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09-1702-cr(L), 09-1707-cr(CON), 09-1790-cr(CON) United States v. Pfaff



### UNITED STATES COURT OFAPPEALS FOR THE SECOND CIRCUIT



# SUM MARY ORDER

R ULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT
. CITATION TO A SUMMARY ORDER FILED ON OR AFTER J

ANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL R ULE OF APPELLATE PROCEDURE 32.1AND THIS COURT ’ S LOCAL R ULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT , A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “ SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL
.


### 1 At a stated term of the United States Court of Appeals 

### 2 for the Second Circuit, held at the Daniel Patrick Moynihan 

### 3 United States Courthouse, 500 Pearl Street, in the City of 

### 4 New York, on the 27 day of August, two thousand ten. th 

### 5 6 PRESENT: DENNIS JACOBS, 

### 7 Chief Judge, 

### 8 RALPH K. WINTER, 

### 9 JOSEPH M. McLAUGHLIN, 

### 10 Circuit Judges. 

### 11 12 - - - - - - - - - - - - - - - - - - - -X United States of America, 

### 13 Appellee, 

### 14 15 16 -v.- 09-1702-cr(L) 

### 17 09-1707-cr(CON) 

### 18 09-1790-cr(CON) 

### 19 20 Robert Pfaff, Raymond J. Ruble, also 

### 21 known as R.J. Ruble, John Larson, 

### 22 Defendants-Appellants. 

### 23 - - - - - - - - - - - - - - - - - - - -X 

### 24 FOR APPELLANTS: ALEXANDRA A.E. SHAPIRO, Marc E. 

### 25 26 Isserles, Macht, Shapiro, Arato & 

### 27 Isserles LLP, New York, NY, David C. 

### 28 Scheper, Scheper, Kim & Overland2 

### 1 LLP, Los Angeles, CA, for Defendant

### 2 Appellant Robert Pfaff. 

### 3 4 STUART E. ABRAMS, Frankel & Abrams, 

### 5 New York, NY, Jack S. Hoffinger, 

### 6 Susan Hoffinger, Hoffinger, Stern & 

### 7 Ross, LLP, New York, NY, for 

### 8 Defendant-Appellant Raymond Ruble. 

### 9 10 J. SCOTT BALLENGER, Lori Alvino 

### 11 McGill, Latham & Watkins LLP (Steven 

### 12 M. Bauer, Margaret A. Tough, San 

### 13 Francisco, CA), Washington, DC, for 

### 14 Defendant-Appellant John Larson. 

### 15 16 FOR APPELLEE: JOHN M. HILLEBRECHT, Margaret 

### 17 Garnett, Justin Anderson, Katherine 

### 18 Polk Failla, Assistant United States 

### 19 Attorneys, of counsel, for Preet 

### 20 Bharara, United States Attorney for 

### 21 the Southern District of New York. 

### 22 23 Appeal from a judgment of the United States District 

### 24 Court for the Southern District of New York (Kaplan, J.).



### 25 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED 

### 26 AND DECREEDthat Appellants’ convictions and Larson’s term 

### 27 of imprisonment be AFFIRMED

.


