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United States v. Siegel

August 24, 1983

UNITED STATES OF AMERICA, APPELLEE,
v.
LEONARD S. SIEGEL AND MARTIN B. ABRAMS, DEFENDANTS-APPELLANTS



Appeals from judgments of the United States District Court, Southern District of New York, Stewart, J., convicting defendants Siegel and Abrams of violations of 18 U.S.C. § 1343, 18 U.S.C. § 2, and 26 U.S.C. § 7206(2), and Abrams of a violation of 18 U.S.C. § 1510.

Pierce, Winter, and Pratt, Circuit Judges. Winter, Circuit Judge, dissenting in part and concurring in part.

Author: Pratt

PRATT, Circuit Judge:

Leonard S. Siegel and Martin B. Abrams appeal from judgments of conviction in the United States District Court for the Southern District of New York, Charles E. Stewart, Jr., Judge, entered after a jury trial. Both defendants were found guilty of fifteen counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and 2. Defendant Abrams was found guilty of endeavoring to obstruct federal investigators in violation of 18 U.S.C. §§ 1510 and 2. Although both defendants were convicted of aiding in the preparation of a false corporate tax return in violation of 26 U.S.C. § 7206(2), neither defendant appeals from that conviction.

We find sufficient evidence in the record to support the convictions under the wire fraud statute and affirm on those counts. Because we conclude, however, that Abrams' conduct did not violate 18 U.S.C. § 1510, we reverse his conviction for obstruction of justice.

FACTS

Abrams and Siegel were tried with three co-defendants, Michael Gold, Frederick Pierce, and Irving Cotler, on a twenty count indictment. Counts one through fifteen charged all five defendants with use of interstate wires in furtherance of a fraudulent scheme to obtain money and to defraud Mego International, Inc. (Mego Int'l), its wholly owned operating subsidiary, Mego Corporation (Mego), and stockholders of Mego Int'l, in violation of 18 U.S.C. §§ 1343 and 2. Count sixteen charged Abrams with endeavoring to obstruct federal investigators in violation of 18 U.S.C. §§ 1510 and 2. Count seventeen charged all five defendants with other violations of 18 U.S.C. §§ 1510 and 2. Count eighteen charged Siegel with endeavoring to obstruct the grand jury in violation of 18 U.S.C. §§ 1503 and 2. Count nineteen charged Gold with subscribing to a false corporate income tax return in violation of 26 U.S.C. § 7206(1). Count twenty charged Abrams, Siegel, and Gold with aiding in the preparation of a false corporate income tax return in violation of 26 U.S.C. § 7206(2).

After a seven-week trial, the jury acquitted defendants Gold, Pierce, and Cotler of all charges. Abrams and Siegel were found guilty on counts one through fifteen and twenty. Abrams was also found guilty on count sixteen. Siegel was sentenced to concurrent three month terms of imprisonment on counts one through fifteen and a $5,000 fine on count twenty. Abrams received concurrent four-month prison terms on counts one through fifteen, twenty months' probation on counts sixteen and twenty, and a $5,000 fine on counts sixteen and twenty, for a total fine of $10,000. Both defendants are free on bail pending this appeal.

During the period covered by the indictment, Mego Int'l was a publicly held international manufacturer and distributor of toys and games. Mego was one of its wholly owned subsidiaries. Abrams was chairman of the board of Mego Int'l and its president until 1980. Siegel was secretary of Mego Int'l and executive vice president of Mego.

The fraudulent scheme underlying defendants' convictions involved unrecorded cash sales of Mego merchandise which had either been closed out and marked down for clearance or returned because of damage or defect. The evidence presented at trial showed that the scheme had been furthered in various ways. Abrams conducted some cash transactions himself. Siegel also dealt in cash transactions, supervising cash sales through a retail store of imported shirts worth over $30,000. Other cash transactions were conducted with the aid of William Stuckey, who was manager of Mego's Long Island warehouse and who became a principal witness for the government. At the direction of Abrams and Siegel, Stuckey sold Mego merchandise to various street peddlers and merchants for cash. The "off the books" sales together generated in excess of $100,000 in cash.

These cash sales were not recorded on Mego's books. Rather, Stuckey gave cash customers a Mego bill of lading and a handwritten receipt. He placed his copy of the receipt and the cash inside an envelope and stored it in either an office safe or a bank safe deposit box. At intervals, as the cash accumulated, Stuckey transferred the cash to Siegel at the company's New York City office. Although initially Siegel signed the copies of the receipts Stuckey had placed in the envelope and returned them to Stuckey, he discontinued the practice in late 1975 explaining to Stuckey that he should not sign the receipts because he was an attorney.

