Basically, the defendants marketed offshore trust schemes intended to fraudulently evade U.S. tax for the clients entering the schemes. The defendants were charged with several of the various tax crimes that the Government can trot out for such schemes.Actually the schemes went beyond just offshore trusts, but they were all sham arrangements. The defendants were connected with a group known as Commonwealth Trust Company ("CTC") which sold variously styled entity arrangements including trusts to evade U.S. tax. In my earlier posting, some of the promoters were convicted and their convictions were affirmed. For the tale of one such convicted -- Wayne Rebuck -- see his blog entries titled Rebuck and Commonwealth Trust Company, here, where he recounts his conviction and various penances.
In addition to the promoters of the arrangements, some of the taxpayers buying these arrangements were convicted. One of the notable taxpayers involved was Wesley Snipes. See Wesley Snipes Conviction and Sentence Affirmed (Federal Tax Crimes Blog 7/17/10), here. (For the connection of Snipes to CTC, see Raid led to IRS tax fraud inquiry (The Morning Call 12/7/06), here.) One more taxpayer's conviction was recently affirmed by the Third Circuit. United States v. Bitterman, 2016 U.S. App. LEXIS 11875 (3rd Cir. 2016) (nonprecedential), here. The Third Circuit summarized:
In December 2009, Chester, Craig, C. Grant, and Curtis Bitterman were indicted for conspiracy to defraud the United States in violation of 18 U.S.C. § 371. The Government alleged that the Bittermans conspired to conceal their income and assets from the IRS. Briefly, the conspiracy consisted of moving the family business and personal assets into trust products bought from the Commonwealth Trust Company.1 The Bittermans then acted as "managers" of the trusts but continued to benefit from trust property. Craig Bitterman was separately charged with obstruction of justice in violation of 18 U.S.C. § 1503 in connection with his response to a grand jury subpoena.
n1 Commonwealth Trust Company was a target of a separate criminal investigation, resulting in the conviction of its founder and several of its employees.
After a jury trial in October 2010, the Bittermans were convicted on all counts. They filed post-trial motions arguing, among other things, that an evidentiary error at trial and the Government's failure to turn over certain evidence compelled a new trial or dismissal of the indictment. The District Court denied the post-trial motions in April 2015 and sentenced the Bittermans three months later. Only Craig Bitterman has appealed.The only issue I found particularly interesting was the Brady issue Bitterman raised. The Court found that there was a Brady violation but found that the violation did not require reversal because not material to his defense or not likely to have produced a different jury verdict. Here are the excerpts of that discussion (bold-face supplied by JAT, with one footnote omitted):
Bitterman next argues that the Government deprived him of a fair trial by failing to turn over favorable evidence in a timely way. Before trial, the Government produced to Bitterman approximately one million pages of discovery materials. The Government also made available for inspection at the IRS offices in Philadelphia 70 boxes of documents seized pursuant to search warrants executed during the investigation of Commonwealth Trust Company. Neither Bitterman nor his counsel inspected the boxes before trial. After trial, Bitterman discovered that the Government had failed to turn over 13 CDs containing roughly 100,000 pages of discovery materials produced during the prosecution of Commonwealth's founder and key employees. Bitterman filed a post-trial motion alleging a Brady violation based on the Government having failed to turn over discovery from the Commonwealth prosecution and having misled Bitterman about the relevance of the 70 boxes of seized documents. The District Court held an evidentiary hearing in August 2011.
Under Brady v. Maryland, 373 U.S. 83, 87, 83 S. Ct. 1194, 10 L. Ed. 2d 215 (1963), the Government has an obligation to disclose "evidence favorable to an accused" so long as it is "material either to guilt or to punishment." "To establish a due process violation under Brady . . . 'a defendant must show that: (1) evidence was suppressed; (2) the suppressed evidence was favorable to the defense; and (3) the suppressed evidence was material either to guilt or to punishment.'" United States v. Pelullo, 399 F.3d 197, 209 (3d Cir. 2005) (quoting United States v. Dixon, 132 F.3d 192, 199 (5th Cir. 1997)).
