United States District Court, Southern District of New York
March 2, 1990
UNITED STATES OF AMERICA
JEFFREY L. FELDMAN AND PAUL J. FOONT, DEFENDANTS.
The opinion of the court was delivered by: Haight, District Judge:
MEMORANDUM OPINION AND ORDER
Trial in this tax evasion case is scheduled to begin on April
23, 1990. Defendants now move for various pre-trial relief.
The indictment in the captioned case charges the defendants
with various offenses arising out of certain financial
transactions entered into by the Cralin partnerships.*fn1
The government alleges that the defendants devised a plan to
$140,000,000 in false tax deductions for the 1981 tax year,
such deductions to be passed on to the limited partners in the
Cralin partnerships. The government charges the defendants with
the creation and concealment of a fraudulent income deferral
device aimed at evading taxes for the 1981 tax year.
Specifically, the defendants are charged with having entered
into a secret oral agreement with New York Hanseatic Division
("New York Hanseatic")*fn2 on behalf of the Cralin
partnerships pursuant to which New York Hanseatic was paid a
set fee for creating records substantiating certain false
transactions by the Cralin partnerships in government
securities. These transactions led to fraudulent interest
deductions by the limited partners in the amount of
$140,000,000 for the tax year 1981. The second stage of the
transaction was the reporting of false income in the amount of
$132,000,000 for the tax year 1982. That false income was also
passed on to the limited partners.
The charges in the indictment, all of which arise out of the
basic scenario set forth above, are divided into three groups.
Count 1 charges the defendants with conspiracy in violation of
18 U.S.C. § 371. The conspiracy is defined as one extending
from "in or about 1981 through in or about the end of 1985",
one object of which was the evasion of taxes due and owing in
the 1981 tax year. Indictment at ¶ 1.
Counts 2 through 6 charge the defendants with tax evasion
arising out of the 1981 tax returns of various limited
partners. The return of each of those partners forms the basis
for a separate count in the indictment. Although the offenses
arise out of the 1981 tax returns, the indictment charges the
defendants with tax evasion for the period 1981 through 1985.
Counts 7 through 15 charge the defendants with aiding and
assisting in the filing of certain false tax returns for the
Cralin partnerships. Each of the false filings referred to in
this set of charges relates to the 1983 tax year.
Defendants move for various pre-trial relief. Specifically,
defendants move to dismiss counts 1 through 6 as barred by the
statute of limitations. Defendants further move for various
discovery and a bill of particulars. Defendant Foont moves for
a severance. I address these issues in turn.
I. Statute of Limitations
It is common ground that the applicable statute of limitations
in respect of both the conspiracy charged in count 1 and the
tax evasion charges contained in counts 2 through 6 is six
years. 26 U.S.C. § 6531*fn3.
The indictment in the captioned case was filed on October 10,
1989. Thus, in order to be timely filed, the indictment must
charge the defendants with crimes committed within six years of
October 10, 1989, namely on or after October 10, 1983.
Defendants contend that the indictment fails in that regard,
while the government argues that both the conspiracy and the
counts of evasion were not complete until the end of 1985, well
after the October 1983 limitations cutoff date.
A. Tax Evasion
Defendants are charged with five counts of tax evasion in
violation of 26 U.S.C. § 7201*fn4. The elements of tax
evasion are familiar:
(1) an attempt to evade or defeat a tax or the payment
(2) an additional tax due and owing; and
Sansone v. United States, 380 U.S. 343, 351, 85 S.Ct. 1004,
1010, 13 L.Ed.2d 882 (1965).
That first element of tax evasion, commonly referred to as the
"affirmative act" requirement or the affirmative act of
evasion, is described by the Supreme Court as "some willful
commission in addition to the willful omissions that make up
the list of misdemeanors," Spies v. United States,
317 U.S. 492, 499, 63 S.Ct. 364, 368, 87 L.Ed. 418 (1943), such as
failure to pay a tax or failure to file a tax return in any
Willful but passive neglect of the statutory duty may
constitute the lesser offense, but to combine with it a willful
and positive attempt to evade tax in any manner or to defeat it
by any means lifts the offense to the degree of felony.
Id. The question presented by the instant motion is when the
statute of limitations began to run.
