Opinion ID: 529953
Heading Depth: 1
Heading Rank: 2

Heading: grounds for acquittal

Text: 28 In counts III and IV of the indictment Furst was charged with violations of 18 U.S.C. Sec. 664 which provides that: 29 Any person who embezzles, steals, or unlawfully and willfully abstracts or converts to his own use or the use of another, any moneys, funds, securities, premiums, credits, property or other assets of any Employee Welfare Benefit Plan or Employee Benefit Plan [is guilty of a crime]. 30 It is indisputable that one substantive element of 18 U.S.C. Sec. 664 is that the account from which funds are embezzled must be one of the two types of accounts defined in the statute; if the account is not governed by ERISA, section 664 is inapposite. Consequently, if the government did not produce evidence from which the jury could conclude that the account from which funds were embezzled was an ERISA account, Furst's motion for acquittal on the section 644 charges should have been granted. 31 Our standard of review is whether the record, when viewed in the light most favorable to the government, contains substantial evidence to support the jury's determination of guilt. See Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942); United States v. Aguilar, 843 F.2d 155, 157 (3d Cir.), cert. denied, --- U.S. ----, 109 S.Ct. 305, 102 L.Ed.2d 324 (1988). 32 The stock transactions which formed the basis for these counts were made in three steps. In step 1 appreciated stock was removed from a non-ERISA account and placed in a second account, WOA Escrow, in return for which the non-ERISA account was to be paid the price for which it had purchased the stock and market interest on that sum. Thus, in step 1 the portion of the stock's value that reflected appreciation over market interest was removed from the non-ERISA account without compensation. The indictment, however, did not charge Furst with any crime with respect to the non-ERISA accounts and any wrongful acts of Furst as to those counts would not constitute a violation of 18 U.S.C. Sec. 644. 33 In step 2 Furst caused an ERISA account to purchase the appreciated stock in Machine Vision or Rocking Horse then held by the second account, WOA Escrow, and the consideration was paid into the second account. The purchase price did not exceed the price at which stock in those companies then publicly traded, although it was significantly in excess of the price at which the non-ERISA account had sold the stock to WOA Escrow in step 1. 34 In step 3 the second account made good its obligation to the non-ERISA account in step 1 and the balance of funds, representing the appreciation in the stock which was removed from the non-ERISA account without compensation, was disbursed to accounts in which Furst had made the FCCB/FFCM investments which had gone bad. 35 The government's theory charges that the purchase by the ERISA accounts in step 2 depleted the ERISA funds. However, this theory is dependent on evidence that the ERISA accounts paid a price in excess of the market value of the stock and without such proof Furst's conviction under 18 U.S.C. Sec. 644 cannot be affirmed. 36 The government asserts that there is evidence that the Machine Vision and Rocking Horse stock had a lower value than claimed by Furst and that the ERISA accounts were accordingly overcharged. The first basis of this argument is the observation that the Machine Vision stock purchased in step 1 at $2.00 per share was sold the same day in step 2 at $4.40 per share, that the Rocking Horse stock purchased in step 1 for $3.25 per share was sold the same day in step 2 at $4.35 per share, and that the WOA Escrow account was used as a sham intermediary for these transactions. See brief for appellee at 31. The second basis of this argument is that the market values asserted by Furst reflect the value of unrestricted stock, that is, stock as to which there was no restriction on sale, while the stock subject to these transactions was severely restricted, although it apparently could be internally traded by NC Bank. The government argues that unrestricted stock is worth more than restricted stock. 9 37 The problem with the first observation is that we have no basis to assume that the ERISA accounts were overcharged, for it may well be that instead the non-ERISA accounts were underpaid. Consequently, the government theory relying on the alleged overcharges in step 2 requires some proof of value to demonstrate the overcharge in addition to the difference in stock prices, so that Furst would not be convicted of an overcharge in step 2 simply because the government had made out a case for under-compensation in step 1. There was no such proof. 38 The problem with the government's second argument that the ERISA funds were depleted is that the government does not contend that it produced any testimony regarding the specific relationship of the market value of restricted and unrestricted stock in Machine Vision and Rocking Horse so that reasonable conclusions could be reached as to the discount from market value to be taken in valuing restricted stock. 