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United States v. Schwimmer

decided: December 27, 1989; As Amended.


Appeal from judgment entered in United States District Court for the Eastern District of New York (McLaughlin, J.) convicting defendant-appellant, after jury trial, of racketeering conspiracy, receiving illegal payments to influence the operations of employee benefit plans, conspiracy to defraud the United States and income tax evasion. Remanded for hearing to determine whether attorney-client privilege was violated by government's use of documents and information furnished by accountant hired by attorneys conducting joint defense.

Miner and Altimari, Circuit Judges, and William P. Gray, District Judge.*fn*

Author: Miner

MINER, Circuit Judge:

Defendant-appellant Martin Schwimmer appeals from a judgment of conviction entered after a jury trial in the United States District Court for the Eastern District of New York (McLaughlin, J.). The offenses of conviction--one count of conspiracy to conduct the affairs of an enterprise through a pattern of racketeering activity, 18 U.S.C. § 1962(d) (1982); seventy-six counts of receiving illegal payments to influence the operations of employee benefit plans, 18 U.S.C. § 1954; one count of conspiracy to defraud the United States, 18 U.S.C. § 371; and six counts of income tax evasion, 26 U.S.C. § 7201--all relate to the receipt of commissions for investing the funds of employee benefit plans in Certificates of Deposit issued by various banks.*fn1

Schwimmer argues that the trial court erred in instructing the jury that, whether or not he was a formally constituted agent or counsel of the employee plans allegedly victimized, he was subject to the provisions of 18 U.S.C. § 1954 if his investment advice had a significant influence on the investment decisions of the plans. The government contends that the jury properly could find Schwimmer to be an agent or counsel if it determined he had significant influence on investment decisions, and that he clearly was an agent of the plans he advised for an hourly fee.

Schwimmer argues also that the district court erred in instructing the jury that he was required to disclose his commissions in order to come within the "bona fide compensation" exception provision of 18 U.S.C. § 1954. The government responds that the exception, which allows compensation for services actually rendered to an employee benefit plan, requires disclosure of financial activities involved in administering the plan, to the end that beneficiaries might make proper judgments as to whether the compensation is bona fide.

Finally, it is Schwimmer's contention that he was entitled to a hearing to determine whether his attorney-client, sixth amendment and work product privileges were violated by the use of information, documents and grand jury testimony furnished by an accountant hired to assist the attorneys representing Schwimmer and a co-defendant in the conduct of a joint defense. The government's response to this contention is that a hearing was unnecessary because the trial court properly gleaned from the record sufficient information to determine that there was no invasion of the attorney-client privilege. We think that the record is insufficient to support the perfunctory findings of the district court with respect to the privilege issue, and we remand for a hearing and detailed findings on that issue, retaining jurisdiction of the appeal pending completion of the proceedings hereby ordered in the district court.


In 1979 Mario Renda formed a corporation known as First United Fund, Ltd. ("First United") to engage in the business of placing Certificate of Deposit ("CD") investments in small banking institutions throughout the United States. The banks and savings and loan associations to which the investments were directed paid a broker's commission to First United. Renda was successful in finding investors and soon hired a number of account executives to contact financial institutions needing cash, offering competitive interest rates and willing to pay for the services of First United. Associated with Renda was Joseph DeCarlo, who attended to the financial records of the business and, until the advent of computerization at First United, sent hand-typed bills for commissions. Early in 1981, Renda and DeCarlo met Schwimmer at a computer store, fell into a conversation with him, and learned that he too was in the business of placing funds for institutional investors. Renda and Schwimmer joined forces shortly thereafter.

Schwimmer had been the investment adviser to four employee benefit plans covering members of Local 38, Sheetmetal Workers International Association ("Local 38"), since 1971. He was paid an hourly fee for his services and agreed that any commissions earned on investment transactions would be reported to Local 38 and used to offset his fees. The guidelines for investing furnished by the trustees of the plans required low risk investments, primarily federally insured CDs. Schwimmer had complete authority to place the assets of the plans, and his annual reports to the trustees were general in nature, without any breakdown of the investments by amount or location. In 1981 Schwimmer became the sole investment adviser to two employee benefit plans covering members of Local 810, International Brotherhood of Teamsters ("Local 810"). Dennis Silverman, administrator of the plans and president of Local 810, advised the union's comptroller that Schwimmer would give him instructions for wiring money to various banks for deposit in CDs. Schwimmer was not paid a fee for his services by Local 810 or the plans, and did not advise them that he was compensated through commissions paid by the banks.

