Opinion ID: 711056
Heading Depth: 2
Heading Rank: 6

Heading: Refusal to Read the Indictment to the Jury

Text: 89 This argument borders on the sanctionable. The record plainly reflects the fact that the Defendants, far from objecting to the district court's decision in this regard, applauded that result. See Gov't Knapp/Sarno Appendix (Case Nos. 93-50859 & 93-50860) Vol. I, at 4 (I hope not. I continually object to [the reading of the indictment to the jury]. I don't think there is a rule that requires that. (statement by Mr. Sarno's counsel)); id. at 5 (I think that[ ] [the district court's decision is] more than acceptable and quite common in my experience. (statement by Mr. Knapp's counsel)). The Defendants cannot now object in good faith or in good conscience.VIII. Sufficiency of the Evidence 90 Messrs. Sarno and Nash each challenge the sufficiency of the evidence sustaining their convictions. Under the familiar standard of Jackson v. Virginia, 443 U.S. 307, 99 S.Ct. 2781, 61 L.Ed.2d 560, reh'g denied, 444 U.S. 890, 100 S.Ct. 195, 62 L.Ed.2d 126 (1979), the evidence supporting a conviction will be deemed sufficient if, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. Jackson v. Virginia, 443 U.S. at 319, 99 S.Ct. at 2789. We favor the Government with all reasonable inferences which may be drawn from the evidence. United States v. Cuevas, 847 F.2d 1417, 1421 (9th Cir.1988), cert. denied, 489 U.S. 1012, 109 S.Ct. 1122, 103 L.Ed.2d 185 (1989). Neither Mr. Sarno nor Mr. Nash meets this stringent standard.
91 As discussed earlier, the record contains more than ample evidence from which a jury could conclude that (1) the June 28 financial statement contained representations of fact; (2) the stock swaps had not closed; (3) the value of the Circle C was exaggerated in a fashion not permitted by GAAP; 15 and (4) the false representations in the June 28 submission were material to the funding of the loan. Knowledge and intent can easily be inferred from the actions taken by the Defendants first to build Trafalgar's balance sheet and then to disguise their misdeeds. No more is required in this respect. 16 92 Mr. Sarno also argues that (1) the audited financial statement was immaterial to the funding of the loan; and (2) he was, in any event, not responsible for any false statements made in the audit opinion letter. Neither assertion has any mooring to the evidence presented at trial. It is true that the bulk of the money was funded by Western prior to the receipt of the letter; it likewise must be acknowledged that the remaining money was provided almost simultaneously with the receipt of the audit. The loan agreement nonetheless required that the audit take place; Mr. O'Boyle, the Western official overseeing the Trafalgar loan, testified that the release of the final $2 million was contingent upon the result of the audit; and the Defendants' own actions belie the importance of the audit. This evidence, while not overwhelming, suffices to sustain the verdict. Mr. Sarno's remaining contention quite simply flies in the face of the trial testimony. Mr. Sarno structured the substitution of Nepenthe for TIOT; Mr. Sarno was instrumental in the creation of two false income entries for Trafalgar; Mr. Sarno worked with Mr. Nash to prepare audit footnotes that would, on paper at least, substantiate the fictions contained therein. Virtually no evidence exists from which the jury could infer Mr. Sarno's innocence. The evidence was certainly sufficient to sustain the conviction.