### 28 Raymond Ruble, Robert Pfaff, and John Larson appeal 

### 29 from judgments of conviction and a sentence entered April 

### 30 15, April 21, and April 24, 2009, respectively, in the 

### 31 United States District Court for the Southern District of 

### 32 New York (Kaplan, J.). Appellants were convicted of tax 

### 33 evasion, and sentenced principally to terms of imprisonment 

### 34 and fines. In a separate per curiam opinion filed today, we 

### 35 decide the challenge to Larson’s fine, imposed under 18 

### 36 U.S.C. § 3571(d). We assume the parties’ familiarity with 

### 37 the underlying facts and the case’s procedural history.



### 38 Appellants raise five issues here: [1] whether the jury 

### 39 instructions were flawed; [2] whether the evidence was 

### 40 sufficient to support their convictions; [3] whether the 

### 41 government’s case at trial constructively amended the 

### 42 indictment; [4] whether they are entitled to have their3 

### 1 indictments dismissed pursuant to United States v. Stein, 

### 2 541 F.3d 130 (2d Cir. 2008); and [5] whether the district 

### 3 court erred in imposing Larson’s sentence. The issues are 

### 4 considered seriatim.



### 5 [1] We find no error in the district court’s jury 

### 6 instructions. “We review jury instructions de novo, and 

### 7 reverse only when the charge, viewed as a whole, constitutes 

### 8 prejudicial error.” United States v. Amato, 540 F.3d 153, 

### 9 164 (2d Cir. 2008). The district court charged the jury 

### 10 that a transaction lacks non-tax economic effect when there 

### 11 is “no reasonable possibility that the transaction would 

### 12 result in a profit.” On the facts of this case (where the 

### 13 non-tax economic effect proffered by the defense was the 

### 14 possibility of profit), that was a correct statement of the 

### 15 law. See, e.g., Goldstein v. Commissioner, 364 F.2d 734, 

### 16 740 (2d Cir. 1966) (disallowing “deduction for 

### 17 [transactions] that can not with reason be said to have 

### 18 purpose, substance, or utility apart from their anticipated 

### 19 tax consequences,” in case where taxpayer could have 

### 20 realized a $22,875 profit given favorable market changes 

### 21 (emphasis added)). We have in the past affirmed jury 

### 22 instructions stating a narrower definition. See, e.g., 

### 23 United States v. Atkins, 869 F.2d 135, 140 (2d Cir. 1989) 

### 24 (approving instruction that transaction has no non-tax 

### 25 economic effect if it is “subject to no market risk”). But 

### 26 we have not held that those instructions state the outer 

### 27 limits of the economic substance doctrine. Nor do we find 

### 28 any error in the district court’s circumstantial evidence 

### 29 examples, which were, if anything, favorable to the defense.



### 30 [2] The evidence was sufficient to support the 

### 31 convictions. When reviewing a conviction for sufficiency of 

### 32 evidentiary support, “the trial evidence is viewed most 

### 33 favorably for the Government” and “all reasonable inferences 

### 34 a jury may have drawn favoring the Government must be 

### 35 credited.” United States v. Wexler, 522 F.3d 194, 206-07 

### 36 (2d Cir. 2008). We affirm “‘if any rational trier of fact 

### 37 could have found the essential elements of [the] crime 

### 38 beyond a reasonable doubt.’” Id. at 207 (emphasis omitted) 

### 39 (quoting Jackson v. Virginia, 443 U.S. 307, 319 (1979)).4 

### 1 There is sufficient evidence that the transaction 

### 2 lacked any non-tax economic effect. Testimony described the 

### 3 chances of profiting from the investments as “basically 

### 4 zero.”



### 5 Sufficient evidence also supports the jury’s finding 

### 6 that the transactions were entirely motivated by tax 

### 7 purposes. Clients testified that the transactions were 

### 8 marketed solely as tax-avoidance schemes, and that, as 

### 9 clients, they had no non-tax business purpose in executing 

### 10 them. Evidently, that is why, at the outset of the 

### 11 purportedly seven-year scheme, a good number of BLIPS 

### 12 clients attempted to limit their commitment to sixty days, 

### 13 even though exiting so early would significantly limit their 

### 14 (already nugatory) chances of profiting on the currency 

### 15 forwards. BLIPS was designed, marketed, and executed as a 

### 16 tax shelter; and the jury was warranted in concluding that 

### 17 all parties knew BLIPS’s profit potential to be nothing more 

### 18 than a pretext.