Defendants contend that the crime was complete, if committed at
all, with the filing of the 1981 tax returns that contained the
allegedly fraudulent deductions. In the alternative, defendants
argue that the counts of evasion were complete with the filing
of the 1982 tax returns that constituted the second prong of
the attempt to evade taxes for the 1981 tax year. In essence,
the government alleges that the defendants engaged in a course
of conduct aimed at evading taxes for 1981, which continued
through 1985 at which time the statute of limitations began to
run. In consequence, the government argues, the instant
indictment was filed only four years after the limitations
period began to run, well within the limitations period.
The indictment alleges the following as affirmative acts of
evasion occurring after October 10, 1983.
(d) From in or about 1981 through in or about 1985, FELDMAN
and FOONT concealed the bogus, fraudulent and pre-arranged
nature of the New York Hanseatic transactions from the
outside accountants of the Cralin partnerships and
attempted to mislead those accountants as to the true
nature of the transactions.
(f) On or about December 1, 1983, FOONT made false
statements and representations to an employee of the IRS,
in the presence of FELDMAN and one of the outside
accountants for the Cralin partnerships, for the purpose of
concealing the fraudulent and pre-arranged nature of the
tax losses passed on to the limited partner-investors of
the Cralin partnerships, . . . , to wit, FOONT told an IRS
agent that there were no oral or written agreements
affecting the 1981 transactions between the Cralin
partnerships and New York Hanseatic.
(g) In or about 1984, FELDMAN made false statements and
representations to an employee of the IRS, in the presence
of FOONT and one of the outside accountants for the Cralin
partnerships, for the purpose of concealing the fraudulent
and pre-arranged nature of the tax losses passed on to the
limited partner-investors of the Cralin partnerships, . . .,
to wit, FELDMAN told an IRS agent that there were no oral
or written agreements affecting the 1981 transactions
between the Cralin partnerships and New York Hanseatic.
(h) Between in or about mid-1984 and in or about April
1985, FOONT refused to answer questions posed by an
employee of the IRS, in the presence of one of the outside
accountants for the Cralin partnerships, for the purpose of
concealing the fraudulent and pre-arranged nature of the
tax losses passed on to the limited partner-investors of
the Cralin partnerships, . . . ,
to wit, FOONT refused to answer an IRS agent's question
about the financing for the 1981 transactions between the
Cralin partnerships and New York Hanseatic.
(i) Between in or about March 1985 and in or about April
1985, FELDMAN made false statements and representations to
one of the outside accountants for the Cralin partnerships
for the purpose of concealing the fraudulent and
pre-arranged nature of the tax losses passed on to the
limited partner-investors of the Cralin partnerships, . . .,
to wit, FELDMAN lied to the accountant about the
financing for the 1981 transactions between the Cralin
partnerships and New York Hanseatic.
Indictment at ¶ 7(d), (f)-(i).
Defendants concede, as they must, that false statements to an
employee of the IRS constitute affirmative acts of evasion.
United States v. Beacon Brass, 344 U.S. 43, 45-46, 73 S.CT.
77, 78-79, 97 L.Ed. 61 (1952) ("[t]he language of [26 U.S.C. § 7201]
which outlaws willful attempts to evade taxes `in any
manner' is clearly broad enough to include false statements
made to Treasury representatives for the purpose of concealing
unreported income").*fn5 Rather, defendants contend that the
alleged false statements, along with the other affirmative acts
of evasion set forth in the indictment, occurred after the
crime of evasion was complete.
Two separate but related issues are presented by these facts
and the arguments of counsel. First, the question arises
whether the elements of the alleged crime of evasion were
present in 1981 or 1982. The next issue presented for
consideration is whether, assuming that the elements
of tax evasion were all present in 1981 or 1982, the
limitations period began to run at that point, or after the
last affirmative act of evasion, that being in 1985. I address
these issues in turn.
