Opinion ID: 547205
Heading Depth: 2
Heading Rank: 2

Heading: Similar Acts Evidence

Text: 27 Oshatz and Messinger challenge the District Court's decision to admit evidence of their involvement in several other fraudulent tax schemes not charged in the indictment. The defendants contend that the Government failed to show that they participated in these uncharged acts with the knowledge and intent to defraud, and that under cases such as United States v. Afjehei, 869 F.2d 670 (2d Cir.1989), and United States v. Peterson, 808 F.2d 969 (2d Cir.1987), such acts are not to be considered similar to the charged crimes absent a demonstration of criminal intent. Alternatively, the appellants contend that even if the evidence were admissible under Rule 404(b) of the Federal Rules of Evidence, it was precluded by Rule 403 because its prejudicial effect outweighed its probative value. 28 We are satisfied that the evidence sufficed to permit the inference that the defendants knowingly participated in each of the alleged similar acts. The first similar act concerned Joseph Bachman, a stock options trader who claimed to have engaged in a separate tax fraud with Oshatz and Messinger. Bachman testified that in 1980 and 1981 the defendants helped form several limited partnerships, known collectively as the Yardley entities, for the sole purpose of providing tax deductions to investors. Bachman alleged that he had informed the defendants that the Yardley entities would engage in fully hedged transactions. The defendants maintain that this disclosure does not establish their knowledge of the fraud, observing that not all hedged transactions are illegal and that nothing else Bachman told them should have alerted them to the fraudulent nature of the trades. This argument, however, ignores Bachman's testimony that at a meeting with the defendants he had clarified that the transactions would involve no risk of capital. In view of the efforts of Messinger in preparing offering memoranda for the Yardley entities and of Oshatz in soliciting investors, the evidence was sufficient for a jury to conclude that the defendants knowingly participated in a fraudulent trading scheme. 29 The second similar act stemmed from the defendants' relationship with David Lamb, a London commodities broker. In late 1982 Oshatz and Messinger hired Lamb to replace Markowitz as the trader for Trend Capital Associates, a partnership in which both defendants held an interest. Peter Stefanou, the accountant for Trend Capital, testified that though Lamb was not hired until sometime after September 1982, trading statements indicated that he had made substantial trades on behalf of the partnership as early as July of that year. The Government contends that these trades were fabricated and that the defendants knew of the fraudulent nature of the tax losses generated by Trend Capital. The Government established that the bulk of a half million dollars purportedly forwarded to Lamb as a margin payment had been placed in a joint bank account controlled by Oshatz and Messinger. This evidence sufficed to permit the inference that the defendants knew that these trades, for which little or no margin was posted, were fraudulently backdated. 30 The third similar act concerned Laurel Capital Associates, a limited partnership formed by Oshatz in December 1983. The Government introduced evidence that Oshatz did not make his allotted $51,000 capital contribution to the partnership in 1983, but that Messinger, along with several others, belatedly made this capital contribution in return for Oshatz's share of the partnership's losses. The defendants do not dispute the illegality of purchasing tax losses after they have occurred. Rather, they argue that this proof does not demonstrate that they knew the Laurel Capital trades were spurious, rendering evidence of their involvement in the Laurel Capital partnership insufficiently similar to the crimes charged in the indictment. We disagree. The appellants' knowledge may be inferred from the improbability of their repeated claims of innocent involvement in the purchase of fraudulent tax losses. See United States v. Kahan, 572 F.2d 923, 933 (2d Cir.), cert. denied, 439 U.S. 833, 99 S.Ct. 112, 58 L.Ed.2d 128 (1978); 22 C. Wright & K. Graham, Federal Practice and Procedure Sec. 5245, at 507 (1978). 31 The cases cited by the appellants do not require a contrary result. In United States v. Afjehei, supra, the defendant was arrested entering the United States with a suitcase full of heroin. At trial the Government offered evidence of several prior trips that the defendant had taken. This Court reversed the defendant's conviction on the ground that this other act evidence should not have been admitted since the prior trips were not shown to be other than innocent. 869 F.2d at 675. In United States v. Peterson, supra, the defendant was charged with possessing a stolen check made out to a third party. After the defendant denied knowledge that the check was stolen, the Government introduced evidence that the defendant had endorsed a second check that was made out to a third party. We reversed on the ground that since the Government failed to demonstrate that the defendant received the proceeds from the second check or knew that it was stolen, there was no evidence that the defendant's possession of the second check was wrongful. Unlike Afjehei and Peterson, where nothing indicated that the other acts were criminal, in this case there was ample proof that the Laurel Capital transactions lacked economic substance. No margin money was ever posted for the Laurel Capital trades, even though the partnership engaged in transactions generating close to $1 million in tax losses. This evidence, coupled with the proof of the defendants' knowing participation in the other similar acts as well as in the crimes charged in the indictment, permitted the inference that they also knew the Laurel Capital losses were fraudulently generated. See Huddleston v. United States, 485 U.S. 681, 691, 108 S.Ct. 1496, 1502, 99 L.Ed.2d 771 (1988). Having ruled that this evidence was admissible under Rule 404(b), we reject the defendants' contention that the District Court exceeded its discretion in determining that the probative value of this evidence outweighed its prejudicial effect.