### 19 In a challenge to the finding of willfulness, 

### 20 Appellants argue that “economic substance” law was too vague 

### 21 to support their convictions. Citing United States v. 

### 22 Pirro, 212 F.3d 86, 91 (2d Cir. 2000), Appellants contend 

### 23 that economic substance law was not sufficiently “knowable.” 

### 24 But “knowability,” except perhaps as probative of a 

### 25 defendant’s subjective belief in the lawfulness of his 

### 26 conduct, is only relevant insofar as it bears on 

### 27 constitutional vagueness. Vagueness of the law does not 

### 28 ipso facto negate a jury finding of willfulness. See United 

### 29 States v. Ingredient Tech. Corp., 698 F.2d 88, 97 (2d Cir. 

### 30 1983). And economic substance law is not unconstitutionally 

### 31 vague: It has been applied in criminal cases before, and (as 

### 32 discussed) is not unsettled in the way Appellants contend. 

### 33 Cf. Pirro, 212 F.3d at 91 (affirming partial dismissal of an 

### 34 indictment insofar as it charged a violation of a purported 

### 35 legal duty the existence of which was an open question).



### 36 Finally, we disagree that Appellants’ actions fall 

### 37 outside the ambit of the tax evasion statute, 26 U.S.C. 

### 38 § 7201. Section 7201 provides, in relevant part:5 

### 1 Any person who willfully attempts in any manner to 

### 2 evade or defeat any tax imposed by this title or 

### 3 the payment thereof shall, in addition to other 

### 4 penalties provided by law, be guilty of a felony.



### 5 The statute’s expansive language is not susceptible to a 

### 6 limitation that would exclude Appellants. No case 

### 7 interpreting § 7201 appears to have adopted any limit to its 

### 8 reach; those cases that have considered § 7201's scope have 

### 9 rather expressed it expansively, see, e.g., United States v. 

### 10 Townsend, 31 F.3d 262, 267 (5th Cir. 1994) (“[Section] 7201 

### 11 is not limited to prosecutions of those who evade taxes that 

### 12 they may owe themselves, but rather it encompasses 

### 13 prosecutions of any person who attempts to evade the tax of 

### 14 anyone.”). Appellants involved themselves, with the 

### 15 requisite intent, in a scheme to avoid taxes, and we see no 

### 16 statutory basis for excluding them from liability under 

### 17 § 7201.



### 18 [3] Appellants’ argument concerning constructive 

### 19 amendment is reviewed de novo. United States v. Rigas, 490 

### 20 F.3d 208, 225 (2d Cir. 2007). They argue that the 

### 21 government undertook to prove at trial a conspiracy of the 

### 22 Appellants againstKPMG, rather than the charged conspiracy 

### 23 withKPMG. But Appellants were acquitted of conspiracy. 

### 24 Constructive amendment of the conspiracy charge would have 

### 25 warranted vacatur of that charge only; the remainder of the 

### 26 indictment would have stood. See United States v. Milstein, 

### 27 401 F.3d 53, 64-66 (2d Cir. 2005) (per curiam) (vacating 

### 28 conviction on one count for constructive amendment of 

### 29 indictment with respect to that count, and rejecting 

### 30 argument that the constructive amendment warranted vacatur 

### 31 of convictions on other counts). Because no Appellant was 

### 32 convicted of conspiracy, we would be unable to afford relief even if we were to find error. 

### 33

34 [4] The district court found that KPMG would not have 