In respect of that first issue, whether the elements of evasion
were present in 1981, it is important to note that the tax
returns at issue were not filed by the defendants. Rather, the
fraudulent tax returns were filed by various limited partners
of the Cralin partnerships to whom the tax benefits of certain
false transactions were passed along. In these circumstances,
it is difficult to view the allegedly false filings as a
"watershed event" for purposes of the statute of
It is defendants' course of conduct preceding and subsequent to
the false filings that constitutes the evasion with which they
are charged. Specifically, the government charges the
defendants with a continuing series of acts ranging in time
from the creation of the allegedly fraudulent transactions with
New York Hanseatic to the defendants' continued and ongoing
concealment of the true nature of those transactions. The
question is whether the last act in such a course of conduct is
that which properly triggers the statute of limitations.
While not cited in the briefs, United States v. Shorter,
608 F. Supp. 871 (D.C.D.C. 1985), aff'd, 809 F.2d 54 (D.C.Cir.),
cert. denied, 484 U.S. 817, 108 S.Ct. 71, 98 L.Ed.2d 35
(1987) is instructive. In that case the government had charged
the defendant in one felony count of "willful attempt to evade
the payment of income taxes due for the years 1972 through
1983, in violation of 26 U.S.C. § 7201." 608 F. Supp. at 873.
Shorter had filed allegedly fraudulent tax returns for the
years in question. The indictment was returned in 1984. The
defendant argued that the indictment was time-barred as to the
tax years between and including 1972 and 1977 and consequently
that allegations as to those tax years should be stricken from
the indictment. The defendant further argued that the single
felony count was impermissibly duplicitous and should be
dismissed, inasmuch as it alleged twelve separate offenses,
namely evasion for each tax year 1972 through 1983.
The district court rejected defendant's first claim, namely
that certain of the allegations of evasion were time-barred.
[T]he statute of limitations does not ipso facto rule out
prosecution with respect to taxes owing prior to 1978, for the
offense of tax evasion is not necessarily committed only in the
year when the tax was due and payable. That is so because the
existence of a tax deficiency is but one of the two essential
elements of the crime, the other being an affirmative act of
willful evasion. Sansone v. United States, 380 U.S. 343, 351,
85 S.Ct. 1004, 1010, 13 L.Ed.2d 882 (1965); Spies v. United
States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418 (1943). An
act constituting evasion which occurs during the limitations
period brings the prosecution within the statute of limitations
even if the taxes being evaded were due and payable prior
thereto. United States v. Trownsell, 367 F.2d 815 (7th Cir.
1966); United States v. Mousley, 194 F. Supp. 119 (E.D.Pa.
1961), aff'd without opinion, 311 F.2d 795 (3d Cir. 1963);
United States v. Sclafani, 126 F. Supp. 654 (E.D.N.Y. 1954),
aff'd on other grounds, 265 F.2d 408 (2d Cir. 1959); see
also, United States v. Malnik, 348 F. Supp. 1273 (S.D.Fla.
1972), aff'd on other grounds, 489 F.2d 682 (5th Cir. 1974).
It follows that the indictment in this case is not subject to
dismissal even with respect to the evasion of taxes due prior
to 1978 if it is supported by proof of one or more
affirmative acts of evasion committed by the defendant within
the past six years if these acts relate to taxes due in
Id. at 874 (footnote omitted). The court held that, on its
face, the indictment did not
suffer from a statute of limitations problem. That was so
because the indictment alleged, and the government contended
that it would prove, a continuing series of acts of evasion, or
a course of conduct aimed at evading the payment of past taxes.
Where defendant's conduct was of a continuing nature, the court
viewed the limitations period as properly running from the last
of defendant's actions, not the first.
The defendant in Shorter further argued that the single
felony count was impermissibly duplicitous and should therefore
be dismissed. The district court denied the motion. The court's
analysis in that regard is illuminating. In determining whether
"it is proper to charge a continuing scheme to evade taxes for
several years", the court looked to "(1) the language and
legislative history of the statute, and (2) the nature of the
proscribed conduct."*fn7 608 F. Supp. at 877. The district
court found little guidance in the language and legislative
history of the tax evasion statute and thus turned to the
Supreme Court's opinion in Spies. Specifically, the district
court turned to the Court's non-exclusive list of conduct
amounting to affirmative acts of evasion. Much of the conduct
envisioned by the Court as paving the way for a prosecution for
tax evasion is that sort of conduct "which typically would be
committed on a multi-year, continuing-course-of-conduct basis,"
id., namely the keeping of a double set of books, concealment
of assets or covering up sources of income, and acts of that
nature. The type of conduct alleged in the instant indictment,
continuing efforts by the defendants to conceal the fraudulent
nature of the New York Hanseatic transactions from the outside
accountants of the Cralin partnerships, is that same sort of
continuing conduct faced by the district court in Shorter.