The indictment charged that defendants used the cash for bribery and self-enrichment. The government called several witnesses who, in addition to testifying to the unrecorded cash transactions, recounted their knowledge of the uses to which the money was put. Frank Voigt, vice president and later president of Mego until he resigned in 1974, testified that defendant Abrams' father, D. David Abrams, directed him to take cash from Stuckey and from a buyer, Israel Gewirtz, and to turn the money over to Siegel. Voigt stated that on one occasion Abrams' father told him to take $100 from the cash fund and to give it to a buyer during lunch. When he attempted to get this money from Siegel, Siegel told him "it's too late. * * * Marty [Abrams] just wiped me out. He took all the cash." Voigt also testified that Walter Mandel, Mego's sales manager, told him that he thought the cash proceeds were being used for payoffs to buyers, and that Mandel had made a payoff to someone at J.L. Hudson's.

Stanford Zeisel, controller and later treasurer of Mego from 1971 to mid-1975, testified that D. David Abrams told him also that he would be receiving cash from Stuckey and that Stuckey told him the cash came from the proceeds of the sale of damaged or returned goods. Zeisel stated that Mandel once had asked him for several hundred dollars in cash, and that when Zeisel refused to give it to him, either Martin Abrams or his father told him to give Mandel the money. Mandel told him that he was going to use the money to "take care of" someone at J.L. Hudson's. On cross-examination, however, Zeisel acknowledged that he did not know what was actually done with the money. Zeisel further testified that on one occasion, while Siegel was depositing some cash proceeds in the corporate safe deposit box, he gave Zeisel $50, saying, "Marty wants us to have a Christmas gift."

Stuckey also testified concerning the cash transactions and described his method of sending the cash to either Voigt, Zeisel, or Seigel by placing it in an envelope with two copies of the handwritten customer receipt and a copy of the bill of lading. Stuckey testified that, although Siegel would no longer sign Stuckey's handwritten receipts after late 1975, Stuckey managed to retrieve some of those receipts when he delivered the cash to Siegel. The cash sales during this period were almost exclusively to Herbert Ristau, owner of Jo Ro Sales, and, while Stuckey testified that the receipts he had for the 1975-79 period did not represent all the cash transactions, nevertheless, the receipts presented at trial showed that Stuckey took in substantial amounts of cash in these transactions, for example, more than $40,000 during 1978 alone.

In support of the government's charge that proceeds from the cash sales were used in part to bribe union officials to secure labor peace, Stuckey described his involvement in a $30,000 payment to Irving Cotler, who had promised to arrange for labor peace with the union that represented Mego's warehouse employees, in return for being given Mego's trucking business. Stuckey testified that in November 1976 Abrams told him to call Israel Gewirtz, a long time Mego customer. On the same day, Cotler called Stuckey and gave him a telephone number to call after he met with Gewirtz.

When Stuckey met Gewirtz at his office, he was taken to a nearby abandoned building and led through two locked doors and down a flight of stairs before being given the $30,000 that Gewirtz said Stuckey was "supposed to take care of for Marty Abrams". Stuckey gave the money to Cotler in a New Jersey hotel room and called Abrams to tell him that the payment had been made, saying that "the toys have been delivered". Cotler told Stuckey to forget the whole incident.

Stuckey also testified that in 1977, when Mego was afraid that it would not be able to get a shipment of containers off the docks because of a threatened strike, Frederick Pierce told him to take as much money as was necessary out of the cash sales fund and give it to Cotler "to do whatever he could do to get the goods to us". After the containers were delivered, Stuckey paid Cotler $800 out of the cash sales fund. On cross-examination, Stuckey stated that it was his belief that Pierce gave him these instructions knowing that Cotler might have to make an illegal payoff to get the goods off the pier.

Even though, as mentioned above, the cash sales were not recorded on Mego's books, Siegel and Abrams told Mego's auditors that there were no unrecorded assets. In addition, no information about the cash sales was divulged to Mego's stockholders. The jury was thus entitled to find that Siegel and Abrams, top executives in Mego, generated a secret fund of over $100,000 from cash sales of company assets without disclosing their activities to their stockholders, that they used the cash in part for private benefit, in part for illegal payments to buyers, and in part for illegal payoffs to labor unions, and that they did not account for any sum that may have remained in the fund.

In late 1978, a Mego accountant, Stephen Weingrow, discovered that the company had no system for inventorying returned merchandise, and with an associate he toured the warehouse to determine if there was any merchandise which was not recorded on Mego's books. Stuckey first called Pierce, Mego's executive vice president, and then confided to Weingrow that he had sold returned merchandise for cash and had sent the cash to Siegel. When Weingrow returned to corporate headquarters after the inspection, Michael Gold, Mego's treasurer, told Weingrow, after conferring with Abrams and Siegel, that he knew about the cash-sale scheme but that it had been stopped. He also told Weingrow not to tell Mego's controller, Harris Rosenberg, about the cash sales. Contrary to Gold's assurance that cash sales had been stopped, however, they continued until March 1979.

After Weingrow's visit and an independent visit by Rosenberg, Stuckey refused to handle any more cash sales. Thus, a sale in 1979 to Jo Ro Sales was recorded, for which Rosenberg prepared an invoice for $56,000. When Jo Ro fell behind in its payments on the invoice, Herbert Ristau, Jo Ro's owner, refused to make further payments, claiming that he was entitled to a credit because the goods were defective. Mego's collection department retained an attorney, Stanley Goldman, to speak to Ristau. Ristau told Goldman that if he did not get a credit on the merchandise he would tell the Securities and Exchange Commission (SEC) about the cash sales. Goldman relayed this to Abrams who in turn instructed Stuckey to give Ristau a credit. This was done even though the merchandise had been purchased "as is".