### 35 paid Pfaff’s and Larson’s legal fees in this case, and that 

### 36 dismissal under our decision in Stein was therefore 

### 37 unwarranted. We review this finding for clear error. 

### 38 Stein, 541 F.3d at 142, 146. Pfaff and Larson point to a 

### 39 number of facts that they claim demonstrate the clear error6 

### 1 of the district court’s finding, none persuasive. Most 

### 2 strongly emphasized are three pieces of evidence.



### 3 First is a 2004 statement by KPMG then-CEO Gene O’Kelly 

### 4 that “[a]ny present or former members of the firm asked to 

### 5 appear will be represented by competent coun[se]l at the 

### 6 firm’s expense.” United States v. Stein, 495 F. Supp. 2d 

### 7 390, 407 (S.D.N.Y. 2007) (first emphasis added). But this 

### 8 statement speaks not at all to what conduct the promise 

### 9 covers, and is therefore of limited independent value. 

### 10 Pfaff and Larson note that some of their indicted conduct 

### 11 occurred while they were at KPMG; but that conduct was 

### 12 minimal relative to the indicted conduct after they left. 

### 13 There is no direct evidence that KPMG considered such a 

### 14 small proportion to be enough, and it was reasonable for the 

### 15 district court to infer in the circumstances that KPMG would 

### 16 not have paid Pfaff’s and Larson’s fees, given the 

### 17 incentives driving fee payment in the first place, see 

### 18 Stein, 541 F.3d at 144 (“[A] firm may have potent incentives 

### 19 to advance fees, such as the ability to recruit and retain 

### 20 skilled professionals in a profession fraught with legal 

### 21 risk.”).



### 22 Second, Pfaff and Larson compare their situation to 

### 23 that of Gregg Richie, whose attorney’s fees, the district 

### 24 court found, would have been paid by KPMG. However, in 

### 25 contrast to Pfaff and Larson, Ritchie had little involvement 

### 26 with BLIPS after leaving KPMG. Ritchie’s relevant conduct 

### 27 post-KPMG appears to constitute only a small part of his 

### 28 involvement with BLIPS, as compared with his role as head of 

### 29 KPMG’s CaTs (“Capital Transaction Strategies”) group--“[t]he 

### 30 KPMG group focused on designing, marketing, and implementing 

### 31 tax shelters for individual clients.”



### 32 Finally, Pfaff and Larson point to KPMG’s payment of 

### 33 their legal fees in the Perez v. KPMG civil case, which they 

### 34 contend demonstrated KPMG’s willingness to pay their legal 

### 35 fees in connection with legal proceedings arising from 

### 36 BLIPS. But the Perez case involved conduct undertaken 

### 37 entirely during Pfaff’s and Larson’s employment at KPMG, see 

### 38 Notice of Removal at 25-37, Perez v. KPMG, No. 7:03-cv-000267 

### 1 (S.D. Tex. Jan. 24, 2003); and is therefore distinguishable 

### 2 on the lines discussed.



### 3 [5] Larson argues that his term of imprisonment is 

### 4 impermissibly longer than the sentences imposed on other 

### 5 defendants. We review sentencing decisions for 

### 6 “reasonableness,” employing “the familiar abuse-of

### 7 discretion standard.” Gall v. United States, 552 U.S. 38, 

### 8 46 (2007). As Larson contends, the district court relied on 

### 9 the defendants’ ages, observing that any lengthy sentence 

### 10 “would be a life sentence without parole for all these men.” 

### 11 Since Larson is just 13 months younger than Pfaff, it would 

### 12 have been questionable to rely on this factor alone to 

### 13 justify a sentence disparity. But the district court stated 

### 14 that age was merely one of the factors justifying the 

### 15 difference. The district court properly relied on the fact 

### 16 that Larson moved assets abroad in order to protect them 

### 17 from creditors and from the government. See 18 U.S.C. 

### 18 § 3661 (“No limitation shall be placed on the information 

### 19 concerning the background, character, and conduct of a 

### 20 person convicted of an offense which a court of the United 

### 21 States may receive and consider for the purpose of imposing 

### 22 an appropriate sentence.”).



### 23 In a separate per curiam opinion filed today, we decide 

### 24 the challenge to Larson’s fine, imposed under 18 U.S.C. 

### 25 § 3571(d). Finding no merit in Appellants’ remaining 

### 26 arguments, we accordingly AFFIRM Appellants’ convictions and 

### 27 Larson’s term of imprisonment.



### 28 29 30 FOR THE COURT: 

### 31 CATHERINE O’HAGAN WOLFE, CLERK 

### 32 By: 

### 33 34 35

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