The district court further evaluated the duplicity argument
with respect to the statute of limitations question. In what is
essentially a fairness inquiry, the court observed that if the
first count of the indictment were severed into twelve separate
counts, each alleging a violation of the tax evasion statute
for a single year 1972 through 1983, all of the acts of evasion
occurring within the limitations period relating to those years
could be introduced as to each year in which there was a tax
Thus, the first count of such a hypothetical indictment
presumably would allege evasion of taxes due in 1972. In
support of that count, the government would be entitled to
introduce evidence of a tax deficiency in 1972 as well as of
any and all affirmative acts of evasion after 1978 [the
limitations cutoff date] which may have been intended to evade
payment of the 1972 taxes.
Id. at 878-79. The court further noted that "[a]cts of
evasion occurring between 1972 and 1978 would probably also be
admissible, especially where — as in the instance of the
establishment of a bank account in the name of another — they
had continuing consequences." Id. at 878 n. 21. The court of
appeals agreed with the district court's observations on this
point. 809 F.2d at 57.
I find the court's reasoning in Shorter persuasive. Here, as
in that case, the government alleges an ongoing course of
conduct that constitutes the affirmative act of evasion. In
essence, that course of conduct consisted of a series of lies
and acts of concealment in respect of both the outside
accountants of the Cralin partnerships and employees of the
IRS. The government is not required by the statute of
limitations to parse out that course of conduct in order to
find the date of the first misstatement to an accountant. Of
course, whether the government will be able to prove that sort
of continuing conduct that the indictment suggests is
ultimately a question for the jury.*fn8
I am not faced with the situation where a defendant files a
false tax return and then is called in by the IRS to talk about
that return perhaps a decade or more after its filing.
Defendants argue that if that individual were to give false
testimony to the IRS, under the government's theory at bar he
could then be prosecuted for tax evasion as to the return filed
more than six years before the return of the indictment, based
solely on the single affirmative act of giving false testimony
to the IRS, a result with which they disagree.
But that is not the case at bar. In the instant case,
defendants did not even file the returns at issue. Rather, it
is their ongoing course of allegedly fraudulent conduct in its
entirety that forms the basis for this prosecution. The statute
of limitations thus cannot begin to run until the entirety of
that conduct is complete, which in this case is the end of
1985. The indictment was timely filed in respect of counts 2
through 6, the tax evasion counts.
Relying on Grunewald v. United States, 353 U.S. 391, 77 S.Ct.
963, 1 L.Ed.2d 931 (1957), defendants argue that the conspiracy
count is barred by the six year statute of limitations.
In Grunewald the defendants were charged with and convicted
of conspiracy to defraud the United States with reference to
certain tax matters. The indictment charged the defendants with
conspiring "`to defraud the United States in the exercise of
its governmental functions of administering the internal
revenue laws and of detecting and prosecuting violations of the
internal revenue laws free from bribery, unlawful impairment,
obstruction, improper influence, dishonesty, fraud and
corruption. . . .'" Id. at 394, 77 S.Ct. at 968. The
indictment further charged that "a part of the conspiracy was
an agreement to conceal the acts of the conspirators." Id.
The acts of concealment, such as bribery and the giving of
false testimony, occurred within the six year limitations
period. However, the defendants' improper efforts to get "no
prosecution" rulings in two tax fraud cases were complete with
the issuance of those rulings more than six years prior to the
filing of the indictment. The question presented in Grunewald
was whether the indictment, in light of the government's proof
at trial, properly charged a single conspiracy, or whether the
non-time-barred acts of concealment were merely part of a
second conspiracy to cover up the first, namely that to obtain
the no prosecution rulings. If there were two conspiracies then
the first was time-barred. The Court said the following:
[A]fter the central criminal purposes of a conspiracy have been
attained, a subsidiary conspiracy to conceal may not be implied
from circumstantial evidence showing merely that the conspiracy
was kept a secret and that the conspirators took care to cover
up their crime in order to escape detection and punishment.