After Weingrow told Gerald Bostwick, a new vice president of Mego, about the cash sales, Norman Matuozzi, Mego's director of security, was called in to investigate. In February 1980, Matuozzi arrived unannounced in Stuckey's office, and Stuckey, surprised and apprehensive, told Matuozzi that he had been making the cash sales for years and that he had delivered more than $60,000 to Siegel during the past two years. He also told Matuozzi that Abrams had told him to destroy his records of the cash sales.

Matuozzi summarized the information obtained from Stuckey in a two-page memorandum which was given to the new president of Mego Int'l, Irwin Rosenthal. Rosenthal then called in an attorney, Elkan Abramowitz, to conduct a further investigation. At the same time, he confronted Abrams with the Matuozzi memorandum. Abrams admitted to Rosenthal that he knew about the scheme but said that he had wanted it stopped.

Abrams and Siegel then removed all traces of the cash fund from Mego's safe deposit box and transferred the fund into a new box under a different name. Stuckey testified that Abrams attempted to get him to take the blame for everyone and resign, but Stuckey refused to do so. Abrams and Cotler then persuaded Stuckey to lie to Abramowitz. Stuckey told Abramowitz that the entire Matuozzi memorandum was false, and Seigel backed him up by denying the allegations in the memorandum.

After Matuozzi disclosed the scheme to government prosecutors in 1980, first Stucky was convicted, after a separate jury trial, of nineteen counts of wire fraud, conspiracy, and obstruction of justice, and sentenced to three months in prison before the trial in this case commenced.

Discussion

Defendants raise numerous arguments on appeal. They challenge their wire fraud convictions on three grounds: (1) that there was insufficient evidence to prove violations of the wire fraud statute; (2) that admission of evidence of the $30,000 payment made to Cotler was so prejudicial that it deprived defendants of a fair trial; and (3) that introduction of the Matuozzi memorandum as evidence on the obstruction of justice charge prevented the jury from rendering a fair verdict on the wire fraud counts. In addition, Siegel argues that he was entitled to a severance from his co-defendant Abrams, because Abrams would have provided exculpatory testimony at a separate trial, and Abrams challenges his obstruction of justice conviction on the ground that the government failed to prove the existence of a criminal investigator whose investigation was obstructed.

Sufficiency of the Evidence.

The government charged that Abrams and Siegel engaged in a scheme to defraud Mego and Mego stockholders by violating their fiduciary duties to act honestly and faithfully in the best interest of the corporation and to account for the sale of all Mego property entrusted to them. The object of the fraudulent scheme was alleged to be the misappropriation of the cash proceeds for bribery and self-enrichment.

The wire fraud statute, 18 U.S.C. § 1343 (1976), provides:

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, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined not more than $1,000 or imprisoned not more than five years, or both.

While we have described this provision, as well as the mail fraud statute, 18 U.S.C. § 1341 (1976), which has been identically construed with respect to the issues before us, e.g., United States v. Von Barta, 635 F.2d 999, 1005 n.11 (2d Cir. 1980), cert. denied, 450 U.S. 998, 68 L. Ed. 2d 199, 101 S. Ct. 1703 (1981); United States v. Louderman, 576 F.2d 1383, 1387 n.3 (9th Cir.), cert. denied, 439 U.S. 896, 58 L. Ed. 2d 243, 99 S. Ct. 257 (1978), as "seemingly limitless", United States v. Von Barta, 635 F.2d at 1001, we have also recognized that "a mere breach of fiduciary duty, standing alone, may not necessarily constitute a mail fraud", United States v. Bronston, 658 F.2d 920, 926 (2d Cir. 1981), cert. denied, 456 U.S. 915, 102 S. Ct. 1769, 72 L. Ed. 2d 174 (1982).

However, we have held that the statute is violated when a fiduciary fails to disclose material information "which he is under a duty to disclose to another under circumstances where the non-disclosure could or does result in harm to the other." United States v. Newman, 664 F.2d 12, 19 (2d Cir. 1981) (quoting United States v. Bronston, 658 F.2d at 926); see United States v. Von Barta, 635 F.2d at 1006. While the prosecution must show that some harm or injury was contemplated by the scheme, United States v. Dixon, 536 F.2d 1388, 1399 n.11 (2d Cir. 1976), it need not show that direct, tangible economic loss resulted to the scheme's intended victims, United States v. Newman, 664 F.2d at 20; United States v. Bronston, 658 F.2d at 927; United States v. Andreadis, 366 F.2d 423, 431 (2d Cir. 1966), cert. denied, 385 U.S. 1001, 17 L. Ed. 2d 541, 87 S. Ct. 703 (1967). In this record there is sufficient evidence from which the jury could reasonably have ...


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