United States v. Siegel

OPINION BY: PRATT

We find sufficient evidence in the record to support the convictions under the wire fraud statute and affirm on those counts. Because we conclude, however, that Abrams' conduct did not violate 18 U.S.C. § 1510, we reverse his conviction for obstruction of justice.

Abrams and Siegel were tried with three co-defendants, Michael Gold, Frederick Pierce, and Irving Cotler, on a twenty count indictment. Counts one through fifteen charged all five defendants with use of interstate wires in furtherance of a fraudulent scheme to obtain money and to defraud Mego International, Inc.

After a seven-week trial, the jury acquitted defendants Gold, Pierce, and Cotler of all charges. Abrams and Siegel were found guilty on counts one through fifteen and twenty. Abrams was also found guilty on count sixteen. Siegel was sentenced to concurrent three month terms of imprisonment on counts one through fifteen and a $ 5,000 fine on count twenty. Abrams received concurrent four-month prison terms on counts one through fifteen, twenty months' probation on counts sixteen and twenty, and a $ 5,000 fine on counts sixteen and twenty, for a total fine of $ 10,000. Both defendants are free on bail pending this appeal.

The fraudulent scheme underlying defendants' convictions involved unrecorded cash sales of Mego merchandise which had either been closed out and marked down for clearance or returned because of damage or defect. The evidence presented at trial showed that the scheme had been furthered in various ways. Abrams conducted some cash transactions himself. Siegel also dealt in cash transactions, supervising cash sales through a retail store of imported shirts worth over $ 30,000. Other cash transactions were conducted with the aid of William Stuckey, who was manager of Mego's Long Island warehouse and who became a principal witness for the government. At the direction of Abrams and Siegel, Stuckey sold Mego merchandise to various street peddlers and merchants for cash. The "off the books" sales together generated in excess of $ 100,000 in cash.

The wire fraud statute, 18 U.S.C. § 1343 (1976), provides:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined not more than $ 1,000 or imprisoned not more than five years, or both.

While we have described this provision, as well as the mail fraud statute, which has been identically construed with respect to the issues before us, we have also recognized that "a mere breach of fiduciary duty, standing alone, may not necessarily constitute a mail fraud."

However, we have held that the statute is violated when a fiduciary fails to disclose material information "which he is under a duty to disclose to another under circumstances where the non-disclosure could or does result in harm to the other." While the prosecution must show that some harm or injury was contemplated by the scheme, it need not show that direct, tangible economic loss resulted to the scheme's intended victims. In this record there is sufficient evidence from which the jury could reasonably have concluded that defendants received the cash proceeds and used them for non-corporate purposes in breach of their fiduciary duties to act in the best interest of the corporation and to disclose material information to Mego and its stockholders.

Defendants do not seriously contend that the wire fraud statute is not violated when a corporate officer or employee breaches his fiduciary duty to the corporation by taking the proceeds from unrecorded cash sales and using them for his own benefit. Rather, they argue that even if they did participate in the unrecorded cash sales, the record is devoid of any evidence that the money was used for other than corporate purposes and thus fails to support a finding of a breach of fiduciary duty. Defendants claim that at best the evidence merely shows that Abrams and Siegel received the proceeds from the cash sales and that Siegel periodically placed the money in the corporate safe deposit box. While neither Abrams nor Siegel testified, they argue that they received none of it for personal use and that any use of the proceeds for labor payoffs served a legitimate corporate purpose and was not in violation of any fiduciary duty.

While there is little, if any, direct evidence to show that Siegel and Abrams used the cash proceeds for other than corporate purposes, we conclude that the record as a whole does support the determination that Abrams and Siegel used the money for their own enrichment. We reach this conclusion by considering several factors.