353 U.S. at 401-02, 77 S.Ct. at 972. The Court rejected the
government's argument that the defendants' efforts to conceal
their earlier wrongdoings should be viewed as part of the
original conspiracy to obtain the no prosecution rulings.
Defendants at bar
argue that their alleged misstatements to agents of the IRS,
which statements constitute three out of the four overt acts
executed within the limitations period.*fn9 similarly
constitute a second conspiracy to conceal the first.
This case is manifestly different from Grunewald. Here the
conspiracy was entered into, in part, to accomplish the
offenses of tax evasion charged in counts 2 through 6 of the
indictment.*fn10 As discussed above, the misstatements to
the IRS are an integral element of the substantive evasion
charges underlying the conspiracy alleged in count 1.
Grunewald itself suggests the importance of this distinction:
By no means does this mean that acts of concealment can never
have significance in furthering a criminal conspiracy. But a
vital distinction must be made between acts of concealment done
in furtherance of the main criminal objectives of the
conspiracy, and acts of concealment done after these central
objectives have been attained, for the purpose only of covering
up after the crime.
Id. at 405, 77 S.Ct. at 974 (emphasis in original). In this
instance, the acts of concealment are central to the
government's proof on the underlying evasion charges. In other
words, they were in furtherance of one of the main criminal
objectives of the conspiracy, tax evasion.
Defendants' motion to dismiss the conspiracy count as barred by
the statute of limitations is denied.
A. Initiation of the Criminal Investigation Defendants
seek discovery of a limited nature in respect of the start
and duration of the IRS's civil investigation as well as the
start of the criminal investigation. Specifically,
defendants seek to determine whether summonses served upon
the defendants were improper and thus whether statements
given by the defendants in response to those summonses are
subject to suppression.
The relevant statutory provision is 26 U.S.C. § 7602, which
grants the IRS authority to serve summonses for "the purpose of
inquiring into any offense connected with the administration or
enforcement of the internal revenue laws", so long as a Justice
Department referral is not in effect.*fn11
If a Justice
Department referral is in effect at the time summonses are
issued, defendants have the basis for a motion to suppress the
statements made in consequence of those summonses. See United
States v. MacKenzie, 777 F.2d 811
, 819 (2d Cir. 1985); see
also United States v. Piper, 681 F. Supp. 833, 839 (M.D.Ga.
Defendants at bar are not in a position to know
whether a Justice Department referral was in effect at the time
the summonses were issued without limited discovery from the
government on the point. It is that discovery they now seek.
The government argues that "the only showing that the
Government need make, at most, is an affidavit from the case
agent affirming that there was no Justice Department
referral at the time the summonses were issued." Government's
Memorandum at 13-19. The government cites cases to that effect.
See Godwin v. United States, 564 F. Supp. 1209, 1211 (D.Del.
1983) (amendment of 26 U.S.C. § 7602 "did not alter the showing
required by the government to establish a prima facie case
for the enforcement of the summons"); Drum v. United States,
570 F. Supp. 938, 941 (M.D.Pa. 1983) ("[t]he requisite showing
of good faith may be made by the affidavit of the Internal
Revenue Service Agent who issued the challenged summons and who
is seeking enforcement thereof"), aff'd without opinion,
735 F.2d 1348 (3d Cir. 1984).
The government supplies the affidavit of Special Agent Laura
Wolf, the IRS special agent currently assigned to the case.
Wolf states that a Justice Department referral was not in
effect until approximately April 1987, some two years after the
last statements alleged in the indictment. Affidavit of Laura
Wolf sworn to on January 5, 1990 at ¶ 3. That affidavit is on
information and belief. Wolf states that she "was initially
assigned to the instant investigation in approximately March,
1987 [and] . . . was the first IRS criminal investigator so
assigned." Id. at ¶ 2. Apart from this general statement as
to Wolf's association with the investigation, the affidavit
contains no statement as to the source of her beliefs in
respect of the date on which the Justice Department referral
was in effect. Having submitted that affidavit, the government
declares the ball to be in defendants' court.
By letter dated January 18, 1990, counsel for defendant Foont
brings to this Court's attention a grand jury subpoena dated
March 19, 1985 which seemingly relates to the captioned action.