39 The government bears the burden of proof on each and every substantive element of a criminal offense. While the government may contest the values Furst associated with the stock which formed the subject of these transfers, it had the burden of affirmatively establishing that the value of the stock was below that which Furst caused the ERISA accounts to pay for it. When the government's prosecution under 18 U.S.C. Sec. 664 arises in the context of a sale of property, the government accordingly bears the burden of producing evidence that the property was worth less than the ERISA accounts paid. 40 The government did not meet its burden of proof in this case. Consequently, though the transactions are certainly disturbing, Furst's motion for acquittal should have been granted on counts III and IV and we will reverse his conviction on those counts and remand for entry of a judgment of acquittal on them. 10
41 Counts V, VI, and VII of the indictment charged Furst with making false statements in bank records in violation of 18 U.S.C. Sec. 1005. The relevant portion of this section provides that: Whoever makes any false entry in any book, report, or statement of [any subject bank] with intent to injure or defraud such bank, or any other company, body politic or corporate [is guilty of a crime]. 42 The allegedly false statements related to the distribution of the proceeds from one of the two sales between accounts that constituted the subject of the embezzlement charges. 11 Specifically, each of the three counts relates to a similar statement in three different accounts accompanying the distribution of the December, 1985, gain generated in the Rocking Horse trades. Counts V, VI, and VII related to the WF-Waldron account numbered 71093-50-4, the WF-Graham account numbered 71088-83-5, and the WF-Snowden account numbered 71089-98-1, respectively. See supra note 7. 43 In particular, Furst is charged with having represented that the funds generated from the internal stock trades which he distributed to accounts that had invested in FCCB/FFCM were in fact returns from the FCCB/FFCM investment. With respect to these counts Furst contends that the district court erred in failing to acquit him as a matter of law. 44 Our standard of review is whether the record, when viewed in the light most favorable to the government, contains substantial evidence to support the jury's determination of guilt. See Glasser v. United States, 315 U.S. at 80, 62 S.Ct. at 469; United States v. Aguilar, 843 F.2d at 157. 45 On December 26, 1985, Furst traded Rocking Horse shares from one fund he controlled, Stock Fund A, to the WOA Escrow account at $3.25 per share, a price reflecting the original purchase price with market interest from the date of purchase. Furst then traded the shares from WOA Escrow to Stock Funds 1 and B at $4.35 per share. Furst then distributed $291,133.70 of the gain generated in WOA Escrow by virtue of the difference in the prices to other accounts within the Williamsport Foundation (WF) over which he also had investment control. 12 46 The distribution of the $291,133.70 gain was actually made by Neidig, an NC Bank employee, who reported to Furst. At trial the government's theory of counts V, VI and VII was that [a]lthough Furst himself did not actually print false statements, he caused the offenses to be committed by his administrative assistant, Mr. Neidig. Brief of appellee at 40-41. 47 It is undisputed that Neidig, not Furst, completed the paperwork and various trading tickets and forms involved in the two transactions. Neidig handwrote a memorandum in which he instructed the operations department of the trust division to make cash transfers from the WOA Escrow account to the various WF accounts with the following explanation: Proceeds from termination of First Commodity Corp. Multiple Futures Commodities Program # 2. 13 The explanation of the source of the funds constituted a false statement in violation of 18 U.S.C. Sec. 1005. 48 Thus, the question presented is whether Furst caused Neidig to make this false statement. Neidig testified that although Furst did not provide all the language used in the false report, Furst explained the transaction to Neidig and Neidig drafted the language based on that understanding. See appellant's app. at 325-26, 330-31, 333-34, 375. Neidig further testified that the use of the language that falsely reported the source of the funds was not entirely his, id. at 377, and some portion was provided by Furst, because Neidig was not familiar with commodity securities, and didn't know what a termination contract probably would have been at the time. Id. Finally, Neidig stated that the concept behind those transactions and the wording of them came as a result of the conversation [he had with Furst] regarding the trades. Id. at 384. 49 Viewing the evidence in the light most favorable to the government, it does not appear that the district court erred in allowing this issue to go to the jury inasmuch as the jury could have concluded that, as Neidig testified, Furst caused the false statements to be made by explaining that the transactions represented the closing of the FCCB/FFCM investments. Thus, the district court did not err in failing to acquit Furst of these charges.