There was testimony which showed that Abrams and Siegel personally received the proceeds from the cash sales and either pocketed them or placed them in the corporate safe deposit box. Further, although the cash sales generated in excess of $100,000, the testimony concerning the use to which the money was put accounted for approximately $31,000, used mainly for illicit payoffs. The reasonable mind can think of several destinations for the more than $69,000 that was missing, and, since we have rejected the view that a jury may not rely upon an inference to support an essential allegation unless no opposite inference may be drawn from the proof, we conclude that the jury could have inferred that Abrams and Siegel used some or all of the remainder of the proceeds for their own benefit, and could have fairly concluded beyond a reasonable doubt that theirs was a scheme to misappropriate the proceeds from the sale of Mego assets for self-enrichment, by "filch[ing] from [the corporation] its valuable property."

We do not need to consider whether use of the cash for bribery on behalf of the corporation breached defendants' fiduciary duties, for when an indictment charges acts in the conjunctive, "the verdict stands if the evidence is sufficient with respect to any one of the acts charged." Here, the acts were charged in the conjunctive: the jury was instructed that it could find the existence of a scheme if it found "beyond a reasonable doubt that a defendant breached fiduciary duties in furtherance of the unlawful or fraudulent purposes alleged in the indictment", namely, "bribes and self-enrichment". Thus, the jury's verdict establishes that it found beyond a reasonable doubt that the funds were misappropriated for both bribery and self-enrichment. We have determined that there is sufficient evidence in the record to support a finding of self-enrichment. As a result, defendants' convictions were valid.

In affirming defendants' convictions on the wire fraud counts, we in no way wish to encourage the type of indictment prosecuted here. Twenty counts were brought against five defendants, all but two of whom were acquitted of all charges. Siegel and Abrams, although convicted of the wire fraud charges (which might more properly have been redressed in a shareholder's derivative suit or in a state criminal prosecution), were acquitted on several other counts. In addition, we have found that the proof on count sixteen was legally insufficient to show a violation of 18 U.S.C. § 1510. While we applaud the government's concentration on unrecorded cash sales, a particularly common form of criminal activity, we nevertheless urge the government to think carefully before instituting other massive prosecutions having such slender foundations as this one.

Defendants' convictions on counts one through fifteen are affirmed. Abrams' conviction on count sixteen is reversed.


DISSENT: WINTER, Circuit Judge, dissenting in part and concurring in part:

Once again sailing against the wind in mail or wire fraud cases (or so they are called), I dissent.

In United States v. Margiotta, we read the mail fraud statute to create a regulatory code subjecting public officials, candidates and party leaders to criminal prosecution for allegedly deceptive political speech. Today we read the wire fraud statute to create a federal law of fiduciary obligations imposed on corporate directors and officers, thereby setting the stage for the development of an expandable body of criminal law regulating intracorporate affairs.

The majority's legal theory is that wire fraud occurred because some of Mego's funds were diverted "for non-corporate purposes in breach of [the defendants '] fiduciary duties to act in the best interest of the corporation and to disclose material information to Mego and its stockholders." The evidence is that Mego, a corporation with sales ranging between $ 30 million and $ 109 million, during the relevant period, had off-book transactions engineered by the defendants averaging slightly over $ 11,000 per year. There is no evidence -- none -- that any of the money was diverted to the personal use of either Seigel or Abrams. The government's prima facie case is thus made out solely by a showing of improper corporate record keeping.

There is nothing in the language or legislative history of the wire fraud statute remotely suggesting that it was intended as a vehicle for the enforcement of fiduciary duties imposed upon corporate directors or officers by state law. To allow it to be so used would thus be a grave error. However, what the majority does is infinitely worse, for it holds that the wire fraud statute creates a federal law of fiduciary obligations. There is no pretense that the source of the fiduciary duty at issue in this case was anything but federal law. There is no reference in the majority opinion to state law or even to Mego's state of incorporation. The jury simply was told that it was up to it to decide whether, as part of the obligation "to act in the best interest of the corporation," the defendants were under a duty to disclose the off-book transactions to shareholders.