Specifically, the subpoena is one directed to the "Custodian of
Records" at Cralin & Co., Inc. The subpoena directs production
Arbitrage Trading Partners
Greystone Investment Group
Money Market Group
Cralin Securities Co.
Cralin Metals Co.
Multi Asset Group
Cralin Governments Group
Cralin & Co., Inc.
Cralin Group, Inc.
Cralin Capital Partners
Cralin Capital Investment Associates
Capital Futures Group
Capital Trading Group
1. From January 1, 1980 to the present for the above-named
entities all documents and material, including but not
limited to tape recordings, correspondence, memoranda, notes,
wires, telexes, checks, comparisons, confirmations,
workpapers, traders' tickets, spread sheets, contracts,
blotters relating any financial business or proposed dealings
with Arbitrage Management Company.
2. Employment/Personnel and Compensation file for Paul Foont.
NOTE: If any document is not produced under a claim of
privilege, provide a list of the documents not produced, their
author, date, parties distributed to and a brief description
of the subject matter so that the claims may be litigated.
The subpoena states that the information was sought in
connection with the investigation of an alleged violation of
18 U.S.C. § 371 (conspiracy to defraud the IRS); 18 U.S.C. § 1341
(mail fraud); and 26 U.S.C. § 7206(2) (aiding and assisting in
the filing of false tax returns). On its face, the subpoena
appears to be one issued in connection with the grand jury
investigation of this case. If that is so, a Justice Department
referral was in effect at least as early as March 19, 1985, the
date of the subpoena's issuance, rather than the April 1987
date suggested by the affidavit supplied by the government.
Defendants' having provided such information, the ball is now
back in the government's court.
I therefore direct the government to supply an affidavit(s) on
personal knowledge of an IRS agent(s) or other official of that
agency, and/or representatives of the Justice Department
specifying the exact date on which a Justice Department
referral was made in this case. The affidavit(s) should specify
whether the grand jury subpoena of March 19, 1985 was issued in
connection with the investigation of this case. The government
is to comply with this direction within ten (10) days of the
date of this Opinion.
B. Notes of Defendants' Oral Statements
Defendants move for production of any notes memorializing
defendants' statements to the IRS. The government represents
that no such notes were taken, thereby rendering the request
C. Witness List
Defendants move for production of "a list of the witnesses the
government intends to call during its case in chief."
Defendants' Memorandum at 24. The government opposes that
The lead case in this circuit on the subject of witness list
disclosure is United States v. Cannone, 528 F.2d 296 (2d Cir.
1975). Both defendants and the government find comfort in
Cannone. Defendants argue that certain language in Cannone
supports the application for disclosure, while the government
argues that the holding of the case clearly prohibits it. The
court stated that it is "often desirable" to allow disclosure
without the benefit of such disclosure, the defense may be
substantially hampered in its preparation for trial. At a
minimum, pretrial ignorance of the identity of the
prosecution's witnesses tends to detract from the effectiveness
of the defense's objections and cross-examination.
528 F.2d at 301. However, the Second Circuit held that the
district court had abused its discretion in providing the
defendants with a witness list where "the defense made only an
abstract, conclusory claim that such disclosure was necessary
to its proper preparation for trial." Id. at 301-02.
Defendants next point to the factors enumerated in United
States v. Turkish, 458 F. Supp. 874, 881 (S.D.N.Y. 1978) in
support of their application. Those factors are as follows:
(1) Did the offense alleged in the indictment involve a crime
(2) Have the defendants been arrested or convicted for crimes
(3) Will the evidence in the case largely consist of testimony
relating to documents (which by their nature are not easily
(4) Is there a realistic possibility that supplying the
witnesses' names prior to trial will increase the likelihood
that the prosecution's witnesses will not appear at trial, or
will be unwilling to testify at trial?
(5) Does the indictment allege offenses occurring over an
extended period of time, making preparation of the defendants'
defense complex and difficult?
(6) Do the defendants have limited funds with which to
investigate and prepare their defense?