50 Counts IX, X, and XI charged Furst with making false statements in ERISA records for three different years in violation of 18 U.S.C. Sec. 1027. This section states: 51 Whoever, in any document required by the title I of the Employee Retirement Income Security Act of 1974 ... to be published, or kept as part of the records of any employee welfare benefit plan or employee pension benefit plan, or certified to the administrator of any such plan, makes any false statement or representation of fact, knowing it to be false, or knowingly conceals, covers up, or fails to disclose any fact the disclosure of which is required by such title or is necessary to verify, explain, clarify or check for accuracy and completeness any report required by such title to be certified [is guilty of a crime]. 52 On its face section 1027 requires proof that: (1) the defendant made a false statement; (2) the defendant made the statement knowing it to be false; and, (3) the false statement was in a document required by ERISA. See United States v. Martorano, 767 F.2d 63 (3d Cir.) (per curiam), cert. denied, 474 U.S. 949, 106 S.Ct. 348, 88 L.Ed.2d 296 (1985); see also United States v. S & Vee Cartage Co., Inc., 704 F.2d 914 (6th Cir.), cert. denied, 464 U.S. 935, 104 S.Ct. 343, 78 L.Ed.2d 310 (1983). 53 Without conceding that the statements in the ERISA documents were false, Furst contends that the government failed to meet its burden of proof on the element that Furst made the statements knowing them to be false. Thus, he asserts that the district court erred in failing to acquit him as a matter of law. Once again our standard of review is whether the record, when viewed in the light most favorable to the government, contains substantial evidence to support the jury's determination of guilt. See Glasser v. United States, 315 U.S. at 80, 62 S.Ct. at 469; United States v. Aguilar, 843 F.2d at 157. 54 The three counts refer to statements in the WOA annual reports in 1983, 1984, and 1985, as to the value and status of the FCCB/FFCM investments. In 1983 Furst reported that FCCB/FFCM owed a $180,000.00 receivable to WOA. In 1984 Furst represented that the receivable was held in the WOA Escrow Account and that it had earned interest and was then worth $220,617.67. In the 1985 WOA annual report Furst represented that WOA had received $240,000.00, representing the $220,617.67 held in escrow the year before together with interest on that sum. See brief for appellant at 6. While these statements were made by Furst and were undoubtedly false, for the government to have proven a violation of 18 U.S.C. Sec. 1027, it must have demonstrated that Furst knew the statements to be false. Cf. United States v. Santiago, 528 F.2d 1130, 1134 (2d Cir.) (decided under 18 U.S.C. Sec. 1027 prior to its amendment to its current form), cert. denied, 425 U.S. 972, 96 S.Ct. 2169, 48 L.Ed.2d 795 (1976). 55 The government lists three pieces of evidence which it introduced on the issue of Furst's knowledge that the ERISA statements were false. First, the government relied on Marston's testimony that Furst had admitted that he knew he was locked in with a $700,000.00 loss, a short time after he made the investments ... (in) either 1980 or 1981. Brief of appellee at 50; see appellee's app. at 686. Assuming this to be true, inasmuch as Furst had invested a total of $909,100.00, his admission to Marston does not undermine his statement that the investment had a remaining value of $180,000.00. 56 The second and third pieces of evidence relate to the FCCB/FFCM statements. It is important to note that Margarethe Aderhold, the bank employee who prepared the summaries of these statements, testified that the FCCB statements found in the bank's files did not extend past the fall of 1980, and that the bank had no statements from FFCM or FFCA. See appellant's app. at 294-301. Even as late as December, 1980, FCCB reported that the investment had a value of $236,025.52, when it transferred the investment to FFCM. Thus, on the basis of the documents actually found in the bank files, Furst would not have known that the investment was worth less than the $180,000.00 figure he represented. 57 In addition, the government relied on Ms. Aderhold's testimony that Furst's handwriting was on some of the early FCCB statements which were found in the bank files. Appellee's app. at 235. But, this cannot support an inference that Furst knew the $909,100.00 invested had fallen in value below $236,025.52. 58 Finally, the government relied on the testimony of Sharon Baxter, a bank employee, that she saw FCCB statements on Furst's desk [i]n the early eighties. Appellee's app. at 309-10. But inasmuch as Baxter was not asked to be any more specific in her response, it is possible that the period to which she referred was from 1979 through the fall of 1980, at which time the FCCB statements did not indicate that the investment was worth anything less than $236,025.52. 59 Baxter's testimony is the only evidence that even permits an inference that Furst knew the status of the FCCB/FFCM investment at any time after the fall of 1980. But standing alone it is simply too indefinite and vague to be regarded as evidence sufficiently substantial to support Furst's conviction for having misrepresented that the value of the FCCB/FFCM investments was $180,000.00 in the 1983 WOA annual report. Therefore, even though as a matter of conjecture it is difficult to believe that Furst, as an experienced trust officer, did not know the status of the FCCB/FFCM investments when the WOA 1983 report was prepared, we conclude that the district court erred in failing to acquit Furst of count IX, relating to that report, as a matter of law. 60 The convictions on the counts relating to the 1984 and 1985 annual reports, however, stand on a different basis, inasmuch as our review of the record satisfies us that the government produced additional evidence at trial that permitted the jury to infer that Furst had knowledge that the statements in those years were false. 61 In the documents accompanying Neidig's February 21, 1985, memorandum for use in WOA's 1984 annual report, 14 it was represented that the $220,617.67 remainder of the FCCB/FFCM investment was held in the WOA Escrow account. In fact, as NC Bank's own records reflect, the WOA Escrow Account did not have a positive balance at any time from its creation on February 14 or 15, 1985, until the September, 1985, Machine Vision trade. The jury could infer that Furst had knowledge of NC Bank's own records. Thus, the district court did not err in allowing count X to go to the jury. 62 Similarly, the district court did not err in not acquitting Furst of count XI, relating to WOA's 1985 annual report. It was clear from NC bank's own records that the $240,000.00 received by WOA was not the return of capital invested in FCCB/FFCM. The bank's records indicate that the $240,000.00 was generated in the September, 1985, Machine Vision trade. 63 Consequently, we will reverse Furst's conviction on count IX and remand for entry of a judgment of acquittal on that charge, but we conclude that the district court did not err in denying Furst's motion for acquittal on counts X and XI.