The opinion of the court was delivered by: PALMIERI
Larry Levenson, Harry Gordon and Frank Pernice were found guilty on June 4, 1981 after a jury trial of evading the federal tax laws and conspiring to evade them in violation of 26 U.S.C. § 7201 and 18 U.S.C. §§ 2, 371.
These defendants participated in a sophisticated and well orchestrated skimming operation for personal financial gain. The evidence adduced at the trial supported the conclusion that from September 30, 1977 through September 30, 1980 they skimmed over 2.3 million dollars from the gross receipts of their enterprise, Plato's Retreat, an entertainment facility favoring sexual encounters among its paying customers. As a result of this tax fraud the government was cheated out of very substantial taxes due and owing to it, and conservatively estimated to be more than $ 1,562,106.38. These monies were divided among them on a weekly cash basis. Pernice received 10 percent of the club's gross income, while Levenson and Gordon divided the net proceeds equally. Additionally, these individuals filed fraudulent personal tax returns in order to evade income tax on the skimmed money. The government investigation of the defendants' activities was prolonged and costly. The agents of the Internal Revenue Service (IRS) spent almost a year to conduct an audit of Plato's Retreat because of the systematic tactics of hindrance and obstruction engaged in by the defendant Levenson and his accountant, the defendant Feinberg.
The defendants Levenson, Gordon and Pernice were found guilty of charges of corporate and personal tax evasion. The defendant Feinberg was found guilty only on count 2 charging him, as well as the remaining three defendants, with filing a false and fraudulent income tax return setting forth the total taxable income of Plato's Retreat for the fiscal year ending September 30, 1978 to be $ 377.00 and the total tax due to be zero. The defendants Levenson and Gordon were also found guilty of charges that they had filed false employer's quarterly tax returns understating the amount of gross wages paid to their employees.
The defendants' convictions have not interrupted the operation of Plato's Retreat. It continues to operate from larger and more elaborate premises. For the surrender of its lease at the former site of operations it received 1 million dollars. Levenson, Gordon and Pernice are the sole owners of the enterprise. Levenson and Gordon both testified at a hearing before the court on October 22, 1981 that it currently produces about $ 100,000 of gross income per month.
The defendants were sentenced to pay committed fines totaling $ 160,000 as well as the costs of prosecution. The costs of prosecution were subsequently determined to be $ 19,597.65. The defendants have not paid any part of their fines or the costs of prosecution. The matter is now before the court on a motion by the government to compel the defendants to make full and immediate payment of their fines or to stand committed if they fail to do so. The court held hearings on October 7, 22 and 23, 1981. The defendants were called to testify by the government and were questioned with respect to their financial status and ability to pay the fines and costs.
Before sentence the defendants filed financial statements with the Probation Department of this court at its direction indicating that they were debt ridden and possessed meager assets. In contrast to their professed impecuniosity, they have been represented throughout these proceedings by experienced privately retained counsel. The freedom of the defendants Levenson, Gordon and Pernice on bail pending appeal has been conditioned upon personal recognizance bonds of $ 150,000.00 each secured by a $ 100,000 indemnity bond which each defendant has posted. Gordon and Pernice have other business interests, the exact nature of which has not been fully revealed. Their testimony at the hearings before this court made it clear, however, that they have substantial investments with friends and relatives and that they make scant use of bank accounts and normal business records. Pernice admitted from the witness stand at the hearing of October 23, 1981 that he was a 60 percent owner of a catering business in which his brothers are co-owners, and which presently has a gross income of 1.6 million dollars per year. Gordon maintains a son at an expensive Ivy League college and has already paid for the higher education of a daughter who possesses a master's degree. Levenson is the owner of an eight room, two story brick home in which he lives containing four bedrooms and a small apartment in the basement area. According to the presentence report, the home was fully carpeted and nicely furnished. It undoubtedly has a sizeable equity value. Gordon and Levenson testified they both have the use of expensive automobiles (respectively, a Jaguar and a Lincoln Continental) leased and paid for by Plato's Retreat.
The defendant Feinberg appears to be in a separate category. Although he actively participated in the tax fraud and obstructed the IRS audit, there was no evidence that he participated in the massive skimming of the gross receipts of Plato's Retreat. His counsel conceded that he continues to practice as a public accountant but added that Feinberg's unfavorable financial position would not permit him to pay any part of the fines or court costs. His release on bail pending appeal from his conviction was conditioned on a $ 25,000 surety bond which he has posted. Although he continues to practice as a public accountant, his testimony at the hearing of October 22, 1981 would not support a conclusion that he has a present ability to pay his committed fine of $ 10,000.00.