458 F. Supp. at 881.
While it is true that four out of the six Turkish factors
support defendants' argument,*fn13 they have not come forth
with "specific evidence of the need for disclosure", 528 F.2d
at 302, as is required for the district court to properly
direct disclosure. In essence, defendants argue that the
government's investigation was a long one and the potential
witness pool is a large one and a witness list would thus
greatly facilitate defense preparation. That is not the
specific showing contemplated by Cannone. Indeed, although
the potential witness pool is large in an absolute sense, many
of the witnesses are known to the defendants. Specifically,
defendants are familiar with the former employees of the Cralin
partnerships, the limited partners involved in the case and the
outside accountants and lawyers with whom they dealt. Moreover,
defendants have access to the record of and therefore knowledge
of the witnesses called in United States v. Atkins, 87 Cr.
246 (MEL), a related trial arising out of the same transactions
at issue here.
Defendants' motion for the production of a witness list is
D. Bill of Particulars
Defendants outline eight basic areas as to which they seek a
bill of particulars. Specifically, defendants seek immediate
production of the following:
1. a list of those documents the government intends to
introduce at trial;
2. the identities of those persons allegedly aided and
abetted by the defendants in respect of the false income tax
returns that form the basis for counts 7 through 15;
3. the substance of the alleged "secret oral agreements"
entered into by the defendants;
4. identification of the alleged fraudulent sales literature
distributed to potential investors in the Cralin
5. the means by which the conspirators attempted to mislead
the outside accountants of the Cralin partnerships;
6. the allegedly false information contained on the schedule
K-1 forms sent by the Cralin partnerships to its partners;
7. whether the government intends to use similar act
evidence at trial;
8. Brady impeachment material.
The second of these requests, namely one for the production of
the identities of those persons whom the defendants are alleged
to have aided and abetted, is on par with the traditional
request for an enumeration of one's alleged co-conspirators.
The government recognizes its obligation to provide that latter
information to the defendants and has presumably now made the
requisite production. The government is similarly directed to
make production forthwith of the names of those persons whom
the defendants are alleged to have aided and abetted.
As to a list of those documents which the government will seek
to introduce at trial, I will not ask the government to
finalize the minutiae of its case in this way some six weeks in
advance of trial. However, in this case where all concede that
a significant number of documents have been produced by the
government and will presumably be used at trial, it is right to
narrow the field before trial in order to allow more effective
case preparation by the defense. I therefore direct that the
government make available to the defendants a list of those
exhibits it anticipates might be used at trial within fourteen
(14) days of trial.
The middle four requests are no more than a "demand for the
government's evidence in advance of trial," United States v.
Gottlieb, 493 F.2d 987, 994 (2d Cir. 1974), and the "law does
not impose an obligation [on the government] to preview its
case or expose its legal theory." United States v. Leonelli,
428 F. Supp. 880, 882 (S.D.N.Y. 1977). The requests are denied.
The government declined to respond to defendants' request in
respect of whether it intends to offer similar act evidence at
trial, but states that "[a]s the trial date approaches, we will
address this issue anew." Letter of AUSA Robert J. Cleary dated
February 22, 1989 at ¶ 13. The government is directed to make
production in that regard within fourteen (14) days of trial.
As to the Brady impeachment material which defendants seek,
the government recognizes its well-established obligation to
produce that material and states its intent to make such
production along with the 3500 material for each government
witness. That is sufficient. See, e.g., United States v.
Nixon, 418 U.S. 683, 701, 94 S.Ct. 3090, 3104, 41 L.Ed.2d 1039
(1974) ("[g]enerally, the need for evidence to impeach
witnesses is insufficient to require its production in advance
of trial"); United States ex rel. Lucas v. Regan, 503 F.2d 1,
3 n. 1 (2d Cir. 1974) ("[n]either Brady nor any other case we
know of requires that disclosures under Brady be made before
trial"), cert. denied, 420 U.S. 939, 95 S.Ct. 1149, 43
L.Ed.2d 415 (1975); United States v. Biaggi, 675 F. Supp. 790,
812 (S.D.N.Y. 1987) ("'[i]nformation bearing on a witness'
credibility, such as grants or promises of immunity,
plea bargain arrangements, or other consideration promised by
the Government in return for testimony must be turned over at
the same time as other 18 U.S.C. § 3500 materials'") (citations
omitted); United States v. Abram 539 F. Supp. 378, 390
(S.D.N.Y. 1982) ("Brady . . . does not require the government
to disclose information pertaining to the credibility of
witnesses before that witness testifies") (citations omitted).