93 Mr. Nash challenges virtually every element of the crimes of which he has been convicted. We address his claims in turn. 94
95 The essence of Mr. Nash's argument is that an accountant's opinion letter can never give rise to liability for false statement. This premise is simply incorrect and may be rejected out-of-hand. See United States v. Weiner, 578 F.2d 757, 785-86 (9th Cir.) (analyzing defenses to criminal liability for false statements in audits), cert. denied, 439 U.S. 981, 99 S.Ct. 568, 58 L.Ed.2d 651 (1978); United States v. Simon, 425 F.2d 796, 805 (2d Cir.1969) (same), cert. denied, 397 U.S. 1006, 90 S.Ct. 1235, 25 L.Ed.2d 420 (1970). 96 Mr. Nash has likewise failed to demonstrate that the opinion letter prepared by him contained no representations that could be judged false. The audit letter made the following statements: We have audited the accompanying combined balance sheet; [w]e conducted our audit in accordance with generally accepted auditing standards; [w]e believe that our audit provides a reasonable basis for our opinion; [i]n our opinion, the financial statements referred to above present fairly, in all material respects, [Trafalgar's financial status] in conformity with generally accepted accounting principles. Gov't Nash Appendix Vol. I, at 128. Even the last of these statements, which is plainly labeled an opinion, could be considered false if the evidence were to show that Mr. Nash had issued the opinion letter with knowledge that GAAP had not been followed. The remaining statements are even more easily held to an objective standard of falsehood. Construing these statements in the light most favorable to the Government, a reasonable juror could have found them to be representations of fact within the meaning of 18 U.S.C. Sec. 1014. 97
98 Knowledge of this Fact? 99 Mr. Nash contends, first, that the audit was completed in conformity with GAAP, and, second, that he had no knowledge of any inaccuracies that may have existed. Each contention falls far short of meeting the standard set by Jackson v. Virginia, 443 U.S. 307, 318, 99 S.Ct. 2781, 2788, 61 L.Ed.2d 560, reh'g denied, 444 U.S. 890, 100 S.Ct. 195, 62 L.Ed.2d 126 (1979). 100 Mr. Neely, an associate of Mr. Nash who worked with him on the audit, testified that he consulted with Mr. Nash about the Trafalgar audit on a daily basis throughout July 1988. He testified that the auditors never received acceptable substantiation for several material entries in Trafalgar's financial records; that Mr. Nash knew that these items had not been properly documented; that Mr. Nash was in almost constant contact with Messrs. Knapp and Sarno in an attempt to produce appropriate records; and that the effort to substantiate the information contained in the audit continued well into the fall of 1988. Mr. Neely also testified that, in his professional opinion, the audit was incomplete. Mr. Neely's testimony is largely corroborated by that of Mr. Schumann and Mr. O'Brien, both of whom worked with Messrs. Knapp and Sarno on this scheme and both of whom testified under a grant of immunity. Mr. Morgan likewise testified as to the elaborate measures taken to create a paper trail that would justify the figures contained in the audit. All four witnesses portrayed Mr. Nash as a man trying to gather or create pieces of paper to support a foregone conclusion; when in the end his efforts at fabrication failed, Mr. Nash simply delivered the opinion anyway.
101 Mr. Nash's argument that the audit was not material to the full finding of the loan fails for the reasons given supra. 102
103 Mr. Nash, as did Messrs. Sarno and Knapp before him, contends that the evidence does not lend itself to a conclusion that the worth attributed to the Circle C or to the stock swaps was fictitious. Mr. Nash's argument as to the Circle C fails for the reasons given earlier. Mr. Nash's claims as to the stock swaps are similarly unpersuasive. At trial, representatives of the companies with whom Trafalgar was supposedly swapping stock testified that the audit figures were wildly inflated. These same representatives also testified that the stock swaps had not in fact occurred--a circumstance that would hardly support their inclusion as assets on Trafalgar's balance sheet. 104 Mr. Nash also argues that there was insufficient evidence for the jury to find that he knew of the financial hyperbole. We do not agree. Mr. Nash was a major stockholder in three of the companies with which Trafalgar allegedly swapped stock; the evidence supports the conclusion that these companies were worth far less than was indicated by the audit; and the jury could therefore have reasonably inferred that Mr. Nash knew of this discrepancy. The record further indicates that Mr. Nash knew of and participated in the restructuring of the Circle C deal. The jury could thus have reasonably concluded that he was familiar with the inappropriate step-up in value. Lastly, the testimony of Mr. Neely and Mr. O'Brien places Mr. Nash in the middle of the ongoing efforts to substantiate the fictitious entries in Trafalgar's financial records.
105 Abundant evidence suggests the existence of an agreement and an overt act sufficient to underpin the conspiracy conviction. Messrs. Nash and Sarno together prepared the audit and fabricated the documentation necessary to give it an illusion of propriety; they restructured the Circle C deal to substitute retroactively an allegedly independent party as the vital middle link of the Circle C step-up deal; they created a paper trail that would support the addition of fictitious fees to Trafalgar's otherwise negligible income stream; and they attempted to cover up the fact that the stock swaps had in fact never occurred. It could reasonably be inferred that all of these steps were taken with the knowledge and approval of Mr. Knapp, who retained final decision-making authority over the workings of Trafalgar. Any of these acts could stand as the overt act of the conspiracy. Taken together, they easily justify the inference that an agreement existed. See United States v. Cloud, 872 F.2d 846, 852 (9th Cir.), cert. denied, 493 U.S. 1002, 110 S.Ct. 561, 107 L.Ed.2d 556 (1989).