Defendants note that if they had been charged substantively (as were Turkish and Nordlicht) with tax evasion and filing false and fraudulent returns, they would have been entitled to elect transfer under Section 3237. They suggest that the conspiracy count is within Section 3237 as an appendage, as it were, of the substantive counts.
The moving defendants' equation does not comport with the language or spirit of Section 3237(b). Section 3237(b) specifically delineates the contours of its application it applies to offenses described in 26 U.S.C. Sections 7203,
7201 and 7206(1), (2) and (5). The purpose of Section 3237(b) is to permit citizens to choose to defend themselves from certain tax charges in their districts of residence, rather than in the districts where the tax returns involved were filed. In a proper case such a defendant has the option, which when duly exercised must be honored by the court, of making his defense in his home district rather than in the district of the tax collector. See discussion of legislative history in United States v. DeMarco, 394 F. Supp. 611, 617 (D.D.C.1975).
The moving defendants concede, as they must, that Section 3237(b) does not expressly provide for transfer of actions brought under the conspiracy section (18 U.S.C. Section 371).
In the absence of an express mandate in Section 3237(b), the application of Section 3237(b) to a conspiracy count is within the discretion of the court.
Factors for consideration include the relationship between the conspiracy charged and a violation which is or could be charged under one of the enumerated sections,
the geographical locale of the alleged conspiracy, and judicial economy.
a) Filing of false returns. Turkish and Nordlicht are charged with violations of 26 U.S.C. Section 7206(1) through wilfully making and signing their own tax returns, under penalty of perjury, while not believing the truth of every material matter alleged therein. No charges are brought against anyone with respect to these returns under Section 7206(2), which prohibits anyone from wilfully aiding or assisting another in the preparation or filing of a false return. It is not alleged that the moving defendants had anything to do with the filing of these returns: the conspiracy that is charged does not pertain to the filing of tax returns or the evasion of tax by Turkish and Nordlicht. On the facts alleged in the indictment, the moving defendants could not be charged with violation of Section 7206(2), and there is no nexus between the conspiracy and the alleged Section 7206(1) violation by Turkish and Nordlicht.
b) Tax evasion. Defendants Turkish and Nordlicht are also charged with violation of 26 U.S.C. Section 7201, which prohibits wilful attempts to evade or defeat a federal tax, or the payment thereof. There is no allegation that any of the moving defendants attempted to evade tax. Nor is the evasion of tax by Nordlicht or Turkish alleged as an object or purpose of the conspiracy count. While it may develop as the evidence comes in at trial that the actions of the moving defendants in the course of the conspiracy aided and abetted Turkish and Nordlicht in their alleged violation, Section 7201, unlike Section 7206, does not have a provision comparable to Section 7206(2), prohibiting anyone from wilfully aiding or assisting another to evade tax. Section 7201 therefore does not apply to the moving defendants through Nordlicht and Turkish.
I have also considered the possibility of Section 7206(2) violations by the moving defendants in the course of the conspiracy if false returns were filed by Rittenberry, aided and assisted by the moving defendants. Although Rittenberry is not named as a defendant in the indictment, the government may not avoid Section 3237(b) by failure to name a defendant or to charge a violation which joins the actions of the moving defendants to a section enumerated in Section 3237(b).
However, even assuming the filing of false returns by Rittenberry, Section 7206(2) does not apply. The conspiracy alleged herein was a manipulation of a futures market, and creation of false losses for Rittenberry there is no conspiracy alleged which entailed the preparation or filing of a false return by Rittenberry or anyone else, or the aiding or assisting thereof. Cf. United States v. DeMarco, supra, in which Section 3237(b) was held to apply to a Section 371 conspiracy count. There, Mr. Nixon's tax attorney and his appraiser allegedly prepared the tax return and supporting papers, including one which predated a charitable contribution by Mr. Nixon.
Presumably Rittenberry could also have been charged with tax evasion in violation of 26 U.S.C. Section 7201, in relation to which it might have been aided by the moving defendants' role in the conspiracy alleged. However, as already noted, Section 7201 does not have an aiding and assisting clause, as does Section 7206, and thus the application of Section 3237(b) to the moving defendants would not be mandated.
Nor does Section 7201 apply to the moving defendants directly. None of the moving defendants is charged with evading taxes; their tax returns are not a subject matter of this action. Cf. United States v. Dalitz, 248 F. Supp. 238 (S.D.Cal.1965), where Section 3237(b) was held to apply to a one count conspiracy indictment under Section 371: in Dalitz the conspirator who was granted a Section 3237(b) transfer was himself the taxpayer.
The moving defendants also refer to United States v. Rosenberg, 226 F. Supp. 199 (S.D.Fla.1964), where the court granted a Section 3237(b) motion to transfer an action charging defendants with conspiracy under 18 U.S.C. Section 371. In Rosenberg, unlike the case before me, the moving defendants were also charged with substantive violations of Section 7201.
This is not a case, like those which prompted enactment of Section 3237(b), where the only tie to the district of prosecution is the place where the ultimate filing of a tax return occurred. To the contrary, the operative locale of the alleged conspiracy was the Crude Oil Market, the central facility for the trading of futures contracts for crude oil. The trades which were the subject matter of the alleged conspiracy were made in the Southern District of New York. Alleged overt acts in furtherance of the conspiracy also include meetings with and calls to defendant Turkish at the offices of Bear Stearns & Company within the Southern District of New York.
I have also considered the burdensome result in terms of judicial economy which the granting of these motions would entail.
The non-moving defendants clearly would be prosecuted in the Southern District of New York; defendant Knell would be tried less than three miles away in the Eastern District of New York; defendant Conlin would be tried some ten miles away in the District of New Jersey; and defendant Kellogg would be tried in the Middle District of California.
I find that transfer of the actions against the moving defendants is not in accord with the purpose of Section 3237(b).