Defendants' motion to compel immediate production of Brady
impeachment material is denied.
Defendant Foont moves for severance pursuant to the doctrine of
United States v. Finkelstein, 526 F.2d 517 (2d Cir. 1975),
cert. denied, 425 U.S. 960, 96 S.Ct. 1742, 48 L.Ed.2d 205
(1976). The Finkelstein doctrine is one that governs motions
for severance based on attempts by one defendant to obtain the
exculpatory testimony of his co-defendant. Foont contends that
were he to be tried separately from Feldman, Feldman would
exculpate Foont at Foont's trial.
The Second Circuit has enumerated four factors to be considered
in evaluating such a claim for severance.
(1) the sufficiency of the showing that the co-defendant would
testify at a severed trial and waive his Fifth Amendment
privilege, . . . (2) the degree to which the exculpatory
testimony would be cumulative, . . . (3) the counter arguments
of judicial economy, . . . and (4) the likelihood that the
testimony would be subject to substantial, damaging
impeachment. . . .
526 F.2d at 523-24 (citations omitted). I address these factors
As to the first factor, the likelihood that Feldman would waive
his Fifth Amendment privilege and testify at a separate trial
of Foont, Foont offers the affidavit of his co-defendant in
which Feldman states that he would testify at Foont's trial as
On several occasions, including at least one occasion in 1981,
Paul J. Foont and I discussed the fact that Price Waterhouse,
the Cralin entities' accountants, and Paul, Weiss, Rifkind,
Wharton and Garrison, the Cralin entities' legal counsel, had
stated, in substance, that the transactions entered into by the
Cralin entities in 1981 were legal. During the time period
covered by the transactions alleged in the indictment, Mr.
Foont was an employee of the Cralin entities and reported to me
and others who were in charge of and had ownership interests in
the Cralin entities.
Affidavit of Jeffrey L. Feldman sworn to on December 19, 1989
at ¶ 2. Feldman further states that he is "willing to testify
at a separate trial of Mr. Foont, even if that trial came
before [his] own, and [he is] prepared to waive [his] fifth
amendment privilege against self-incrimination at Mr. Foont's
trial." Id. at ¶ 3. While the Feldman affidavit is certainly
a strong suggestion that he would indeed testify at Foont's
trial, there is no indication that he would not also testify at
a joint trial of both defendants. Moreover, Feldman's affidavit
suggests that he may indeed be willing to so testify given his
representation that he would waive his Fifth Amendment
privilege and testify at a trial of Foont even if that trial
were scheduled before his own.
The second factor is the degree to which the proffered
exculpatory testimony would be cumulative. Foont states that
his defense at trial "will be that he lacked the requisite
intent for the crimes charged." Defendants' Memorandum of Law
at 34. Foont argues that Feldman's testimony goes directly to
the central issue of Foont's intent in respect of the
transactions at issue. The government argues that the proffered
testimony is cumulative insofar as the accountants and lawyers
had been misled into believing that the transactions were legal
and will so testify. In other words, the accountants and
lawyers will themselves testify that they advised the
defendants that the transactions were legal, but that such
advise was given based on fraudulent information. Assuming that
Feldman would testify that the conversations were innocent
discussions concerning whether the Cralin partnerships should
enter into the subject transactions and Feldman
informed Foont that the outside accountants and lawyers found
no legal impediments to so doing, then such testimony would be
probative of Foont's state of mind.
Considerations of judicial economy clearly weigh against
severance. This is a complex case that will take more than one
month to try and the burdens on limited judicial resources in
trying the case twice are obvious. Moreover, witnesses would be
twice inconvenienced and our jury system doubly taxed.
As to possible impeachment of Feldman's testimony, it is true
that if Feldman were tried first and convicted, his testimony
at a later trial of Foont would be subject to damaging
impeachment. Of course, that is a problem easily remedied by
scheduling Feldman's trial after that of Foont. However, the
information contained in the ex parte affidavit of AUSA
Clearly suggests certain possible areas of impeachment.
On balance, Foont has not satisfied his burden under
Defendants' motions are denied except as set forth in this
The government is directed to proceed in conformity with this
The foregoing is SO ORDERED.