Initially, Schwimmer made only short-term investments through First United under an agreement with Renda calling for an equal division of the commissions. Those investments were made on behalf of the Local 38 plans and some individuals for whom Schwimmer acted. The commissions, negotiated by Renda, were payable at the inception of the deposit. DeCarlo sent the bills for the commissions to the bank, and Schwimmer submitted invoices for his share of the commissions to First United. Soon after he became adviser to the Local 810 plans, Schwimmer advised Renda that he was in a position to place large sums of union funds in long-term investments. He advised Renda that it would be necessary to make payments to "his people" in connection with this business, and the two agreed that they would deduct 7/8 of a point from the commission for that purpose and continue to divide the balance of the commission equally. Schwimmer's "people" presumably were union officials.

Toward the end of 1981, Schwimmer and Renda developed a system of off-the-book accounts for their long-term investment commissions. This system entailed the opening of separate bank accounts to receive deposits of these commission payments and thereby by-pass the regular First United accounts. The separate accounts were non-interest bearing, closed every six months, and not reflected on the books of First United. The institutions paying commissions were directed to wire payment to the appropriate off-book accounts, which were established at six banks during the period 1981-1984. The accounts were not reported to the Internal Revenue Service or First United's outside accountants. The long-term investments for the benefit plans of Locals 38 and 810 were recorded for a time in a notebook kept by DeCarlo. The bills for commissions on these investments, ordinarily computer-generated, were typed separately and forwarded to the appropriate institution at DeCarlo's direction. In order to forestall claims on the commissions by First United account executives, Renda and DeCarlo told the executives that one point of the commission was being paid to the unions. Similarly, Renda told some banking institutions that the union would receive a "discount" on the commissions.

When First United's accountants performed an audit of the company in 1983, Renda told them that $2,700,000 in commissions was due the company on union benefit plan transactions concluded in 1981 and 1982. Renda caused those commissions to be paid into First United's regular, on-the-record account. No prior or subsequent commission payments on the union funds were so reported. Schwimmer received his share of commissions from the regular accounts in the form of "consulting fees." Between December 1981 and December 1984, Schwimmer and Renda placed $72,910,000 for the Local 810 benefit plans and $22,985,487 for the Local 38 benefit plans in long-term CDs issued by approximately twenty banks and savings and loan associations. Commissions on these deposits totalled $16,520,375, which Schwimmer and Renda shared, subject only to the 7/8 point deductions needed to pay Schwimmer's "people." For more than two years, beginning in January of 1982, Schwimmer cashed First United checks on a regular basis at the Better Farm Supermarket in Elmont, New York. In all, 210 checks totalling over $1,900,000 were cashed during that period. From December 1981 through March 1984, Schwimmer cashed First United checks totalling $1,212,725 at Nu Service Tobacco. All the cashed checks represented shares of commissions on long-term union benefit plan investments. Schwimmer cashed other checks signed by Renda in order to make the 7/8 point payments.

Although Schwimmer met annually with the trustees of the Local 38 benefit plans, it was not until 1986 that he reported for the first time that some of the CD investments he had made were not insured. His previous annual report had omitted any reference to the problems of Old Court Savings and Loan Association, a failed institution holding more than one-quarter of the investment funds of the Local 38 benefit plans. In late 1986 the trustees of the plans learned from their counsel that Old Court had failed and that the funds were in jeopardy. Schwimmer then reported that the investments in Old Court were not insured by the federal government, contrary to the trustees' instructions. Pressed by the trustees for information regarding his relationship with brokerage houses, Schwimmer ultimately signed a letter representing that he had not received any commissions or compensation from any broker for placing CDs for any Local 38 benefit plan. At a trustees' meeting in December of 1986, he specifically represented that he did not conduct any Local 38 business ...

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