From all of the above, the conclusion is inescapable that the defendants Levenson, Gordon and Pernice are persons of substantial financial means. They have successfully laundered a very large amount of money from the proceeds of Plato's Retreat, far in excess of the committed fines and prosecution costs in question, and it is clear that they have no intention of making full or immediate payment to the government.
At the first hearing of the government's motions they offered to take pauper's oaths, while at the same time renewing an offer, previously rejected by the government, to pay at the rate of $ 1,000 each per month. Such a schedule of payments, if adhered to, would require several years before the fines could be paid. At the subsequent hearings the defendants pressed their offer to pay by monthly installments.
The court is aware that imprisonment of an indigent person solely for nonpayment of a fine would violate rights of due process and equal protection. Tate v. Short, 401 U.S. 395, 91 S. Ct. 668, 28 L. Ed. 2d 130 (1971); Morris v. Schoonfield, 399 U.S. 508, 90 S. Ct. 2232, 26 L. Ed. 2d 773 (1970); Williams v. Illinois, 399 U.S. 235, 90 S. Ct. 2018, 26 L. Ed. 2d 586 (1970). See also United States v. Glazer, 532 F.2d 224 (2d Cir.), cert. denied, 429 U.S. 844, 97 S. Ct. 123, 50 L. Ed. 2d 115 (1976). But this cannot mean that a person who has the means to pay a fine but refuses or neglects to do so is immune from imprisonment for nonpayment of committed fines.
Although there is no statutory authority expressly authorizing committed fines, the power has long existed at common law and is "assumed" in the federal system. United States v. Estrada de Castillo, 549 F.2d 583, 585 (9 Cir. 1976) (J. Hufstedler, concurring). See 18 U.S.C. §§ 3565, 3569. The decision to impose a committed fine rests in the discretion of the trial judge. United States v. Estrada de Castillo, supra, 549 F.2d at 585. Presently it is well established that an indigent prisoner cannot be subjected to imprisonment for failure to pay a fine for a longer period of time than someone who has ability to pay the fine. Tate v. Short, 401 U.S. 395, 91 S. Ct. 668, 28 L. Ed. 2d 130 (1971); Williams v. Illinois, 399 U.S. 235, 90 S. Ct. 2018, 26 L. Ed. 2d 586 (1970); United States v. Estrada de Castillo, supra, 549 F.2d at 583. However, the Supreme Court when establishing that rule took special care to explain:
"We emphasize that our holding today does not suggest any constitutional infirmity in imprisonment of a defendant with the means to pay a fine who refuses or neglects to do so." Tate v. Short, supra, 401 U.S. at 400, 91 S. Ct. at 672.
The government should not be put to the inconvenience and expense of attempting to ferret out the assets of nonindigent persons in seeking to collect committed fines. The administrative burden and the expenditure of public funds incident thereto could be substantial and might well be undertaken in vain. The public interest requires a Draconian remedy once it is established that the nonpayment is caused, not by indigence, but by unwillingness to pay. Of paramount importance in this case is that with respect to count 1 of the indictment on which the jury convicted Levenson, Gordon and Pernice, and with respect to the evidence relevant to that count, a jury finding can be inferred that the defendants skimmed 2.3 million dollars from the proceeds of Plato's Retreat.
This money has been successfully laundered. Their testimony at the hearings before this court at which each one professed to have no present ability to pay the fines is patently unbelievable.
In this case there can be no question of indigence. The nature and scope of the defendants' massive tax evasion as well as their offer to pay $ 1,000.00 each per month, make clear that there exists an ability to pay. They are not indigents. They are recalcitrants. They can make no claim to the deference accorded to those who are financially disadvantaged.
The defendants Levenson, Gordon and Pernice are directed to pay their committed fines forthwith, or to post a surety bond guaranteeing its payment on the filing of the mandate of the Court of Appeals in the event the convictions are affirmed. If such fines remain unpaid, or a surety bond is not posted, by 12 noon on October 30, 1981, they shall stand committed until such fines are paid.
A separate disposition will be made of the government's motion with respect to the defendant Feinberg.
The sentences imposed on the defendants were as follows:
"FIVE (5) Years, on each of counts 1, 2, 3 and 4, all to run concurrently with each other. THREE (3) Years on each of counts 9 and 10 each to run concurrently with the other but to run consecutively to counts 1, 2, 3 and 4. THREE (3) Years on count 11. Execution of sentence on count 11 is suspended, and defendant is placed on supervised probation for a period of FIVE (5) Years, following his release from confinement, subject to the standing Probation Order of the Court. Bail continued pending appeal.
FINED: $ 10,000 on each of counts 1, 2, 3 and 4.
FINED: $ 5,000 on each of counts 9, 10 and 11.
ALL FINES are committed FINES. DEFENDANT IS TAXED with the costs of prosecution pursuant to Title 26 U.S.Code Section 7201 and ...