The creation of this federal fiduciary duty is no minor step. The relationship of federal and state law in the governance of corporations is a matter of great debate, in which the proponents of federal regulation have strenuously argued that state law governing the conduct of corporate directors and officers is too lax. Over the years, Congress has responded by mandating disclosure through the various securities laws, but has generally declined to enact substantive regulation of corporate transactions.

Notwithstanding the lack of even a hint of relevant Congressional intent in enacting the wire fraud laws, notwithstanding Congress' repeated rejection of pleas to strengthen the fiduciary obligations imposed on corporate directors and officers by state law, and notwithstanding the existence of precise federal legislation requiring disclosure of particular corporate matters, we read the wire fraud statute to embody a federal law of fiduciary obligations, including an undefined duty of yet further disclosure, enforceable by the sanctions of the criminal law.

It will be up to later juries and later panels to define what actions by corporate directors and officers are or are not "in the best interest of the corporation." The elasticity of the concept and the potential for infinite expansion, however, are foreshadowed by the facts of the present case. The "material" information not disclosed to shareholders in the instant case is a series of transactions of roughly $ 11,000 annually over nine years, a wholly trivial sum in light of Mego's sales. In holding that these transactions "would be important to a Mego stockholder," the majority simply closes its eyes to investment realities, for there is not a shred of evidence that such a sum would affect share price in the slightest. It requires little imagination to foresee future application of the theory of this case to the use of corporate airplanes, the size of executive salaries, expense accounts, etc.

Moreover, there is no evidence -- again, none -- that the transactions in question harmed the corporation. By allowing an inference of diversion to personal use to be drawn solely from the lack of proper records, the majority has in effect dropped the element of a scheme to defraud from the offense. Courts long ago eliminated the need to show a substantial connection between the scheme to defraud and the use of the mails or wires. Now we are eliminating the need to show fraud. In effect, a new crime -- corporate improprieties -- which entails neither fraud nor even a victim, has been created.

Other aspects of the majority decision also trouble me. Adequate notice to those affected by such elastic concepts is simply not possible, for even the wisest counsel cannot foresee what corporate acts may after the fact attract a prosecutor's suspicion (or ire) and a judicial stamp of impropriety. The key act of the defendants here was the arousal of prosecutorial suspicions. The government's argument brims with innuendo of other crimes: embezzlement, bribery of a union official, commercial bribery, tax evasion, and securities law violations, all of which go to prove only that the criminal charges in issue are a surrogate for ones which the prosecutor lacked either evidence or jurisdiction to make. The overtones of the majority opinion suggest that the defendants here have been convicted essentially of stealing or embezzling funds from Mego. Had those been the crimes actually charged, however, verdicts would likely have been directed in their favor, for there is no evidence that the cash in question was diverted to any purpose other than increasing the profits of the corporation.

Finally, as in Margiotta, a crime is created which by its nature will be prosecuted infrequently and in a highly selective manner. If judges perceive a need for a catch-all federal common law crime, the issue should be addressed explicitly with some recognition of the dangers, rather than continue an inexorable expansion of the mail and wire fraud statutes under the pretense of merely discharging Congress' will.

Quite apart from the self-evident danger in creating vast areas of discretion for prosecutors to single out individuals for improper reasons, there is a real question as to whether the costs in resources equal the benefits achieved. The trial here, involving five defendants, each with his own counsel, lasted seven weeks, consuming substantial prosecutorial, private and judicial resources. Only two of the five defendants were convicted, and total jail sentences amounted to only seven months. In truth, the law enforcement results from society's point of view are as trivial as the off-book transactions were to Mego. Even had the government been more successful, however, there is reason to doubt that much would have been gained. Ill-defined crimes which are necessarily prosecuted on an infrequent and selective basis probably have little deterrent value. Were we to restrict the mail and wire fraud statutes to swindling and fraud, as originally intended, rather than extend them to perceived political or corporate improprieties, we would not only perform the judicial function correctly but probably also make a sensible policy judgment in terms of costs and benefits.