We agree with the District Court that the Government failed to turn over, and thus suppressed, the 13 CDs from the Commonwealth prosecution. The Government claims that diligent defense counsel would have uncovered the CDs before trial, but the diligence of defense counsel is largely irrelevant to the Government's Brady obligation. See Banks v. Dretke, 540 U.S. 668, 695, 124 S. Ct. 1256, 157 L. Ed. 2d 1166 (2004) (defendants are not required to "scavenge for hints of undisclosed Brady material when the prosecution represents that all such material has been disclosed"). We also agree with the District Court that the Government did not suppress the 70 boxes at the IRS offices because it made the boxes available for inspection and did not mislead Bitterman or his counsel about their potential value to the defense. See Pelullo, 399 F.3d at 212-13.
Because neither party takes issue with the District Court's finding that the suppressed evidence was favorable, we turn next to the question of materiality. The "touchstone of materiality is a 'reasonable probability' of a different result." Kyles v. Whitley, 514 U.S. 419, 434, 115 S. Ct. 1555, 131 L. Ed. 2d 490 (1995). Though the mere fact of the Government's failure to turn over discovery from the Commonwealth prosecution was concerning, the Court concluded that Bitterman had not shown any suppressed evidence was material to his guilt or punishment. We agree. The core of Bitterman's defense at trial was that he acted in good faith because he relied on statements from Commonwealth Trust Company that its tax avoidance strategy was legal. None of the evidence discovered after trial would have changed or significantly bolstered that defense.
Bitterman's arguments relating to materiality do not suggest the reasonable probability of a different result at trial. He cites several documents the Government failed to turn over that discuss the trustees Commonwealth used to "administer" the trusts. Bitterman contends that he could have used these documents at trial to argue that the trustees were acting as proper fiduciaries. But the trustee documents are cumulative of others Bitterman presented at trial indicating that Commonwealth's public position was that its operation was above board. Moreover, the Government presented evidence that the trustees were not acting as proper fiduciaries and that Bitterman made decisions about how to use trust assets without consulting the trustees. Bitterman also argues that he could have used the trustee documents to locate trustees to call as defense witnesses. This argument fails because Bitterman had the names of trustees before trial but declined to call any as a witness.
Bitterman next claims that an email from Commonwealth would have helped him fight the obstruction of justice charge. In the email, Constance Taylor, a member of Commonwealth's Executive Board, summarized a conversation she had with Bitterman about a grand jury subpoena. In essence, she told Bitterman that only trustees had the authority to turn over trust documents. The email also noted that Commonwealth's founder had suggested that someone tell Bitterman to ship all trust documents to Malta, where the founder was living at the time. Bitterman was charged with obstruction of justice because he shipped documents responsive to the grand jury subpoena out of state. He claims the email could have been used to argue to the jury that he was "misinformed" about his duties relating to the subpoena and thus lacked the intent to obstruct justice. But the Government presented substantial evidence that Bitterman acted in bad faith in responding to the grand jury subpoena. He was recorded saying that he could not be compelled to turn over documents that he did not have and it was thus his intention to ship trust documents to Malta—perhaps even using Christian missionaries to smuggle the documents out of the country. In the meantime, he would ship the documents to a storage facility that the Government did not know about. In the face of evidence of Bitterman's bad faith, the email from Commonwealth does not raise the reasonable probability of a different result for the obstruction-of-justice charge.
Bitterman also alleges that he could have used prior statements of Wayne Rebuck, a Commonwealth employee who cooperated with the Government and recorded several conversations with Bitterman, to impeach Rebuck's testimony. In the prior statements, Rebuck touted the legality of the trust products to other Commonwealth employees, while in his trial testimony Rebuck admitted he knew all along that the trusts were being used for tax evasion. These additional prior statements by Rebuck were cumulative because the Government provided Bitterman with ample impeachment material for drawing out this inconsistency. Indeed, Bitterman pursued this line of questioning during Rebuck's cross-examination.
Finally, Bitterman claims that copies of PowerPoint presentations from Commonwealth educating customers on the legality of their trust products would have shown a lack of criminal intent. These presentations were cumulative of other Commonwealth materials Bitterman introduced at trial making the same dubious legal claims.JAT Comments: I particularly note the Third Circuit's acceptance that the Government's turn over of 1,000,000 pages of documents and making available 70 boxes of documents for inspection satisfied its Brady obligations without more. I have discussed before my concerns with mass data and document dumps as a way to obscure exculpatory information -- the very basis for the Brade obligation. See The Mass Document Dump and the Prosecutors' Brady Obligations (Federal Tax Crimes Blog 2/11/11), here.